India Defence Capex Seen At Rs 2.8 Tn By FY30 On 11% Annual Growth: Report

New Delhi, Jul 14 (KNN) India’s defence capital expenditure is projected to grow at an 11 per cent compound annual growth rate (CAGR) between FY2026 and FY2030, reaching around Rs 2.8 trillion, according to a report by Kotak Institutional Equities. 

The expected growth is supported by policy measures such as positive indigenisation lists and the Defence Acquisition Procedure 2020, which mandate more than 50 per cent local content in procurement.

Exports Expand, New Markets Emerge

India’s defence exports have increased nearly 50 times over the past decade, driven by cost-competitive indigenous platforms, easing export controls, and demonstrated combat performance in recent operations. While the United States remains the largest export destination, Europe and Armenia are emerging as important new markets, ANI reported, citing the report.

The report identified a target of Rs 500 billion in exports by FY2029 as the next key milestone, up from Rs 384 billion projected for FY2026.

Technology Reshaping Spending Priorities

Technological shifts, particularly in drone warfare, are influencing defence spending patterns. The report highlighted that the global military drone market, estimated at about USD 30 billion in 2024, is expected to grow to USD 75 billion by 2029. India is projected to spend USD 25–30 billion on drones and an additional USD 4–5 billion on counter-drone systems over the next decade.

Rising Global Military Expenditure

Global military spending has risen sharply from USD 600–700 billion in the 1990s to USD 2.7 trillion in 2024. The Sweden-based think tank Stockholm International Peace Research Institute (SIPRI) estimates that this figure could reach USD 6.6 trillion by 2035. India, the world’s fifth-largest military spender at USD 84 billion, faces growing pressure to boost investments to modernise ageing systems and keep pace with regional security dynamics.

Strong Order Pipeline and Domestic Focus

The report noted a sharp rise in Acceptance of Necessity (AoN) approvals—up nearly 10 times between FY2021 and FY2026—indicating a potential Rs 6.5–7 trillion worth of new orders during FY2027–29. 

Domestic procurement has also increased significantly, from 54 per cent in FY2019 to over 70 per cent, strengthening the position of local defence manufacturers.

Valuations Reflect Growth Expectations

Indian defence companies are trading at a premium compared to global peers, with average valuations at around 50 times one-year forward price-to-earnings (P/E), versus 28 times globally. This reflects higher expected growth, with revenue projected to expand at a 26 per cent CAGR compared to 11 per cent globally, the report noted.

Between FY2021 and FY2026, domestic firms reported a 25 per cent revenue CAGR, alongside a 500 basis point expansion in EBITDA margins to about 25 per cent. However, when adjusted for lower research and development spending, the margin advantage over global peers narrows.

(KNN Bureau)