India’s Defence Sector To Reach Rs 3 Lakh Crore By FY29: CareEdge Ratings

New Delhi, Aug 7 (KNN) India’s defence sector is projected to grow from Rs 1.78 lakh crore in FY26 to Rs 3 lakh crore by FY29, registering a compound annual growth rate (CAGR) of about 19 per cent, according to a report by CareEdge Ratings.

The report attributes this expansion to higher government spending, increased private-sector participation, rising exports, and a stronger focus on indigenous technology development, ET reported.

Margins and Domestic Capabilities to Strengthen

The sector is expected to maintain Profit Before Interest, Lease Rentals, Depreciation and Taxation (PBILDT) margins of 20–22 per cent, indicating stable financial performance, the report noted. 

Continued policy support—including up to 74 per cent foreign direct investment (FDI) under the automatic route, indigenisation initiatives, export promotion measures, and increased research and development (R&D) spending—is likely to further boost domestic capabilities.

Private Sector Outpaces Overall Growth

The report highlighted that between FY21 and FY26, private defence production grew at a CAGR of about 19.4 per cent, exceeding the overall sector growth rate of approximately 16 per cent during the same period. This reflects a gradual shift towards broader industry participation beyond traditional public sector dominance.

Import Dependence Declines, Exports Surge

The report emphasised that India remains the world’s second-largest arms importer, accounting for 8.2 per cent of global imports in 2021–25, though reliance on foreign suppliers is easing, with imports down 4 per cent from 2016–20 levels. 

Russia’s share has declined sharply to around 40 per cent, as India diversifies sourcing to countries such as France and Israel. 

Meanwhile, defence exports surged to a record Rs 38,424 crore in FY26, up 62.66 per cent year-on-year, with PSUs contributing over half.

Growing Export Base and Industry Ecosystem

The number of defence exporters increased to 145 in FY26 from 128 a year earlier, with Indian equipment reaching over 80 countries. Key export destinations include Myanmar, the Philippines, and Armenia.

The manufacturing ecosystem continues to be led by public sector entities such as Hindustan Aeronautics Limited, Bharat Electronics Limited, Bharat Dynamics Limited, Mazagon Dock Shipbuilders Limited, Cochin Shipyard Limited, and BrahMos Aerospace, the report said.

Private players such as Tata Group, Larsen & Toubro, Adani Group, Mahindra Defence Systems, and Kalyani Group are also expanding their presence, it added.

Budget Allocation Supports Sector Growth

The report also noted that the Union Budget for FY27 allocated Rs 7.85 lakh crore to the Ministry of Defence, a 15 per cent increase over FY26 estimates and nearly 2 per cent of GDP. Of this, Rs 2.19 lakh crore has been earmarked for capital expenditure, including Rs 1.85 lakh crore for acquisitions. Around 75 per cent of this, or Rs 1.39 lakh crore, is reserved for domestic procurement.

The government has also set export targets of Rs 50,000 crore by FY29 and Rs 2.8 lakh crore by 2047 under its long-term development vision.

(KNN Bureau)