India's Defence Capex Set To Hit ₹2.8 Trillion

The defence expenditure of India is poised for consistent double-digit growth during the balance of the decade, thanks to indigenisation policy and an increase in exports, a new brokerage analysis has indicated.

The Core Numbers

India's defence capital expenditure is expected to expand by 11 per cent CAGR from FY2026 till FY30E to touch the level of ₹2.8 trillion, Kotak Institutional Equities report says.

According to the brokerage, the policy initiatives, such as the Defence Acquisition Procedure (DAP) 2020 with a minimum of 50 per cent indigenisation, and positive indigenisation lists, are behind this structural upcycle.

It is in exports that the real action lies

The most eye-catching statistic in the report is on exports. Over the last decade, Indian defence exports have multiplied by 50; this has been due to the cost competitiveness of indigenous platforms, combat efficacy in Operation Sindoor and relaxation of export controls. Europe and Armenia are new geographies and the US is the biggest.

The report says that the next milestone will be the target of ₹500 billion in exports by FY29 as compared to the current level of exports of ₹384 billion in FY26.

The economics of war are changing with advent of drones

Militaries are changing their spending habits with technology. The global military drone market is estimated to be worth $30 billion in CY24, rising to $75 billion by 2029, a time when India is expected to spend $25-30 billion on drones and $4-5 billion on counter-drone systems over the next decade, Kotak analysts estimate.

The Global Arms Race Background

The Indian build up is part of a broader world-wide phenomenon. Military expenditure has increased from $600-700 billion in the 1990s to $2.7 trillion in CY24; Sweden-based think tank SIPRI estimates it will reach $6.6 trillion by 2035.

The report notes that India is the fifth largest military spender in the world at $84 billion and needs to modernise its antiquated military infrastructure, and keep pace with its neighbour nations' increased military expenditure.

Order Pipeline and Company Impact

Orders are coming through as approvals are being received. The number of Approved Necessity orders has increased by nearly 10 times over FY2021-26, suggesting an increase in orders of ₹6.5-7 trillion in FY2027-29E.

Defence PSUs' contribution to the domestic procurement has reached 70 per cent from 54 per cent in FY19, encouraging growth of contribution by PSUs and private manufacturers in both the domestic and export markets.

The structural optimism has been echoed by voices from industry. The industry has grown from being a fiscal burden to a growth engine of industries and a robust domestic defence industry is essential for strategic autonomy and national security, said Kotak Mahindra Asset Management's Dhananjay Tikariha.