In this volatile arena of geopolitics, conflicts breed not just caution but catalysis. The recent skirmishes and heightened tensions between India and Pakistan have refocused national attention on military preparedness — not merely as a security imperative but as an economic opportunity. With global military expenditure witnessing a record surge, India aims to transition from the world’s largest arms importer to a competitive defence exporter and manufacturing hub.

In April 2025, Hindustan Aeronautics Ltd (HAL) soared to a record market cap, attributed to numerous export deals that placed India among the world’s top 25 defence exporters (PIB, 2025). From Armenia to Vietnam, New Delhi’s fighter jets and missile systems are gaining global traction. This transformation is a consequence of calibrated policy, domestic capacity building, and a strategic realisation that self-reliance in defence is a twin engine of national sovereignty and macroeconomic growth.

Historically, India’s defence industry has been import-heavy. According to SIPRI, India accounted for about 11 per cent of global arms imports between 2018 and 2022. However, this dependency is quickly shifting. According to Defence Minister Rajnath Singh, India’s defence exports have seen a 34x jump — from ₹686 crore in FY2013-14 to ₹23,622 crore in FY2024-25 (PIB, 2025). Simultaneously, domestic defence production is projected to exceed ₹1.6 lakh crore this fiscal year (Ministry of Defence, 2025).

This growth is driven by the concrete industrial base of public sector undertakings (PSUs), private conglomerates, MSMEs, and start-ups. Policies like the ‘Make in India’ initiative, liberalised FDI norms (now up to 74 per cent under the automatic route), and the Strategic Partnership Model are nudging private companies like Tata Advanced Systems, L&T, and Bharat Forge to manufacture equipment — ranging from Tejas fighter jets to Pinaka MBRLs and BrahMos missiles. India has set a goal of reaching ₹3 lakh crore in annual defence production by FY2029. Even the actualisation of 1 per cent share of the projected $3 trillion global defence market could translate to an incremental $30 billion in exports (Ministry of Defence, 2024).

Window of opportunity

India’s defence expansion is part of a broader global surge in military spending. According to SIPRI’s 2024 report, global military expenditure rose by 9.4 per cent year-on-year, to $2,718 billion. The global average defence spending now stands at 2.5 per cent of GDP, with major powers investing aggressively in technological driven warfare (SIPRI Military Expenditure, 2025). India’s trajectory mirrors nations like Israel, South Korea, and Turkey — which have transformed domestic defence capabilities into global export machines. For instance, Turkey’s Bayraktar drones and South Korea’s K9 howitzers now feature in NATO arsenals.

Investor interest in India’s defence sector has surged. Between January and April 2025, defence-related stocks have outperformed the Nifty 50 by an average of 12-15 per cent. This sentiment is backed by substantive government support. The Defence Acquisition Procedure (DAP) 2020 now mandates minimum indigenous content in capital procurement. The Positive Indigenisation List, currently at 509 items, aims to eliminate dependency on imported systems. Additionally, the Innovations for Defence Excellence (iDEX) framework is nurturing over 300 start-ups across AI, drones, surveillance, and electronic warfare technologies. Also, the 2025 Union Budget increased the capital outlay for defence modernisation by 13 per cent and introduced the Defence Industrial Corridor Development Fund.

India’s defence sector is no longer a cost centre — it is becoming a growth multiplier. Robust defence exports could help stabilise India’s current account deficit and secure long-term FDI flows. While momentum is strong, several bottlenecks persist. India’s procurement cycles are often marred by delays and bureaucratic red tape. Intellectual property restrictions and limited technology transfer from foreign OEMs continue to constrain high-end platform development. Moreover, there’s a widening skill gap in defence-specific manufacturing, particularly in emerging areas like cyber warfare and aerospace composites. Unless addressed through institutional reforms and cross-sectoral collaboration, these roadblocks could blunt India’s competitive edge just as the global opportunity widens.

Mishra is Doctoral Researcher, Bennett University; Jain is Senior Visiting Fellow, Pahle India Foundation. Views are personal

Published on June 26, 2025