India's defence industry is poised to continue robust growth momentum with a revenue growth of 15–17% during the financial year 2025–26, says an analysis published on Wednesday by credit rating agency ICRA.
This anticipated expansion is being led by ramped-up project execution, underpinned by a robust order book. At the end of FY25, the order book to operating income (OB/OI) ratio was 4.4 times, a reflection of a solid pipeline of contracts, the report added.
ICRA ascribes this performance to a sequence of strategic policy decisions brought in by the Indian government during recent years. These initiatives, rooted in the overarching vision of 'Atmanirbhar Bharat' (self-reliant India), have the objective of reinforcing domestic defence production, bringing in investments, and ramping up exports.
Some of the key programmes are the liberalisation of Foreign Direct Investment (FDI) policies in defence, implementation of the defence offset policy, and the establishment of two Defence Industrial Corridors. Furthermore, indigenous production has been fostered through strategies like issuing notifications of five 'Positive Indigenisation Lists' and the inauguration of the online platform 'SRIJAN' for local sourcing.
"The government has also increased budgetary spending with a strong emphasis on capital spending, which increased at a compound annual growth rate (CAGR) of 8.29% over the past five years to ₹1.92 lakh crore in the FY26 budget estimates," the report noted.
Due to these policy measures, domestic defence procurement increased from 61% in FY2017 to approximately 75% by FY2025. Defence exports, in turn, increased more than 15 times and grew at a CAGR of 41% to reach ₹23,622 crore between FY2017 and FY2025.
"Organizations along the entire gamut of defence manufacturing – land, naval, aeronautical, armour and ammunition and ICT – will enjoy the continued growth in budgetary spending since 2015, which is likely to feed through in terms of good order inflows as the government continues to step up indigenous procurement," ICRA Vice President and Co-Group Head of Corporate Ratings Suprio Banerjee said.
The report also indicated that industry operating margins are expected to be strong, between 25% and 27% in FY26. These are being maintained by larger scale of production, higher localisation, and a move towards more value-added system-level manufacturing, as compared to the previous emphasis on component or assembly manufacturing, Banerjee said.
Though public sector defence units (DPSUs) still hold sway over naval, aerospace, and armament manufacturing, private sector participation is set to increase, particularly in the land systems and ICT areas.
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