India’s defence manufacturing crosses new milestone, production rises 110% since FY21: ASSOCHAM

India’s defence manufacturing journey is no longer limited to reducing dependence on imports. According to an ASSOCHAM report, over the past decade, India has transitioned from a predominantly buyer-driven defence model towards a broader ecosystem involving the government, Defence Research and Development Organisation (DRDO), defence public sector undertakings (DPSUs), private companies, MSMEs, startups, and academia in the design, development, production and export of military systems.

The shift has been driven by initiatives such as Make in India and Aatmanirbhar Bharat, procurement reforms, higher defence capital expenditure, indigenous research and development, and greater participation from the private sector.

Defence spending, production scale up

The scale of the transformation is reflected in the growth in defence spending. India's overall defence budget increased from ₹2.53 lakh crore in FY13-14 to ₹7.85 lakh crore in FY26-27 while defence capital expenditure rose from ₹94,587.95 crore in FY14-15 to ₹2.19 lakh crore. Indigenous defence production also increased sharply, rising from ₹46,429 crore in FY14-15 to ₹1.78 lakh crore in FY25-26.

Defence production in FY25-26 was 15.6% higher than the ₹1.54 lakh crore recorded in FY24-25 and 110% above the ₹84,643 crore recorded in FY20-21.

DPSUs and other public sector undertakings accounted for around 76% of total production, while the private sector contributed 24%, indicating the gradual emergence of a more diversified defence industrial base.

The structural transformation is also evident in the expansion of the defence manufacturing ecosystem. India now has 16 DPSUs, around 500 licensed defence companies and nearly 17,000 MSMEs supporting the sector.

Defence industrial licences increased from 258 in 2015 to 834 by March 2026, reflecting a significant expansion in private-sector participation.

The restructuring of the Ordnance Factory Board into seven new DPSUs in 2021 was another major institutional reform aimed at improving efficiency, accountability and competitiveness.

The two Defence Industrial Corridors have added a geographical dimension to the country's manufacturing push. By April 2026, the Uttar Pradesh Defence Industrial Corridor had attracted investment commitments of ₹42,057 crore and the Tamil Nadu Defence Industrial Corridor had secured commitments of ₹32,699 crore.

Focus shifts to indigenous technology

The report identified research and development as one of the most strategically significant changes in India's defence ecosystem. Defence R&D allocation increased from ₹13,716 crore in FY14-15 to ₹29,100 crore in FY26-27, representing an increase of more than 112%.

In FY22-23, 25% of the defence R&D budget was opened to industry, startups, and academia, expanding the technology development base beyond traditional government laboratories. The Innovations for Defence Excellence programme has also emerged as a key link between military requirements and private-sector innovation.

Procurement becomes industrial policy tool

Defence procurement reforms have increasingly been used as an instrument of industrial policy, with DPP 2016, DAP 2020, DPM 2025 and the draft DAP 2026 progressively placing greater emphasis on indigenous design, domestic content, faster procurement and wider participation by Indian industry.

Under DAP 2020, the Defence Acquisition Council accorded Acceptance of Necessity for more than ₹6 lakh crore worth of DRDO-designed and Indian-industry-manufactured systems. These included major programmes such as 97 Tejas Mk-1A fighter aircraft and 156 LCH Prachand helicopters. By May 2026, five Positive Indigenisation Lists covering 5,012 DPSU items had been notified.

Exports emerge as key growth driver

Defence exports increased from just ₹686 crore in FY2013-14 to ₹38,424 crore in FY2025-26, representing an increase of more than 55 times.

Indian defence products are now being exported to more than 80 countries while the exporter base has expanded to 145 firms. The government has set a target of ₹50,000 crore in defence exports by 2029.

According to ASSOCHAM, this represents a strategic transition in India's defence manufacturing journey—from import to indigenisation, design, manufacturing, scale, and exports. The next phase, however, will require India to go beyond increasing production volumes. The country will need to develop critical technologies, deepen domestic supply chains, build globally competitive original equipment manufacturers, strengthen MSMEs, integrate foreign technologies strategically and create export-oriented manufacturing capabilities.