India's defence sector has reached a historic milestone, with domestic production touching a record ₹1.8 lakh crore in FY26 — a 15.6% year-on-year jump representing an approximately 18% compound annual growth rate (CAGR) since FY21, according to a report released on Wednesday, 23 September 2026 by Emkay Global Financial Services. The sector is simultaneously scaling indigenisation, deepening private-sector participation, and emerging as a credible global defence exporter.

Export Surge and Global Footprint

Defence exports climbed 63% to approximately ₹38,000 crore (₹380 billion), reinforcing India's growing position as a supplier of defence equipment and systems worldwide. India now ships defence products to over 80 countries, with the United States, France, and Armenia among the leading buyers. The government has set an ambitious target of ₹3 lakh crore in defence production and ₹50,000 crore in exports by FY29, pointing to sustained expansion across the domestic manufacturing ecosystem.

Indigenisation Drive Gains Momentum

The government's indigenisation push is broadening the addressable opportunity for domestic manufacturers at an accelerating pace. Five positive indigenisation lists covering 5,012 critical items have been notified, of which 3,025 have already been indigenised. Over 38,000 items have been identified for indigenisation through the Srijan portal, with more than 13,900 successfully localised so far. Out of a nearly ₹1.4 lakh crore modernisation budget for FY27, 75% has been earmarked for domestic industry — a structural shift in procurement policy that directly benefits Indian manufacturers.

Private Sector's Rising Role

The private sector's contribution to overall defence production rose to 24% in FY26 from 22% in FY25, reaching approximately ₹42,000 crore. Nearly 25% of the domestic capital acquisition budget for FY27 — approximately ₹34,700 crore — has been earmarked specifically for private industry. Notably, Indian companies are increasingly transitioning beyond the traditional Build-to-Print model towards Build-to-Specification, Build-to-Design, and Build-to-Requirements capabilities. Several players are also developing Lead System Integrator capabilities, positioning them for deeper involvement in the design, integration, and delivery of complex defence platforms.

Key Procurement Pipelines Across Services

The defence capital outlay for FY27 stands at approximately ₹1.9 lakh crore, up 24% year-on-year, underpinning a substantial procurement pipeline. The Indian Air Force is advancing programmes including the Multi-Role Fighter Aircraft, LCA Tejas Mk-II, Su-30 MKI upgrades, medium transport aircraft, additional S-400 systems, and the Advanced Medium Combat Aircraft. The Army's pipeline includes Future Infantry Combat Vehicles, Future Ready Combat Vehicles, K9 Vajra-T systems, QRSAM, Akash-NG, loitering munitions, helicopters, and next-generation Pinaka systems. The Navy is pursuing Project 75I, additional Scorpene submarines, next-generation frigates, naval utility helicopters, unmanned underwater vehicles, and an indigenous carrier-based fighter.

Structural Shift, Not a Procurement Blip

According to the Emkay Global Financial Services report, 'With record production already achieved in FY26 and ambitious production and export targets ahead, the sector is increasingly positioned around a longer-term structural growth opportunity rather than a short-term procurement cycle.' This comes amid a broader geopolitical realignment that has elevated demand for reliable, cost-competitive defence suppliers — a gap India is increasingly stepping in to fill. With the FY29 targets now firmly in the government's crosshairs, the next few years will test whether the ecosystem can convert pipeline scale into delivered platforms.