India’s defence and aerospace industry has evolved over the past decade from a purely strategic security segment into an emerging manufacturing- and export-led industry. Under the Atmanirbhar Bharat initiative, the government’s focus has remained on strengthening domestic production, reducing import dependence, and positioning India as a key player in the global defence supply chain.
Let us take a closer look at the current status of India’s defence and aerospace industry, its challenges, production and exports, government initiatives, and future prospects.
Current State of India’s Defence and Aerospace Industry
According to IBEF, India’s total defence production stood at Rs 1,50,590 crore (US$ 17.57 billion) in FY25, marking an increase of nearly 18% compared to Rs 127,434 crore in FY24. When compared to FY20 levels, this reflects a strong growth of nearly 90%. Defence Public Sector Undertakings (DPSUs) and other PSUs accounted for 77% of total production, while the private sector’s share has risen to 23%.
The defence ecosystem is now witnessing diversification across platform integration, system manufacturing, electronics, communication systems, shipbuilding, and aerospace platforms. In the aerospace segment, the C-295 transport aircraft project stands out as a key example, where 40 out of 56 aircraft are being manufactured in India. This project signals not only manufacturing growth but also meaningful progress in technology transfer and skill development.
India’s Defence Production and Exports
The growth in defence exports has been one of the most significant achievements of the sector. As per IBEF data, India’s defence exports stood at just Rs 686 crore (US$ 81.1 million) in FY14, which surged to Rs 23,622 crore (US$ 2.8 billion) by FY25. Of this, the private sector contributed Rs 15,233 crore (US$ 1.8 billion), while DPSUs accounted for Rs 8,389 crore (US$ 992.2 million).
In FY25, India ranked among the top 25 defence-exporting nations globally. In just the first six months of FY26 (April–September 2025), defence exports reached Rs 9,131 crore (US$ 1.07 billion). The Rs 3,800 crore (US$ 440.3 million) BrahMos missile deal with Indonesia highlights India’s emergence as a reliable exporter of high-end defence products.
Government Initiatives Supporting the Defence and Aerospace Industry
Government policies have played a critical role in driving the sector’s growth. In the Union Budget FY26, the Ministry of Defence received an allocation of Rs 6,81,000 crore (US$ 78.7 billion), representing a 9.5% increase over FY25. Of this, Rs 1,80,000 crore (US$ 20.8 billion) has been earmarked for capital expenditure.
The government has issued five Positive Indigenisation Lists so far, covering more than 509 defence items to be manufactured domestically. The FDI policy has also been liberalised, allowing up to 74% investment through the automatic route and up to 100% through the government route. Between April 2000 and June 2025, total FDI equity inflow into the defence sector stood at US$ 21.74 million.
In addition, defence industrial corridors in Uttar Pradesh and Tamil Nadu, along with initiatives such as iDEX, the SRIJAN portal, and DRDO’s Technology Development Fund (TDF), are helping integrate startups and MSMEs into the defence and aerospace ecosystem.
Challenges in the Defence and Aerospace Industry
Despite rapid progress, the industry continues to face several structural challenges. According to IBEF, India remains partially dependent on imports for critical technologies, advanced electronics, and high-end engines. Moreover, the long development cycle associated with defence R&D often delays projects from reaching the commercial stage.
While FDI norms have been relaxed, cumulative inflows of US$ 21.74 million between April 2000 and June 2025 remain modest relative to the sector’s scale and potential. Skill gaps, global certification requirements, and supply chain integration also continue to pose challenges for the industry.
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Future of the Defence and Aerospace Industry
According to IBEF, the government aims to raise India’s defence manufacturing output to US$ 34.7 billion and defence exports to US$ 5.8 billion by FY29. This reflects a strategic push to transform India from a domestically focused market into a strong global defence supplier.
India’s role in the aerospace segment has expanded rapidly. Earlier limited to component supply, the sector’s value has grown from US$ 250 million to US$ 2 billion, positioning India as a credible alternative to China in global aerospace manufacturing.
Additionally, the sector has a US$ 223 billion capital expenditure pipeline over the next 10 years, with approximately US$ 130 billion in investment potential in the medium term. Aligning with this trajectory, Civil Aviation Minister Kinjarapu Ram Mohan Naidu stated that the aerospace components manufacturing market, currently valued at US$ 2 billion, is targeted to reach US$ 4 billion by 2030.
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