India's defence capital expenditure is projected to hit Rs 2.8 trillion by FY2030, with an 11% CAGR. Supported by indigenisation, domestic procurement has crossed 70%, and exports have surged 50X over the past decade, says a Kotak report.
Projected Growth and Indigenisation
India's defence capital expenditure is projected to grow at an 11 per cent compound annual growth rate (CAGR) over FY2026-30E to reach Rs 2.8 trillion. This structural upcycle is supported by policy measures like positive indigenisation lists and the Defence Acquisition Procedure 2020, which mandate more than 50 per cent indigenous content.
Surge in Defence Exports
According to a report by Kotak Institutional Equities, Indian defence exports grew 50X over the past decade, driven by cost-competitive indigenous platforms, proven combat performance in Operation Sindoor, and the easing of export controls. While the US remains the largest destination, Europe and Armenia are emerging as key new geographies. The report highlighted that "the Rs 500 bn target by FY2029 is the next key milestone," up from Rs 384 billion in FY26.
Technological Shifts: The Rise of Drones
Technological advancements are also altering spending patterns. Drones are fundamentally transforming warfare economics, with the global military drone market standing at approximately USD 30 billion in CY24. The market is likely to reach USD 75 billion by 2029. "We estimate India will spend USD 25-30 bn on drones and USD 4-5 bn on counter-drone systems over the next decade," the report added.
Global Context and India's Spending Needs
As per the report, global military spending surged from USD 600-700 billion in the 1990s to USD 2.7 trillion in CY24. Sweden-based think tank SIPRI forecasts this figure to touch USD 6.6 trillion by 2035. India currently ranks as the fifth-largest military spender globally at USD 84 billion.
The report noted that the country faces an urgent need to scale up defence spending to modernise ageing infrastructure and counter the growing military spending of neighbouring countries. "AoN [Acceptance of Necessity] approvals have surged ~10X over FY2021-26, implying Rs 6.5-7 tn in new orders during FY2027-29E," the report stated.
Boosting Domestic Manufacturing
The brokerage firm highlighted that the domestic procurement share rose from 54 per cent in FY19 to over 70 per cent. This shifting dynamic positions domestic defence manufacturers to benefit from rising geopolitical tensions, accelerating modernisation programs, and expanding export opportunities.
Financial Performance and Valuations
Financially, Indian defence companies trade at a 50 per cent valuation premium over global peers, operating at a 50X 1-year forward price-to-earnings (P/E) multiple versus 28X globally. This premium factors in faster projected growth, with a revenue CAGR of 26 per cent compared to the global average of 11 per cent.
During FY21-26, domestic manufacturers delivered a 25 per cent revenue CAGR, while EBITDA margins expanded by 500 basis points to roughly 25 per cent. The report mentioned that when adjusted for lower research and development spend, the margin advantage versus global peers narrows from 800 basis points to around 450 basis points. (ANI)
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