India's defence capex seen rising to Rs 2.8 tn by FY30 on indigenisation, export growth: Kotak
New Delhi, July 13
India's defence capital expenditure is projected to grow at an 11 per cent compound annual growth rate 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.
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 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.
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.
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.
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
Reader Comments
As someone tracking global defence, India's export growth (50X in a decade) is genuinely impressive. The shift from being a net importer to exporter is strategic. But I worry about over-reliance on HAL and BEL - need more private sector competition.
Finally some sensible planning! The 70% domestic procurement share is good but we need to push for 100% for basic equipment. And that USD 25-30 bn on drones over next decade - hope our forces actually integrate them properly. No use buying if you can't operate.
Interesting data from Kotak. The ₹6.5-7 tn in new orders by FY27-29 is massive. But let's be practical - India's defence procurement has always been slow. Will the 'Make in India' push actually deliver on time? Past performance isn't reassuring.
Happy to see Armenia and Europe buying Indian weapons. But SIPRI saying global military spending to reach USD 6.6 tn by 2035 is scary. Hope India uses this for genuine security needs, not ego projects. Also, need better R&D - 25% margins are nice, but invest more in innovation.
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