India's defense manufacturing sector projects 15-17% revenue growth for FY 2025-26, driven by strong order books and government support. However, working capital management challenges persist, particularly affecting private sector players despite the sector's robust performance outlook.
The Atmanirbhar Bharat initiative has transformed India's defense procurement landscape significantly. Domestic vendor procurement increased from 61% in FY2017 to an estimated 75% in FY2025.
This shift reflects a sustained government commitment to reducing import dependency. The Centre has consistently increased capital spending, with defense budgetary allocation reaching Rs 1.92 lakh crore in FY26 Budget Estimate.
The sector maintains a robust order book to operating income ratio of 4.4 times as of FY25-end. Operating margins are projected to remain strong at 25-27% in FY26, supported by scale and localization benefits.
Entities across land, naval, aeronautical, armaments and ICT verticals are positioned for growth. Continued budgetary support and localization efforts will boost order inflows and execution capabilities significantly.
The industry's strong execution pipeline provides solid revenue visibility for the upcoming financial year. Government focus on domestic procurement continues to strengthen order book positions across defense manufacturers.
Scale advantages and shift towards value-accretive system-level production enhance profitability prospects. The transition from component assembly to sophisticated manufacturing demonstrates the sector's technological advancement and competitive positioning in domestic markets.
India's defense exports have registered extraordinary growth, surging 15-fold with 41% CAGR between FY2017 and FY2025. Export revenues reached Rs 23,622 crore, demonstrating global competitiveness.
This performance reflects successful transition to sophisticated system-level manufacturing capabilities. Indian companies have emerged as credible suppliers in international defense markets through technological advancement.
Government policy support combined with industry investments in research and development enabled this transformation. The export boom positions India as a potential major global defense supplier, contributing to economic growth and strategic influence.
Despite projected 15-17% revenue growth and strong margins, working capital management remains a critical challenge for private defense manufacturers. Addressing these constraints will determine the sector's ability to fully capitalize on growth opportunities under Atmanirbhar Bharat.