India's Defence Sector Transformation 2014-2026
India's defence sector underwent a radical transformation between 2014 and 2026, marked by enhanced capability, greater capacity, and stronger global credibility. The comprehensive reform was driven through policy reforms, increased investments, and a strong push for self-reliance under the Atmanirbhar Bharat and Make in India initiatives.
Financial and Production Metrics
The defence budget increased substantially from ₹2.53 lakh crore in FY 2013-14 to ₹7.85 lakh crore in FY 2026-27, reflecting sustained focus on national security and strategic self-reliance. Capital expenditure rose sharply from ₹94,587.95 crore in 2014-15 to ₹2.19 lakh crore in 2026-27, emphasizing infrastructure development and advanced weapon systems. Indigenous defence production witnessed remarkable growth from ₹46,429 crore in 2014-15 to ₹1.78 lakh crore in 2025-26, representing a 110% increase since FY 2020-21 when production stood at ₹84,643 crore. In FY 2025-26, Defence Public Sector Undertakings and other PSUs contributed approximately 76% of total production, while the private sector's share increased to 24%.
Export Performance and Global Reach
Defence exports surged from ₹686 crore in FY 2013-14 to ₹38,424 crore in FY 2025-26, representing growth of over 5500% in twelve years. Indian defence products are now exported to over 80 countries worldwide, with the defence exporter base expanding to 145 firms. The government has set an ambitious target of ₹50,000 crore in defence exports by 2029. Nearly 65% of defence equipment is now produced domestically, compared to import dependence of 65-70% earlier.
Policy Reforms and Institutional Framework
Key policy reforms included the Defence Acquisition Procedure (DAP) 2020 which strengthened indigenous manufacturing and simplified capital acquisitions, followed by the Defence Procurement Manual (DPM) 2025 that improved transparency in revenue procurement worth nearly ₹1 lakh crore. The draft DAP 2026 proposes simpler acquisition categories and higher indigenous content requirements of up to 60%. The Defence Acquisition Council (DAC) accorded Acceptance of Necessity (AoN) for DRDO-designed systems worth over ₹6 lakh crore, including 97 Light Combat Aircraft Tejas Mk-1A fighter jets worth ₹62,000 crore and 156 Light Combat Helicopters valued at approximately ₹62,700 crore.
Innovation and Research Ecosystem
Defence research and development allocation increased from ₹13,716.14 crore in FY 2014-15 to ₹29,100.25 crore in FY 2026-27, marking a rise of over 112%. In 2022-23, the government opened 25% of the defence R&D budget to industry, startups, and academia, with expenditure of ₹1,757 crore made by Department of Defence towards this in 2024. The Innovations for Defence Excellence (iDEX) scheme was approved with a budgetary outlay of ₹498.78 crore for 2021-22 to 2025-26, while the ADITI Scheme received an outlay of ₹750 crore for 2023-24 to 2025-26. By March 2026, iDEX had engaged 676 startups, MSMEs, and innovators, with 551 design and development contracts signed.
Industrial Capacity and Partnerships
DRDO's Development cum Production Partner (DcPP) model significantly expanded indigenous defence manufacturing, with 134 companies partnering as DcPPs or Production Agencies by March 2026. The organization signed 2,180 technology transfer agreements and opened more than 2,780 Intellectual Property Rights for use by Indian industry. The Technology Development Fund (TDF) provided grants of up to ₹50 crore for critical defence technologies, with 80 projects totaling ₹334 crore being implemented as of June 2026. An additional corpus of ₹500 crore was sanctioned for cutting-edge technologies.
Defence Industrial Expansion
India's defence manufacturing base expanded to include 16 Defence Public Sector Undertakings, approximately 500 licensed defence companies, and nearly 17,000 Micro, Small and Medium Enterprises. Defence industrial licences more than tripled from 258 in 2015 to 834 as of March 2026. The Ordnance Factory Board was dissolved in October 2021 and reorganized into seven new Defence Public Sector Undertakings to improve efficiency and competitiveness.
Infrastructure Development
Defence Industrial Corridors emerged as key growth centers, with the Uttar Pradesh corridor attracting investment commitments worth ₹42,057 crore (grounded investments of ₹4,409 crore) and the Tamil Nadu corridor attracting ₹32,699 crore (actual investments of ₹6,446 crore) by April 2026. The Defence Technology & Test Centre (DTTC) was established to enhance testing capabilities.
Regulatory Reforms and Ease of Doing Business
Significant reforms included extending industrial license validity from 7 years to 15 years (extendable to 18 years) in 2015, with lifetime validity under the Arms Act subject to conditions. The Revamped Defence Exim portal enabled end-to-end application processing and automated verification. The Srijan Defence Portal facilitated indigenisation of over 15,700 defence items including 3,204 items from Positive Indigenisation Lists, with domestic orders worth ₹9,782 crore placed by DPSUs. FDI limits were enhanced to 74% through the Automatic Route and up to 100% through Government Route, resulting in ₹6,670.59 crore worth of FDI inflow by March 2026.
Strategic Partnerships and Defence Diplomacy
India strengthened defence partnerships with multiple countries including the US through agreements like LEMOA (2016), COMCASA (2018), and BECA (2020), and designation as Major Defence Partner. With France, partnerships included the 2016 Rafale deal, Project 75 submarines, and 26 Rafale-Marine aircraft approval in 2023. India also expanded cooperation with Russia, Japan, UAE, Australia, and through multilateral forums like QUAD, SCO, and ASEAN Defence Ministers' Meeting-Plus. The EU-India Security and Defence Partnership signed in January 2026 established a comprehensive framework for cooperation.
Operational Achievements and Technological Milestones
Key operational achievements included Mission Shakti (anti-satellite capability demonstration in March 2019), Mission Divyastra (long-range missile test in March 2024), and successful testing of an advanced air defence system in August 2025. The indigenous Tejas fighter aircraft received final operational clearance in February 2019, with 83 aircraft approved for induction. The Arjun Mk-IA battle tank was inducted into the Indian Army in February 2021, and 75 Artificial Intelligence-based technologies were introduced for defence applications in 2022.