According to an Investment Information and Credit Rating Agency (ICRA) research, India’s defence sector is expected to increase by 15-17% in revenue in FY2026.
This spike is primarily due to good execution improvement, which is supported by a healthy order book and an order book-to-operating income (OB/OI) ratio of 4.4 times at the end of FY2025.
Entities across the whole spectrum of defense production—including land systems, marine, aeronautical, weaponry, ammunition, and ICT—are likely to benefit from the government’s consistent increase in budgetary outlays since 2015. This sustained support is translating into consistent and healthy order inflows as the government prioritises domestic procurement.
The sector’s operating margins are expected to remain good, with weighted average margins predicted at 25-27% in FY2026. This is aided by economies of scale, increased localisation, and a deliberate change toward producing more value-added system-level goods rather than just sub-components or assemblies.
The increase in localisation is a direct outcome of government efforts such as Atmanirbhar Bharat, which have greatly improved India’s domestic defence production capabilities, boosted investment, and extended export potential.
These policy changes have resulted in a significant rise in defense procurement from domestic vendors, from 61% in FY2017 to almost 75% in FY2025.
Between FY2017 and FY2025, defense exports increased by over 15 times at a CAGR of 41%, reaching ₹23,622 crore. The government has increased the sector’s budget, with a focus on capital expenditure, which has grown at a CAGR of 8.29% over the past five years, reaching ₹1.92 lakh crore in the FY2026 Budget Estimate.
Despite these favorable developments in income and profitability, working capital management remains a difficulty, especially for private sector businesses.
Nonetheless, the overall outlook for India’s defence sector remains quite optimistic, backed by strong policy backing, increased localisation, and expanding export markets, placing the industry for long-term growth in the coming fiscal year.
