India's defence sector is undergoing a significant transformation as global geopolitical tensions reshape strategic priorities and the nation advances its self-reliance objectives. The Union Budget 2025-26's substantial allocation reflects the government's commitment to modernising defence capabilities while strengthening domestic manufacturing ecosystems.

Budget Allocation and Strategic Priorities

The Union Budget 2025-26 has allocated Rs 6.81 lakh crore to defence, representing a 9.5% increase from the previous year. This allocation demonstrates the government's strategic recalibration of national priorities amid an increasingly complex global security environment.

The government's decision to earmark 75% of the capital procurement budget, approximately Rs 1.48 lakh crore, for domestic suppliers creates a predictable revenue pipeline for companies positioned within the domestic defence manufacturing ecosystem.

Atmanirbhar Bharat Initiative Impact

The Atmanirbhar Bharat initiative has fundamentally transformed India's defence manufacturing landscape, delivering measurable results across multiple parameters. Indigenous defence production has reached a record Rs 1.54 lakh crore, marking a significant milestone in the nation's self-reliance journey.

Defence exports have grown approximately 12% to Rs 24,000 crore, while over 65% of India's defence equipment is now produced domestically. This represents a remarkable transformation for a nation that was previously among the world's largest arms importers.

Sectoral Growth Areas and Investment Characteristics

The defence modernisation agenda encompasses several high-growth subsectors, each presenting distinct opportunities across aerospace and aviation, naval systems and maritime security, electronics and missile systems, and emerging technologies. The increased allocation to the Defence Research and Development Organisation of Rs 26,816 crore, up 12.4%, signals serious intent to develop local capabilities in transformative technologies.

Defence companies demonstrate several attractive investment characteristics:

• Multi-year order books providing exceptional revenue visibility spanning 5-10 years
• Relative stability during economic downturns due to national security considerations
• Export diversification with products reaching over 100 countries
• Technology advancement through substantial R&D investments in autonomous systems and AI-driven platforms

Future Outlook and Reform Initiatives

The government has declared 2025 as the "Year of Reforms" for the defence sector, signaling accelerated policy initiatives, streamlined procurement processes, and enhanced private sector participation. India's defence exports have grown nearly 35-fold over the past decade, providing companies with revenue diversification beyond domestic procurement cycles.

Upcoming catalysts include projected budget increases for FY 2026-27, milestone contract awards including the Rs 1 lakh crore P-75(I) submarine program, and expanding export portfolios as India establishes its reputation as a reliable defence partner. The defence modernisation initiative aligns with the nation's Viksit Bharat 2047 vision, representing a multi-decade transformation opportunity.