The defence sector in India has undergone a significant transition over last few years. With rapidly growing focus and thrust on domestic manufacturing, technology development and exports, defence industry is opening opportunities beyond large manufacturers to include component suppliers, advanced technology providers, engineering businesses and investors.
At same time, shifting global security priorities and need for stronger international alliances are reshaping the defence ecosystem. For Indian businesses, this raise an important question:
where do the opportunities lie and how they can participate in this growing market?
Why Now? A Sector in Transition
Traditionally, India has always relied on imports for majority of its defence requirements. However, today with the rising security needs, modernisation of the armed forces and various government initiatives are pushing for greater domestic manufacturing and private sector involvement.
According to the Stockholm International Peace Research Institute (SIPRI), India was the world's fifth-largest military spender in 2025, with expenditure of US$92.1 billion.
For businesses, the opportunity is not limited to aircraft, warships and major weapons systems but drones, electronics, radar, precision components, propulsion systems and maintenance services are all part of the expanding defence landscape.
This shift is also creating opportunities for companies that can bring specialised technologies, manufacturing expertise and established supply-chain capabilities to the Indian market.
Collaboration Opportunity with European Defence Technology Providers
Looking to invest in India's expanding defence manufacturing sector? ILO Consulting is presenting an opportunity to establish an arms and ammunition manufacturing facility in India, combining European technology, local production and access to international markets.
The opportunity involves collaboration with established defence technocrats from Austria and Germany, with over 25 years of industry experience.
The proposed turnkey Build–Own–Operate model covers handguns, ammunition, sub-machine guns and other defence products, supported by technology licensing, manufacturing setup and operational assistance.
A key feature is a potential long-term buy-back arrangement under which 60–70% of annual production would be purchased by the European partners, providing a potential route to established international distribution networks.
Indicative investment highlights:
- Projected IRR: 22–25%.
- Indicative payback: 3.5–5 years from commissioning.
A Growing Manufacturing and Export Base
India's defence sector is expanding, supported by rising domestic production, government investment and growing export markets.
- Record production: Defence production reached Rs. 1.78 lakh crore in FY2025–26, up 15.6% from the previous year. The government aims to reach Rs.3 lakh crore by FY2028–29.
- Rising exports: Defence exports reached Rs.38,424 crore in FY2025–26, compared with Rs.686 crore in FY2013–14.
- Global reach: Indian defence products are now exported to more than 80 countries.
This rise presents opportunities for Indian businesses to enter into the defence supply chains and for foreign companies to explore technical collaborations with Indian firms and outsource manufacturing. However, sector-wide growth cannot be taken as guarantee for commercial success. Feasibility depends on the requirement of specific product, technical capabilities, market demand, the ability to meet the qualification standards.
India–Europe Cooperation and the Role of FTAs
Defence priorities of Europe are changing in response to Russia – Ukraine war, wider geopolitical uncertainty and its need to strengthen the defence industrial capabilities and supply chains. This has resulted in greater interest in strategic partnerships beyond conventional suppliers.
India and the EU signed a
Security and Defence Partnership (SDP) in January 2026, providing a framework for closer cooperation, including defence industry collaboration.
For businesses in India, this creates significant opportunity for technology collaboration, joint ventures, manufacturing partnerships, and defence supply chains. European companies can bring in advanced technologies and expertise whereas Indian manufacturers offer engineering capabilities and production capacity.
Additionally, the expanding network of
Free Trade Agreements (FTAs) would also support broader manufacturing and export strategies subject to eligibility and compliance with defence regulations. These opportunities will not only be relevant for the large corporations but also to MSMEs looking to build specialized capabilities and work with international partners.
Top Segments Offering Major Opportunities
Several segments offer potential for businesses looking to enter or expand in India's defence market including:
- Aerospace and propulsion: Aircraft components, avionics, precision engineering and maintenance.
- Drones and counter-drone systems: Unmanned platforms, surveillance, sensors and related technologies.
- Electronics and communications: Radar, secure communications, sensors and electronic systems.
- Missiles, ammunition and air defence: Specialist products, components and associated technologies.
- Naval systems and shipbuilding: Marine equipment, propulsion, ship systems and maintenance.
- Components and precision manufacturing: Machining, castings, forgings, spares and equipment upgrades.
Explore our detailed analysis of India’s evolving defence sector, including emerging market opportunities, India–Europe partnerships and investment prospects.
READ MORE Different Routes to Enter the Defence Market
The right approach depends on a company's existing capabilities, investment objectives and appetite for risk. Potential routes include:
- Greenfield manufacturing: Set up a production facility in India to serve domestic customers, programmes or export markets.
- Technology partnerships and joint ventures: Forge an alliance with international partner with specialized technology and combine it with Indian manufacturing capabilities and market knowledge.
- Acquisitions and strategic investments: Invest in existing businesses with relevant technical expertise, approvals or established customer relationships.
- Supply-chain partnerships: Contract manufacturing components or subsystems for established defence companies.
- International market expansion: Exploring export opportunities and cross-border supply-chain relationships, subject to applicable trade terms and defence export-control requirements.
Depending on the infrastructure, supplier networks, availability of workforce and applicable incentives, the defence industrial corridors in Uttar Pradesh and Tamil Nadu are also worth considering for manufacturing investments.
Before committing capital, Indian businesses should assess procurement timelines, technical qualification requirements, working-capital needs, licensing and regulatory obligations.
How We Can Help
While defence market has opened up, it is still bound by various scrutiny and regulations considering the sensitivity of the sector. Therefore, it is important to understand these limitations and evaluate the right the opportunities or niche for your business.
ILO Consulting has carried out extensive work in the defence sector with domestic and international players and has built knowledge, experience and relationship that we leverage to support businesses and investors exploring defence-sector opportunities through:
- Market-entry assessment: Evaluating potential routes into India and relevant commercial opportunities.
- Partner identification and engagement: Finding suitable international businesses, manufacturers and technology providers for partnerships.
- Joint ventures and strategic collaborations: Supporting the development of commercial partnerships between businesses with complementary capabilities.
- Investment and acquisition support: Assisting with the evaluation and pursuit of suitable investment and acquisition opportunities.
- Project and transaction support: Helping coordinate stakeholders and progress commercial discussions towards a proposed transaction or implementation plan.
Whether you are an international manufacturer exploring India, an Indian MSME seeking technology partners, or an investor evaluating defence-related opportunities, ILO Consulting can help you assess potential routes for market entry, strategic collaboration and investment.
