India's defense budget to boost air force capability, experts say

Funding for new arms jumps 24% in big leap from past inflation-adjusting measures.

The budget continues to prioritise domestic industry, reserving INR1,390 billion ($15.4 billion) of available INR2,193.4 billion ($24.3 billion) acquisition funding for domestic procurement. The move is expected to create significant opportunities for private-sector companies in the domestic defence manufacturing space, according to GlobalData.

GlobalData’s latest report, “India Defense Market Size and Trends, Budget Allocation, Regulations, Key Acquisitions, Competitive Landscape and Forecast, 2025–30,” estimates the country’s cumulative defense spending to reach $543.1 billion from 2026 to 2030. However, given the sharp rise in spending under the FY27 budget, GlobalData expects this cumulative defense spending to even grow further by the end of 2031.

Abhijit Apsingikar, Aerospace & Defense Analyst at GlobalData, comments: “Over the past decade, the Indian government has been trying to overhaul its outdated defence procurement process to encourage private-sector participation and leverage their capabilities to streamline procurement. By reserving a significant share of defence capital expenditure for purchases from domestic defence firms, the government has reaffirmed its support for the local industry.”

The higher defence spending is expected to attract and accelerate private-sector participation. Indian private companies such as Tata, L&T, and Bharat Forge are already collaborating with state-owned lab Defence Research and Development Organisation (DRDO) through industry licensing and partnership programs, emerging as key production partners for military platforms such as WhAP armoured vehicles, K9 howitzers, and ATAGS artillery guns. Furthermore, L&T is also collaborating with DRDO to commercialise phosphoric acid fuel-cell technology for Scorpene submarines and has recently been selected as the production partner to commercialise an automatic transmission for 1,500 HP main battle tank engines.

Apsingikar adds: “Despite increased private-sector involvement in defence production, participation in R&D has remained extremely limited. Historically, the private sector has been cautious about expanding its presence in defence and dual-use products. This is partly due to uncertainty around return on investment, driven by the unpredictable and ad-hoc nature of follow-on orders, an issue compounded by the Indian MoD’s preference for negotiating component development contracts on a No-Cost-No-Commitment (NCNC) basis. However, as the Indian MoD actively considers scrapping the NCNC procedure, it is expected to ease private-sector concerns and encourage independent R&D.”

Apsingikar continues: “With the government delegating production of key platforms such as the C-295 and more recently the Advanced Medium Combat Aircraft (AMCA) to the private sector, industry is evolving to manufacture end-to-end subsystems and assemblies, including complex electronic components, radars, and aero-engine assemblies for turbofans and turbojets.”

The government’s broader objective appears to be transferring cutting-edge research to the private sector. With several venture capital schemes and incubation initiatives such as the Technology Development Fund (TDF), Innovations for Defence Excellence (iDEX), and iDEX Prime, the Indian defence startup ecosystem reportedly attracted $247 million of funding in 2025.

Apsingikar concludes: “While concerns around return on investment still remain, the proposed removal of NCNC contracting provisions, combined with increased defence funding, will enable development of technologies and weapon systems that will not only cater to the domestic demand but also generate export opportunities in the long run.”