FILE PHOTO: An Indian Air Force (IAF) light combat aircraft “Tejas” flies during the “Aero India 2021” air show at Yelahanka air base in Bengaluru
| Photo Credit: SAMUEL RAJKUMAR
In the weeks following Operation Sindoor, there have been discussions on the efficacy of India’s home-grown defence capabilities, and confidence in them. As India’s defence production and exports have hit record highs in the past financial year, contributions from private defence companies and MSMEs have increased.
The stocks of various defence companies rose significantly in the week of Operation Sindoor and even beat the performance of the largest 50 companies on the National Stock Exchange. For the purpose of this analysis, the stocks of 18 companies included in the Nifty Defence Index were considered for comparison. These include state-run companies such as Hindustan Aeronautics Limited as well as prominent private companies such as Paras Defence and Space Technologies Limited. Defence stocks increased by almost 21% in the week India conducted its first military strikes against Pakistan in May, far exceeding the 3.1% rise seen in the Nifty50 index in the same period. In the following week, defence stocks rose by 5.4% compared to a 0.5% drop in the Nifty50 index. Operation Sindoor seems to have provided a fillip to the performance of defence companies which were otherwise outperformed by Nifty50 companies in the weeks preceding the strikes (Chart 1).
While India continues to import a large share of its defence equipment and weapons, government data shows that domestic manufacturing has picked up. India’s defence production touched a record high in 2023-24 (FY24) at ₹1.3 lakh crore, growing at 17% compared to the previous year and exceeding the ₹1 lakh crore mark for the second year in a row. In fact, defence production has been seeing double-digit growth since FY22. Production had contracted by 2.5% in FY20, the year before the pandemic began. While the complete figures for FY25 are not yet in, government data as of December 2024 shows that production is touching ₹90,000 crore against a target of ₹1.6 lakh crore for the year (Chart 2).
Similarly, India’s defence exports have picked up and exceeded ₹20,000 crore in the past two financial years. These figures are twice those of what was seen before FY20 (Chart 3). India’s defence exports include small arms, protective gear, and artillery. The export target set for the current fiscal is ₹30,000 crore.
While public sector companies account for a majority of the total defence production, private companies are steadily carving out a larger share for themselves. They accounted for about 20% of the total defence production in FY17; this continued till FY24. In FY25, their share has increased to almost 24%. Similarly private defence companies also account for a majority of the share of defence exports on account of export authorisations (Chart 4).
MSMEs have also emerged in the defence production story by providing components to the defence industry. The government has set mandatory targets of public procurement from MSMEs to ensure state support to such units.
Goods worth ₹13,000 crore were procured from MSMEs in FY25, which is more than double the target set for the fiscal. Small businesses contributed goods worth up to ₹3,000 crore to the Defence Ministry between FY18 and FY20. In the years after FY20, larger orders were taken from MSMEs (Chart 5).
An increase in the value of defence production and exports notwithstanding, the share of defence in overall government expenditure has been declining. But India still spends more on its military (relative to GDP) than many other emerging market economies.
Source: Department of Defence production, Ministry of MSME, and the NSE
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Published – June 11, 2025 08:00 am IST