Defence Production at ₹1.78 Lakh Crore: Power or Optics?

Defence Production at ₹1.78 Lakh Crore: Power or Optics?

TL;DR: India's defence production hit a record ₹1.78 lakh crore in FY2025-26, and exports crossed ₹38,000 crore. The numbers are real. But the framing around them obscures a harder question: how much of this is new capability, and how much is maintenance revenue dressed up as manufacturing prowess? SIPRI still ranks India as the world's second-largest arms importer, and ₹25 billion in fresh import proposals were cleared just months ago.

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On June 17, 2026, the Ministry of Defence released figures that set off a predictable cycle. Defence production had touched an all-time high of ₹1.78 lakh crore for FY2025-26, a 15.6% jump from the previous year's ₹1.54 lakh crore. Defence exports hit ₹38,424 crore, up 62% year-on-year and 25 times the level recorded in FY2016-17.

Defence Minister Rajnath Singh called it a "clear indicator of the country's expanding defence industrial base." Stock markets responded with a rally in defence shares. Headlines celebrated the milestone as proof that Atmanirbhar Bharat was delivering results.

Within hours, the narrative was set. Pro-government outlets ran with "Make in India success story." Opposition-leaning media largely ignored the announcement. Neither side asked the question that matters most: what exactly does ₹1.78 lakh crore actually measure?

What "Defence Production" Includes (and Hides)

The Ministry of Defence does not publish a detailed methodology explaining what counts toward the headline production figure. The Department of Defence Production aggregates revenue from Defence Public Sector Undertakings, other government entities, and private sector firms holding defence industrial licences.

Here is where the number gets complicated.

Take Hindustan Aeronautics Limited, India's largest defence company. According to HAL's own filings with the Department of Defence Production, its Maintenance, Repair, and Overhaul business constituted roughly 72% of its revenue in FY2023-24. HAL recorded revenue of approximately ₹30,400 crore in FY2024-25. That means roughly ₹21,000-22,000 crore of India's largest defence company's revenue comes from servicing existing platforms, not building new ones.

This does not mean MRO is unimportant. Keeping Su-30MKIs flyable and Jaguar engines functional is critical operational work. But when the government announces "record defence production," the public hears "India is manufacturing more weapons than ever." The reality is murkier. A significant share of the headline figure is revenue from repairing, overhauling, and maintaining ageing equipment, much of which was imported in the first place.

DPSUs and other public sector units contributed about 76% of total defence production in FY2025-26, with the private sector accounting for the remaining 24%, up from 22% the previous year. The private sector's absolute contribution reached an all-time high of approximately ₹42,000 crore. That is progress. But three-quarters of the pie is still with government-owned enterprises whose revenue mix includes heavy MRO components.

No media outlet on either side of the political spectrum interrogated this distinction. The number was either a triumph or a non-story. Nobody asked: of the ₹1.78 lakh crore, how much represents genuinely new indigenous equipment rolling off production lines?

The Export Story Is More Interesting Than the Headlines Suggest

If the production number is noisy, the export figure tells a cleaner story.

Defence exports of ₹38,424 crore in FY2025-26 represent a 25-fold increase since FY2016-17. You cannot export maintenance services the way you export missiles. Export revenue has to come from actual hardware or systems that a foreign buyer is willing to pay for. That makes export growth a more honest barometer of industrial capability than aggregate production numbers.

The flagship export is the BrahMos supersonic cruise missile. India delivered two of three batteries to the Philippines under a $375 million contract signed in 2022. The first batch was delivered by an IAF C-17 Globemaster in April 2024. Indonesia signed a BrahMos deal worth approximately $440 million in early 2025. The Akash surface-to-air missile system went to Armenia under a $720 million agreement, and DRDO-developed Pinaka guided rockets followed under a separate $250 million deal.

These are not assembly jobs. BrahMos, despite being a joint venture with Russia's NPO Mashinostroyeniya, involves substantial Indian manufacturing. Akash and Pinaka are DRDO-developed systems. When the Philippines or Armenia chooses to buy, it validates Indian engineering in a way that domestic production numbers cannot.

There is one wrinkle worth noting. According to the Observer Research Foundation, private sector firms exported ₹15,233 crore in FY2024-25, compared to ₹8,389 crore from DPSUs. The private sector, despite contributing only a quarter of domestic production, is outperforming public sector giants in export markets. Bharat Forge, for instance, generated 90% of its ₹1,561 crore defence revenue from exports. This pattern suggests that when companies face genuine international competition rather than captive domestic procurement, private firms are more agile.

The policy ecosystem supporting this export growth is substantial. The Defence Acquisition Procedure 2020 introduced a "Buy (Indian-IDDM)" procurement category mandating minimum 50% indigenous content. Five positive indigenisation lists have created exclusive market niches for domestic manufacturers. The Defence Production and Export Promotion Policy of 2020 set explicit revenue and export targets. And the iDEX programme has funded over 549 problem solutions across 619 startups, creating a pipeline of innovation that did not exist a decade ago.

But the Standing Committee on Defence has also flagged persistent obstacles: untapped DPSU production capacity, foreign OEM permission delays for components, and sluggish implementation of indigenisation commitments. Policy announcements and ground-level execution remain two different things.

The SIPRI Elephant in the Room

Here is the number that rarely appears alongside the ₹1.78 lakh crore headline.

According to SIPRI's March 2026 report, India remains the world's second-largest arms importer, accounting for 8.2% of global arms imports between 2021 and 2025. Only Ukraine, whose imports surged due to the ongoing war, ranked higher.

India's arms imports did decline by 4% compared to 2016-2020, a trend SIPRI partially credits to growing indigenous capability. But the institute immediately qualifies this by noting that India's "recent orders or planned orders, including up to 140 combat aircraft from France and 6 submarines from Germany, indicate its continued and probably increasing reliance on foreign suppliers."

The shift is not in scale but in supplier. Russia's share of India's arms imports dropped from 70% in 2011-2015 to 40% in 2021-2025. France has moved to 29% of India's imports, largely through Rafale deliveries and submarine contracts. Israel accounts for 15%.

In March 2026, the Defence Acquisition Council cleared proposals worth $25 billion, covering transport aircraft, remotely piloted strike systems, additional S-400 air defence batteries from Russia, and other platforms. That is $25 billion in imports approved in a single sitting, roughly six months before the ₹1.78 lakh crore production announcement.

India's defence spending itself tells part of the story. According to SIPRI, India's military expenditure reached $92.1 billion in 2025, making it the world's fifth-largest spender after the United States, China, Russia, and Germany. The FY2026-27 defence budget stands at ₹7.85 lakh crore, with ₹1.39 lakh crore earmarked exclusively for domestic procurement, representing 75% of the total capital acquisition budget. That domestic earmark is significant. But it coexists with a separate import pipeline that runs in parallel.

How Indian media handled this juxtaposition reveals the framing problem. When the DAC approves import proposals, it is reported as "strengthening national security" or "modernising the armed forces." When production numbers hit a record, it is "Make in India success." The two narratives coexist without anyone pointing out the tension between them. India is simultaneously breaking production records and greenlighting its biggest-ever import shopping list.

Where the Real Gaps Are

The Engine Problem

No single issue captures India's defence production limitations like aero-engines. The KAVERI engine programme, initiated by DRDO in 1989, was meant to power the indigenous Light Combat Aircraft. After decades of development, it "was unable to meet the necessary performance standards," and HAL had to rely on General Electric's F404 engine for the Tejas.

For the Tejas Mk-2, India has signed a technology-transfer agreement with GE for the F414 engine. Technology transfer, in defence, is a negotiated term. Foreign suppliers routinely restrict the most sensitive design knowledge. Indian manufacturers gain production methodology without full design autonomy. You can build the engine, but you cannot redesign it independently.

This matters because an aero-engine is not just a component. It is the single most complex piece of engineering in a combat aircraft. Without propulsion self-reliance, India cannot offer complete, strings-free weapons platforms to export customers. The ₹1.78 lakh crore figure does not distinguish between platforms powered by indigenous engines and those dependent on imported powerplants.

The Timelines Problem

A 2023 Comptroller and Auditor General analysis of 178 DRDO projects found that 119 failed to meet their original timelines. The Tejas programme itself took approximately two decades from approval to first flight in 2001. The Standing Committee on Defence has repeatedly flagged untapped DPSU capacity, delayed delivery schedules, and bureaucratic bottlenecks in procurement.

The Social and Political Research Foundation puts it bluntly: the lack of a single-window clearance mechanism for defence manufacturing forces firms to navigate multiple departments, each with its own procedures and timelines. Private firms, especially startups and MSMEs, face higher costs and uncertainty.

The R&D Deficit

India allocates 5.5-6.5% of its defence expenditure to R&D, well below what global defence leaders spend. At the national level, India's overall R&D spending sits at 0.7% of GDP, compared to China's 2.4% and Israel's 5.4%.

The DRDO budget for FY2026-27 was increased to ₹29,100 crore, with 25% now opened to private industry and startups. But the gap between India's R&D investment and its peers remains vast. Without sustained research spending, the country risks building an industrial base that can assemble and maintain, but not innovate at the frontier.

How Media Framed It: Two Parallel Universes

Coverage of the ₹1.78 lakh crore announcement followed a predictable pattern.

Pro-government outlets ran celebratory headlines. BusinessToday led with "India's defence production surges to all-time high." BizzBuzz called it "a massive leap from a decade ago." The narrative: Atmanirbhar Bharat is working, India is becoming a defence powerhouse, and the private sector is finally stepping up.

Opposition-aligned outlets mostly downplayed or ignored the announcement. When they did cover it, the focus shifted to import dependency. Left Views ran with the SIPRI angle: "India Remains World's Second-Largest Arms Importer Despite 'Make in India' Push."

Neither framing was wrong. Both were incomplete.

The production number is genuinely impressive compared to a decade ago. ₹43,746 crore in FY2013-14 to ₹1.78 lakh crore in FY2025-26 is a fourfold increase. Exports have grown even faster. The ecosystem of private defence firms, iDEX startups, and policy reforms is real and expanding.

But the number also includes maintenance revenue from ageing imported platforms, licensed assembly of foreign designs, and services that do not represent indigenous manufacturing capability. And it exists alongside India's position as the world's second-largest arms buyer, with $25 billion in new import approvals in the same fiscal year.

The story that no outlet told is the story of both things being true. India is building more, exporting more, and diversifying its industrial base. India is also still buying massively from abroad, especially for platforms at the technological frontier. The production number captures only the first half. The SIPRI ranking captures only the second. The complete picture requires holding both.

What the ₹3 Lakh Crore Target Actually Needs

The government has set a target of scaling defence production to ₹3 lakh crore and exports to ₹50,000 crore. If FY2025-26 trends continue, the export target looks achievable. The production target is harder to assess because of the definitional ambiguity.

If India wants the ₹3 lakh crore figure to mean something beyond accounting, three things need to change.

First, transparency in what gets counted. The Ministry of Defence should publish a clear methodology for the headline production figure, separating new manufacturing from MRO, licensed assembly from indigenous design. Without this breakdown, the number is impressive but opaque.

Second, R&D spending needs a structural jump. From ₹29,100 crore for DRDO against a defence budget of ₹7.85 lakh crore, R&D remains a fraction. The 25% allocation to private industry is a start, but the absolute quantum needs to grow if India wants to move beyond assembling foreign designs.

Third, the private sector needs a larger share of domestic procurement, not just exports. Private firms already outperform DPSUs in export markets. The ORF analysis showed private sector exports at ₹15,233 crore versus DPSU exports at ₹8,389 crore. But domestically, DPSUs still command 76% of production. If competition drives better outcomes in export markets, it stands to reason that more competition would improve domestic procurement too.

The Question Nobody Is Asking

The ₹1.78 lakh crore number is not fabricated. India's defence industrial base has genuinely expanded. BrahMos deliveries to the Philippines and Akash to Armenia are real achievements that no amount of scepticism can diminish. The growth trajectory since 2014 is steep and sustained.

But a country that simultaneously announces record defence production and clears $25 billion in new arms imports is telling you something. The production number measures output. It does not measure self-reliance. Until India can build an aero-engine that powers its own fighters, until it can offer submarines and advanced combat aircraft without foreign design dependence, the headline number will remain a measure of activity, not autonomy.

The right question is not whether ₹1.78 lakh crore is impressive. It is. The right question is how much of that figure represents the kind of capability that means India can say no to a foreign supplier and still equip its forces. On that measure, the journey is far from over.

For readers following this space, the number to watch is not aggregate production. It is the ratio of new indigenous manufacturing to total output, the trajectory of defence R&D as a share of GDP, and whether India's next fighter flies on an Indian engine. Those metrics will tell you whether India is building power or performing it.

Sources

• Business Standard: India's annual defence production surges to ₹1.78 trillion in 2025-26 - FY26 production figures, Rajnath Singh quote
• BusinessToday: India's defence production surges to all-time high - Historical growth, export data, DPSU/private split, BrahMos/Akash/Pinaka exports
• ThePrint: India remains 2nd largest arms buyer, Russia's share drops - SIPRI rankings, supplier shift data, DAC $25B approvals, import decline
• SPRF: India's Defence Manufacturing Ecosystem: Between Ambition and Execution - CAG project delays, KAVERI engine failure, R&D spending gap, regulatory challenges
• ORF: Exporting Self-Reliance - Private vs DPSU export comparison, policy architecture, Bharat Forge data
• DDP MoD: HAL Company Profile - HAL MRO revenue share (72%), revenue figures
• The Indian Hawk: India Arms Imports vs Domestic Production 2026 - R&D spending comparison, technology transfer limitations, import dependency analysis
• Business Standard: India exports second batch BrahMos to Philippines - Philippines BrahMos delivery details
• Defence Standard: Indonesia BrahMos Deal - Indonesia BrahMos agreement
• IJEML Research Paper: India's Defence Export Trajectory - DRDO budget ₹29,100 crore, defence budget ₹7.85 lakh crore, DAP 2020 details
• BizzBuzz: India's Defence Production Hits Record - Media framing example
• Left Views: India Arms Dependence on Western Suppliers - Opposition media framing example
• Department of Defence Production - Official source for production methodology context