India is moving from buying defence technology to building and exporting it. With spending rising from ₹2.53 lakh crore to ₹6.81 lakh crore (FY2025-26) and export targets set at ₹50,000 crore by 2029 - focused policy reforms are creating significant space for private manufacturers, startups and MSMEs.

Defence is now a connected system where science, manufacturing and software converge. Success requires combining technical depth with the discipline of certification and scale.

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Six opportunity lanes

The retooling of India’s defence sector is creating multiple high-value lanes. For founders, these six areas align national relevance with commercial opportunity.

1) Private defence manufacturing

Private participation now anchors India’s strategy for self-reliance. Companies such as L&T, Tata Advanced Systems and Bharat Forge are building subsystems for jets, artillery, submarines and electronic warfare platforms. The government has opened 74% FDI under the automatic route, simplified procurement and defined indigenisation lists that make domestic participation easier.

This clarity has encouraged joint ventures and technology transfers with global primes. Access to testing facilities and export channels has improved. As Indian firms meet delivery and quality standards, they are becoming trusted partners in international programmes.

2) Defence drones and counter-drone systems

India’s armed forces are scaling unmanned systems across surveillance and combat roles. Procurements now include AoN for 87 MALE armed drones and 31 MQ-9B UAVs, with overall demand expected in the thousands. This has created a strong local base of companies building loitering munitions, swarm drones and autonomous navigation systems.

Analysts project India’s drone market to reach tens of billions of dollars in the next decade. Local builders are focusing on mission-specific payloads, AI-based control and secure communication. With policy incentives and export scope, this is emerging as the most active deep-tech segment in defence.

3) Space for defence

India’s defence priorities now extend to orbit. Under SBS Phase-3, cleared by the Cabinet Committee on Security, around 52 satellites are planned by 2029 through ISRO and private launches. These will support surveillance, secure communication and early-warning systems.

This growth opens opportunities in sensors, payloads, encryption and jam-resistant communication. It also creates room for private software providers that manage tasking, data processing and analytics. Space contracts tend to be long-term, rewarding precision and sustained reliability.

4) Cybersecurity for mission systems

As more defence assets become networked, cyber assurance has become a strategic necessity. Systems for command, navigation and targeting must be protected from spoofing, intrusion and data breaches. The Ministry of Defence and its agencies are investing in encryption, hardened firmware and threat monitoring capabilities.

This creates demand for secure-by-design products made for constrained, high-stakes environments. Startups working on intrusion detection, firmware validation and encrypted communication can build defensible IP and integrate into mission systems. Cybersecurity is now central to operational readiness.

5) AI for operations and sustainment

AI is being integrated into core defence functions such as intelligence, maintenance and logistics. Budget lines now support AI in Intelligence, Surveillance and Reconnaissance (ISR), predictive upkeep and logistics optimisation, enabling startups to build AI modules that plug into command centres, surveillance systems and autonomous platforms.

Examples of this include image and signal analysis for intelligence, predictive maintenance for aircraft and AI-aided inventory planning. These projects reduce downtime and cost, improving overall mission efficiency. Founders who can deliver auditable, explainable AI systems will find steady adoption.

6) MSMEs in defence supply chains

India’s defence base now depends heavily on MSMEs. Through SRIJAN, Make-II and offset programmes, small firms are contributing to materials, machining, electronics and optics. Their agility and ability to localise manufacturing are key to indigenisation.

Progress here depends on process discipline. MSMEs that secure AS9100 or ISO certifications, maintain traceability and document every build are moving up the value chain. This space rewards consistency and compliance over volume.

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Why this is happening

Government policy has been both persistent and directional. Atmanirbhar Bharat, DAP 2020and Positive Indigenisation Lists have formally mandated and quantified the shift to local production.

This shift is facilitated by initiatives like iDEX (Innovations for Defence Excellence), which bridge startups with the armed forces to fund prototypes that turn innovation into deployable systems. Higher budgets, rising domestic production and collaboration with global primes have transformed defence into a credible market.

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Strategy to get along with it

The primary mandate for success is to start narrow and certifiable. This means focusing on one defensible product and ensuring it is built for compliance from day one, meeting Indigenisation Lists, MIL standards and export norms.

Startups should utilize public resources such as iDEX to validate their systems with user units and co-develop with established primes like HAL, BEL, L&T, or TASL.

The path for startups and MSMEs requires a focus closer to immediate execution. Register on SRIJAN and defence vendor portals for discoverability and perfect one assembly line by investing heavily in calibration, documentation and certification. This focus on quality and consistency will secure recurring contracts.

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In a nutshell

India’s defence build-out is real but progress compounds through reliable execution within a complex global supply chain. The opportunity is to build patiently at home, design for quality and sell to the world through deep engineering and compliance.