India’s defence sector is witnessing a significant transformation, especially for small private defence firms, which are poised for strong growth thanks to a wave of policy reforms and increased localisation efforts. Over the last few years, the government has aggressively pushed to localise defence production, aiming to reduce dependency on imports and boost domestic manufacturing capabilities. This shift has resulted in a jump in domestic procurement volumes, which have grown from 71,000 to nearly 1,20,000 in just three years, signaling a robust appetite for indigenously made defence equipment.

One of the key drivers behind this growth is the Indian government’s strategic policy reforms aimed at fostering innovation and competitiveness within the private defence sector. These reforms have streamlined regulatory hurdles, introduced incentives, and encouraged private companies to participate more actively in defence manufacturing. This has not only expanded the market but also helped create a more vibrant ecosystem where research and development can flourish.

According to recent reports, private defence firms are expected to deliver a revenue growth rate of approximately 16-18% in the fiscal year 2026. This strong performance is underpinned by solid order book inflows, which currently stand at an impressive Rs 55,000 crore, reflecting the deepening trust and preference of the government for private players.

The increased localisation drive means indigenous suppliers, many of them small or medium-sized enterprises, are playing a crucial role in meeting the armed forces’ requirements. These firms are quickly becoming indispensable in supplying critical components, equipment, and services. Crucially, the government’s initiatives also involve extensive support measures such as easing access to finance, improving infrastructure, and promoting public-private partnerships, which collectively enable small players to scale up rapidly.

Furthermore, the policy environment encourages innovation, particularly in cutting-edge technologies like artificial intelligence, drones, and modern communication systems. This focus is enabling smaller firms to carve out niche segments in the defence industry, which were traditionally dominated by large conglomerates or foreign suppliers. As these smaller companies develop next-generation technology solutions, they contribute not just to self-reliance but also to elevating India’s defence manufacturing standards globally.

Investor interest in this sector has also surged, buoyed by promising growth prospects and the broader geopolitical context underscoring the need for a robust domestic defence infrastructure. Volatility in global markets notwithstanding, the domestic defence manufacturing space for small firms is emerging as a strong candidate for long-term investment with government backing.

In summary, the combination of strategic policy reforms, increased localisation, government incentives, and a focus on innovation are collectively driving a new era of growth for small private defence firms in India. As these companies expand their capabilities and order books, the future looks decidedly bright, not only for the firms themselves but also for India’s broader ambitions to become a global defence manufacturing hub.