The world’s defence environment is changing fast. With rising geopolitical tensions, nations are investing heavily to strengthen their defence capabilities. Defence is intrinsically tied up with national strength and sovereignty–strategic, economic and industrial.

      Against this backdrop India’s defence journey feels especially meaningful. Our defence ecosystem has visibly strengthened–with production reaching an all-time high, crossing INR1,50,000 crore (+18 per cent) and exports touching a record INR23,000 crore in FY25 (+12 per cent).What’s encouraging is that this momentum is not limited to a few large players–private industry, MSMEs and startups are becoming core to the story. And the innovation engine is running strong too–from developing ramjet-assisted 155mm artillery shells2 to soon rolling out the first ‘Made in India’ C-295 medium-range tactical transport aircraft, recent achievements show promise and domestic capacity building.3 Another example is strengthening the sea-based leg of the nuclear triad. With two already operational, India is now close to commissioning its third indigenously built nuclear-powered submarine, a strong signal of growing self-reliance in strategic capability.

      The progress so far is strong, but what else can we do in 2026 to accelerate this momentum? Here are five priorities that can make a real difference:

      • Keep defence budget growth strong and push more into capex

        The upcoming budget can sustain 10 per cent overall budget growth, while raising capital spend to around 30 per cent.4 This can help in directly funding new-age frontline capabilities–stronger border preparedness, smarter air defence and faster induction of critical systems

      • Double down on Atmanirbharta

        Budget 2026 can deepen indigenisation with higher allocations for indigenous procurement. Strengthening domestic supply chains and less dependence on imports can be a strategic priority. Capability can be built and retained in the country

      • Boost DRDO funding for deep-tech breakthroughs

        DRDO allocations can be raised (industry suggests +INR10,000 crore) to accelerate frontier R&D and fund more joint innovation projects with private players5

      • Back next-gen capabilities

        The government can also pivot strongly towards next gen tech, prioritising AI‑enabled, networked and multi‑domain capabilities, and help proven tech move quickly from trials to deployment

      • Boosting defence exports

        With a INR50,000 crore target by 2028–29, India can push for more export reforms.6 A defence export promotion council can be set up that can align MoD, DPSUs, private manufacturers, etc., for a more streamlined ecosystem

      The foundation is strong and the next phase is about accelerating this momentum into long-term capability.

      [1] Defence production soars to an all-time high of Rs. 1,51,000 crore (USD 17.25 billion) in FY25, IBEF, 11 August 2025, accessed on 23 January 2026

      [2] IIT Madras develops ramjet-assisted artillery shells, extends gun range by nearly 50 per cent, CNBC, 12 January 2026, accessed on 27 January 2026

      [3] First 'Made in India' C-295 aircraft to roll out before September, says Jaishankar, CNBC, 22 January 2026, accessed on 27 January 2026

      [4] AI-enabled warfare and more: Why Budget 2026 could be A turning point for India’s defence strategy, Times Now, 21 January 2026, accessed on 23 January 2026

      [5] Budget 2026 expectations for defence: Why capital outlay should be hiked for ‘Atmanirbharta’ - 4 points to focus on, Economic Times, 14 January 2026, accessed on 23 January 2026

      [6] AI-enabled warfare and more: Why Budget 2026 could be A turning point for India’s defence strategy, Times Now, 21 January 2026, accessed on 23 January 2026

      Author

       

      Neeraj Bansal

      Partner and Head India Global

      KPMG in India

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