Aerospace, Defence & Space

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Aerospace and Defence sector in India is at an inflection point

Given the modernisation and indigenisation programmes being undertaken by all the three services of one of the largest military forces in the world. The Ministry of Defence in India has laid out an expansive plan for modernisation of obsolete equipment through the long-term perspective plans, capability plans, capability roadmaps and capital acquisition plans.

India being one of the largest importers of arms and defence platforms, the three services, supported by specialised inter-service commands and institutions, have collectively taken upon themselves to be harbingers of ‘Make in India’ for hardware and infrastructure being inducted into their fold.

The Government of India had also identified the Aerospace and Defence sector as a focus area for the ‘Make in India’ (i.e. ‘Aatmanirbhar Bharat’) programme has taken considerable steps to push forth the establishment of indigenous manufacturing infrastructure supported by requisite research and development ecosystem. This is thoroughly evident in the substantial changes introduced in the defence policy framework in 2020, which is now based on the cornerstone of indigenous manufacturing and value addition. With India also opening its space sector for private and foreign participation, this domain could further help in establishing long term opportunities and partnerships, capitalising the synergies in defence and space.

An interplay of policies governing the sector clearly carve out the integral role of Indian manufacturing and value addition in future procurements. One development supporting the above is the establishment of two defence corridors at Uttar Pradesh and Tamil Nadu. These two corridors shall focus upon development of indigenous manufacturing capabilities and in turn become the springboard for all development activities undertaken by the government in the sector.

The aerospace and defence sector is pivotal to India's economic growth and national security. With the Ministry of Defence designating 2025 as the ‘Year of Reforms’, there is a pronounced emphasis on enhancing domestic defence manufacturing capabilities with a strategic focus on exports. This initiative aims to diminish import dependency and bolster self-reliance. Consequently, new opportunities are emerging for Original Equipment Manufacturers (OEMs) and tier vendors.

Gaurav Mehndiratta

Partner and National Leader - Corporate and International Tax, KPMG in India

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Driving growth with Aerospace, Defence & Space

Union Budget 2026-27
Future ready aviation system
Fueling India’s Defence Industry
Sustainable skies

Gaurav Mehndiratta

Partner and National Head, Corporate and International Tax

KPMG in India

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A notable policy move in this year’s Budget is the extension of Basic Customs Duty (BCD) exemption to raw materials used in manufacturing aircraft parts for MRO purposes, including engines – though limited to imports made by PSUs. This is a welcome step in strengthening domestic MRO capability and supply‑chain competitiveness.

At the same time, certain areas fell short of industry expectations. The defence R&D capital outlay, a long-standing priority for long term capability development, remains broadly unchanged at ~8% of total defence Capex Budget. The Space Sector has similarly seen only a modest 2.2% YoY rise to INR 13,706 crore (~USD 1.5 Bn), signaling a measured spending stance despite the sector’s rapidly evolving strategic relevance globally.

Overall, with the Defence sector once again receives the highest allocation among all ministries – accounting for nearly 15% of the Union Budget [INR 7.84 lakh crore (~USD 85.6 Bn) out of INR 53.5 lakh crore (~USD 583 Bn)]. The government has reaffirmed its sustained commitment to strengthening India’s defence preparedness. While the Budget delivers a strong capability focused push, it also underscores the need for continued dialogue around innovation led enablers such as R&D and Space.

Akhilesh Tuteja

Partner & National Leader, Clients and Markets

KPMG in India

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India's aviation sector is on the cusp of transformative scale and a clear pathway to building a super connected, globally competitive ecosystem. With AI powered operations, multimodal integration, and future ready infrastructure, the opportunity to support over a billion annual passenger journeys by 2047 is within reach.

Strengthening domestic manufacturing, MRO, leasing, cargo and skilling will be essential to converting this scale into lasting strategic advantage. At the same time, advancing sustainable aviation fuels and next gen technologies will anchor long term resilience and environmental leadership. With disciplined execution and aligned collaboration, India can emerge as one of the world’s most efficient and future ready aviation systems.

Gaurav Mehndiratta

Partner and National Head, Corporate and International Tax

KPMG in India

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For India to become a global defence industrial power, increased capital expenditure and a significant boost to defence R&D are crucial. Bold tax incentives will encourage private sector and startup involvement in defence production and exports.

Vivek Rahi
Jodhbir Sachdeva

Vivek Rahi

Partner and National Head - Oil & Gas

KPMG in India

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India’s SAF journey will be built on the intelligent use of our abundant feedstock base - from agricultural residues and municipal solid waste to press-mud and used cooking oil. With technology pathways such as HEFA, alcohol-to-jet and FT moving towards scale, it is important that we develop multiple pathways in parallel, as no single route can meet our long-term needs. The key will be establishing viable supply chains and long-term offtake frameworks involving airlines, OMCs, and technology providers.

Jodhbir Sachdeva

Associate Partner, Aviation

KPMG in India

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India's aviation sector is at a defining moment, balancing rapid growth with climate responsibility. Even as airlines induct new fuel-efficient aircraft, overall fuel use continues to rise with expanding capacity. Sustainable Aviation Fuel offers the most scalable path towards decarbonisation and presents India with a strategic opportunity to lead this transition.

Driving impact through delivery

Policy overview

KPMG in India provides expert interpretation and guidance on the Defence Acquisition Procedure (DAP) 2020, focusing on its provisions related to acquisition procedures. Our team helps clients navigate the complexities of DAP 2020, ensuring compliance and optimising acquisition strategies. We offer insights into the policy's impact on procurement processes, helping businesses align with national defence priorities and achieve their strategic objectives.

Indigenous content optimisation

KPMG in India is driving transformational impact by leveraging the Indigenous Content (IC) policy. We devise strategies to enhance Indian value addition and optimise IC, ensuring businesses potentially benefit from enhanced local sourcing and compliance with national priorities. Our services include evaluating the feasibility of meeting IC requirements, assisting in the review of IC computations, analysing compliance requirements for tier vendors involved in contracts, and obtaining express clarifications on IC computations from the Indian Ministry of Defence.

Industrial license/arms license

KPMG in India offers expert assistance in navigating the complexities and seeking approvals and clarifications related to industrial license/ arms license requirements on proposed activities for clients as governed by Industries (Development and Regulation) Act, 1951 and Arms Act 1959 and Arms Rules, 1962. Our services include determining the applicability of industrial licenses, obtaining express clarifications on their applicability, and providing extensive support in securing the necessary licenses. Through these tailored services, KPMG in India helps ensure clients achieve compliance and streamline their operations effectively.

Offsets

KPMG in India offers an extensive overview of the Indian Defence Offset Policy, fostering indigenous capabilities. We provide detailed mechanics and avenues for offset discharge, ensuring clients are well-informed. Our market landscape analysis highlights numerous offset opportunities, driven by the demand for advanced defence technologies and the government's push for self-reliance. Additionally, we showcase key players fulfilling offset obligations for Original Equipment Manufacturers (OEMs) in India. Through these strategic initiatives, KPMG in India assists clients in navigating the complexities of the offset policy, assist in compliance and maximising benefits.

Tax optimisation

KPMG in India is dedicated to providing comprehensive tax-related services, including methodologies for tax optimisation, assisting in availing tax exemptions, identifying tax-optimised business structures, and formulating implementation strategies. Additionally, KPMG in India supports bid preparation through tax cost evaluation and contract review, analyses tax implications on technical and commercial offers, and assists in tax repatriation and devising exit strategies to clients across the globe regarding Indian Regulatory and Taxation laws.

Import/export policy

KPMG in India is actively assisting with the policy regarding regulation of defence equipment import and export. We provide expertise in navigating the Indian Trade Classification based on the Harmonised System (ITC HS policy), which includes specific restrictions and prohibitions on the import or export of certain notified goods. Our guidance assists compliance with these regulations, facilitating smooth and efficient trade operations.

Policy overview Indigenous content optimisation Industrial license/arms license Offsets Tax optimisation Import/export policy

Policy overview

KPMG in India provides expert interpretation and guidance on the Defence Acquisition Procedure (DAP) 2020, focusing on its provisions related to acquisition procedures. Our team helps clients navigate the complexities of DAP 2020, ensuring compliance and optimising acquisition strategies. We offer insights into the policy's impact on procurement processes, helping businesses align with national defence priorities and achieve their strategic objectives.

Indigenous content optimisation

KPMG in India is driving transformational impact by leveraging the Indigenous Content (IC) policy. We devise strategies to enhance Indian value addition and optimise IC, ensuring businesses potentially benefit from enhanced local sourcing and compliance with national priorities. Our services include evaluating the feasibility of meeting IC requirements, assisting in the review of IC computations, analysing compliance requirements for tier vendors involved in contracts, and obtaining express clarifications on IC computations from the Indian Ministry of Defence.

Industrial license/arms license

KPMG in India offers expert assistance in navigating the complexities and seeking approvals and clarifications related to industrial license/ arms license requirements on proposed activities for clients as governed by Industries (Development and Regulation) Act, 1951 and Arms Act 1959 and Arms Rules, 1962. Our services include determining the applicability of industrial licenses, obtaining express clarifications on their applicability, and providing extensive support in securing the necessary licenses. Through these tailored services, KPMG in India helps ensure clients achieve compliance and streamline their operations effectively.

Offsets

KPMG in India offers an extensive overview of the Indian Defence Offset Policy, fostering indigenous capabilities. We provide detailed mechanics and avenues for offset discharge, ensuring clients are well-informed. Our market landscape analysis highlights numerous offset opportunities, driven by the demand for advanced defence technologies and the government's push for self-reliance. Additionally, we showcase key players fulfilling offset obligations for Original Equipment Manufacturers (OEMs) in India. Through these strategic initiatives, KPMG in India assists clients in navigating the complexities of the offset policy, assist in compliance and maximising benefits.

Tax optimisation

KPMG in India is dedicated to providing comprehensive tax-related services, including methodologies for tax optimisation, assisting in availing tax exemptions, identifying tax-optimised business structures, and formulating implementation strategies. Additionally, KPMG in India supports bid preparation through tax cost evaluation and contract review, analyses tax implications on technical and commercial offers, and assists in tax repatriation and devising exit strategies to clients across the globe regarding Indian Regulatory and Taxation laws.

Import/export policy

KPMG in India is actively assisting with the policy regarding regulation of defence equipment import and export. We provide expertise in navigating the Indian Trade Classification based on the Harmonised System (ITC HS policy), which includes specific restrictions and prohibitions on the import or export of certain notified goods. Our guidance assists compliance with these regulations, facilitating smooth and efficient trade operations.

KPMG in India’s advanced capabilities in the space industry

Market opportunities assessment in the space sector.

Feasibility studies for space infrastructure.

Regulatory and policy ecosystem analysis.

Policy formulation for sectoral advancement.

Strategic planning and developing vision/mission statements.

Tax evaluation of proposed business models as well on transfer of technology.

Business case development and preparation of Detailed Project Reports (DPRs).

Implementation roadmap design.

Extensive implementation support through Project Management Unit including bid process management.

How can KPMG in India help?

The Aerospace and Defence practice has a well-established track record of advising government as well as most of the leading global and Indian original equipment manufacturers and other members of the A&D supply chain. We have a well-defined and robust approach to support our clients effectively across a spectrum of projects in business performance services, transaction services and tax and regulatory services including offset advisory.

We provide consulting services across the project lifecycle including but not limited to:

Indigenous Content optimization
Defence acquisition procedure advisory
Offset advisory and implementation support
Bid management
Industrial licensing support

Programme management
Foreign direct investment assistance
Market research and entry strategy
Partner search and collaboration
Transaction services

Tax optimisation
Supply chain management
Technology transformation

Why select KPMG in India?

We at KPMG in India recognise the significant opportunity that the Aerospace and Defence sector presents to our clients. We have an extensive team of specialists comprising policy experts, personnel who were formerly with the Indian armed forces, defence procurement and programme development along with subject matter experts from aerospace and defence manufacturing who have previously worked with R&D organisations to assist clients and provide comprehensive services from strategy formulation to execution. Our team is complimented by a strong international network of global defence teams, working in tandem with each other. We have played an integral role in serving most of the major stakeholders of the sector viz.

Our credentials across

construction

Original equipment manufacturers/Corporations

Assisted some of the largest players in the world in bid structuring, offset filings, entry strategies and devising offset compliant tax-efficient ownership and operating structures, business restructuring etc. Advised numerous entities (including tier-1 vendors) on policy framework, eligibility as an Indian offset partner, collaboration and other business opportunities, sector landscape etc.

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Government

Collaborated with the government on various critical and strategically important mandates. Official advisors to the government on a number of marque projects like assisting the nodal agencies for both defence corridors in programme management to achieve specific objectives and assisting space authorities to understand the market for satellite services in India and Indian sub-continent region.

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Public sectior undertakings

Spearheaded pertinent assignments for public sector undertakings (PSUs) involving diverse range of services like contract negotiation and structuring, strategic and operational assistance in corporatisation and comprehensive market assessment and entry strategy.

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Industry associations

Joined forces with leading industry associations in various capacities including those of leaders, knowledge partners and members. Frequent keynote speakers in knowledge sharing events and active participants in numerous policy advocacy initiatives.

Being a sensitive sector critical to national security, the A&D sector is one of the most highly regulated sectors of the Indian economy. Our team helps a number of major defence players to navigate through the interplay of various policies and regulations governing the sector, including procurement policy, import and export regulations as well as tax.

The Aerospace and Defence practice of KPMG in India has also been at the forefront of reform advocacy in the sector. It has led a number of policy-streamlining initiatives with the Ministry of Defence and has developed concept papers and thought leaderships leading to progression of reforms. The firm provided a number of significant inputs to the Indian Ministry of Defence in relation to some important aspects of the procurement policy. Several recommendations contributed towards fine tuning defence contracting in line with global best practices. KPMG in India was also recognised as a key stakeholder in policy formulation by the Ministry while announcing the Defence Acquisition Procedure, 2020.

The practice holds marquee credentials and significant experience across all areas of consulting engagement. The team has been able to leverage the experience that it has garnered from personal engagement with the Aerospace and Defence sector as well as the engagements taken up as a practice to deliver substantial value to our clients and to assist them in their strategic pursuits in the sector.

India Union Budget 2026-27: Our Sector Insights

Download KPMG in India point of view on the Union Budget 2026-27 - Aerospace and Defence

KPMG in India point of view 2026 - Aerospace and Defence

Reflects a maturing defence industrial base, and a deepening commitment to building a self-reliant, globally integrated A&D ecosystem

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