 
The defence industrial sector of India is strategically important in India. India has one of the world's largest military forces with a strength of over 1.44 million active personnel. The country has the world's largest volunteer military of over 5.1 million personnel. The total budget sanctioned for the Indian military for the financial year 2021 is ₹ lakh crore (). India has the third largest annual defence budget behind USA (US$732 billion) and China (US$261 billion). The country's defence budget is projected to increase to US$415.9 billion between 2025 and 2029. It is the second largest defence importer behind Saudi Arabia making up 9.2% of global arms imports. India has a domestic defence industry of which 60% is government owned. The public sector includes NTRO, CSIR, PRL, DRDO and its 50 labs, 4 defence shipyards, 12 defence public sector undertakings (PSUs). India has a new defence procurement, acquisition and manufacturing policy to reduce imports and enhance domestic manufacturing.
"Defence Production Policy of 2018" (DPrP-2018) has a goal of becoming among the top 5 global producers of the aerospace and defence manufacturing with an annual export target of US$5 billion by 2025. 12% of worldwide arms exports (by value) reach India. India domestically produces only 70% to 75% of defence products it uses, and the rest are imported. India's defence exports were ₹4,682 crore (US$0.66 billion) in 2017–2018 and ₹10,500 crore (US$1.47 billion) in 2018–2019, of 2018–2019 exports India's 8 Defence Public Sector Undertakings (DPSU) and 41 Ordnance Factories (OF) contributed ₹800 crore (7.6% of total defence exports). During 2014 to 2018, India was the world's second largest defence importer.
USA is the largest importer of Indian made materials, alloys, steel, components and sub-systems. Armenia is the 2nd largest importer of Indian made finished weapon systems and equipment, and France is a large importer of electronics and software.
Military budget.
The military budget of India is about 1.49% for the year 2018–19 of the total GDP. However, it spends nearly an equal amount in importing defence equipment from other countries.
Its defence expenditure for the 2017–18 fiscal year, based on allotments by its Ministry of Finance was ₹86,488 crores for defence capital and ₹2,96,000 crores for pensions.
Service/ department-wise allocation as a percentage of total defence estimates in 2017–18:
The Indian Army accounts for more than half of the total defence budget of India, with most of expenditure going to the maintenance of cantonments, salaries and pensions, instead of critical arms and ammunition. As of 2019, there is 25% shortfall in the military's budget demand versus the actually budget allocation by the government. There are suggestion to use the military's land bank to generate more funds to bridge this gap for the modernisation of military with the latest equipment. From November 2019, government exempted the imported defence equipment from the customs and import duties for a period of five year during which domestic production is unlikely to meet the technical demand of the forces. This will result in a savings of ₹25,000 crore (US$3.5 billion) which could be used for the modernisation of the forces.
State orders.
The Government of India has been pushing for greater indigenisation of military hardware devices as India imports some amount of its defence equipment. Between 2016 and 2020, India accounted for 9.5% of total global arms imports. From 2000 to 2022, France, Israel, Russia, United Kingdom and the United States are the top 5 countries where India imports its ammunitions and weapons from. Thus in 2022, the Indian Government scrapped the import of several large defence platforms and equipment, which included helicopters for the Coast Guard, all-terrain vehicles (ATVs) and short-range missiles. In addition to this, the Ministry of Defence has started releasing indigenisation lists, which consists of equipment and platforms that the government aims to completely indigenise by December 2025. The Defence Ministry has also stated that the equipment and platforms that are on the third indigenisation list, could result in state orders that are worth more than Rs 2,10,000 crore being placed on the Indian defence industry in the next five years.
Compared to other military branches, the Indian Army consumes 50% of defence budget, is least technology intensive and slowly adopting the indigenisation of defence equipments which has multi-year long procurement cycle, and pre-purchase field trials last for several years sometimes without resulting in any procurement process, for example soldier's hand held GPS enabled indigenous "Sathi" PDA "Beta Project" was abandoned midway and soldiers still do not have a PDA. To expedite the development cycle of new technologies and to better fit the end user requirements, army has asked DRDO to take more army personnel on deputation to be part of the DRDO development project teams.
The Indian Armed forces are using numerous successful Indigenous technologies produced by the DRDO, including Varunastra, Maareech, Ushus, Advanced Light Torpedo (TAL) Shyena; Electronic Warfare Technologies, radars, composite materials for LCA, AEW&amp;C, Astra, LCA Tejas by the Indian Airforce; ASAT, Brahmos, Nag missile, SAAW, Arjun MBT Mk1A, 46-metre Modular Bridge, MPR, LLTR Ashwin by the army.
Arms exports.
India's track record as an arms exporter has been modest due to export restrictions on the manufacturing companies. PSUs exports Arms and Ammunition, Weapon Spares, Chemicals &amp; Explosives, Parachutes, Leather and Clothing items to more than 30 countries worldwide e.g. Thailand, Malaysia, Indonesia, Sri Lanka, Bangladesh, Germany, Belgium, Turkey, Egypt, Oman, Israel, Kenya, Nigeria, Botswana, Chile, Suriname and United States.
However, due to opening up of the defence sector by the Prime Minister Narendra Modi's government since 2014, there has been a substantial increase in India's defence exports. According to the latest official data given in the upper house of the Indian Parliament - the Rajya Sabha, India's defence exports have jumped by 700% in just two years. The export authorisation went up from $213 million in FY 2016–17 to $1.5 billion in FY 2018-19 (April to March period). The Stockholm International Peace Research Institute has noted that three Indian companies that rank among the top-100 defence companies, viz., Hindustan Aeronautics Limited, AVANI and Bharat Electronics Limited, account for 1.2% of the defence exports of the top-100 total.
In March 2011 New Delhi agreed to sell its first indigenously designed and built multi-role offshore patrol vessel (OPV) named Barracuda, to Mauritius. In March 2017, India finalised a deal with Myanmar for the sale of indigenously developed lightweight torpedoes worth US$37.9 million. Similar naval platforms were sold to Sri Lanka and Vietnam as well. Thailand has also purchased over 600 military trucks from India. Armenia has emerged as a strategic partner for India. In 2022, when India signed the deal to supply Pinaka multi-barrel rocket launchers (MBRL), anti-tank munitions, and ammunition worth US$250 million to Armenia
In September 2017, AWE secured its biggest export orders from UAE for supplying 40,000 no.of 155 mm artillery shells for (). In Aug 2019, AWE received a second order from UAE to supply another 50,000 artillery shells. 
In 2023, The Royal Moroccan Army, which received 92 Tata 8×8 LPTA 2445 trucks. Tata 8×8 LPTA 2445 trucks is based on Tata 1623 platform which is going to replace Tatra trucks in India. 
The Defence Minister Rajnath Singh has stated in 2021 that India was ready to export different types of missile systems, Light Combat Aircraft, helicopters, multi-purpose light transport aircraft, warships and patrol vessels, artillery gun systems, tanks, radars, military vehicles, electronic warfare systems and other weapons systems to Indian Ocean region nations. The Ministry of Defence's Year End Review 2023 states that exports for FY 2022–2023 totalled ₹16,000 crore. It covered 85 nations and reached a ten-fold increase from FY 2016–17. Major platforms exported include the Pinaka multi-barrel rocket launcher, radars, simulators, mine-protected vehicles, armoured vehicles, line replaceable units and parts, thermal imagers, body armours, ammunitions, small arms and avionics components. Other platforms include the Dornier-228, 155 mm/52 calibre DRDO Advanced Towed Artillery Gun System, BrahMos cruise missile, and Akash SAM.
In the fiscal year 2023–2024, defence exports totalled ₹21,083 crores (about $2.63 billion), a 32.5 per cent increase from the previous fiscal year. The data also show a 31-fold increase over the previous ten years when compared to 2013–14. The private sector and the defence public sector entities generated roughly 60% and 40% of exports respectively. About 100 companies are involved in the export of military gear. The total amount of defence exports from 2004–05 to 2013–14 was ₹4,312 crore; from 2014–15 to 2023–24, it increased to ₹88,319 crore. In the first quarter of the financial year 2024-25, defence exports reached ₹6,915 in value.
Companies.
Private companies.
"Indo-MIM" is the largest defence exporter company in India. The following are private Indian companies that are involved in the defence industry.
Domestic defence production.
Indigenisation.
In September 2019, DRDO formulated the "DRDO Policy and Procedures for Transfer of Technology" and released information on "DRDO-Industry Partnership: Synergy and Growth and DRDO Products with Potential for Export". During the Vibrant Goa Global Expo and Summit 2019 in October, DRDO signed technology transfer contracts with 16 Indian companies, including 3 startups, to produce products for the use by Indian Armed Forces. This included high shelf life, high nutrition, ready-to-eat on-the-go food products to be consumed in the difficult terrain and bad weather. To boost the domestic defense production capability, Defence Minister Rajnath Singh's November 2019 delegation included 50 Indian companies scouting for the Russian partners and joint ventures for the defence production in India. DRDO and ISRO have agreed to collaborate in India's crewed orbital spacecraft project called Gaganyaan during which DRDOs various laboratories will tailor their defence capabilities to suit the needs of ISRO's human space mission. To become technology research and production leader, reduce reliance on the imports and increase self-reliance, DRDO Chief called for more collaboration with the industry, private sector, research and education institutes including IITs and NITs.
Make in India.
The Modi government in its first year cleared 39 capital procurement proposals, of which 32 proposals worth () (or 96% of the value of total proposals) were categorized as "Buy (Indian)" and "Buy and Make (India)"—the top two prioritized domestic industry-centric procurement categories as per the defense procurement procedure (DPP). Under Prime Minister Narendra Modi's flagship scheme, "Make in India in Defence," the government's policies encourage domestic manufacturing and the export of defense equipment. It has already resulted in substantial growth of defence exports from the country as it jumped by 700% in just two years, from $213 million in FY 2016–17 to $1.5 billion in FY 2018–19. Encouraged by this scheme, the government set a target of achieving defence exports worth ₹35,000 crore ($4.87 billion) in the next four years.
In July 2015, the defence ministry eased export regulations and stopped demanding multiple assurances on end-use from foreign governments even for sale of components by Indian entities. Some critics say that instead of encouraging the manufacturing of equipment in India, the Modi government has given financial powers to the Armed forces to purchase equipment up to ₹500 crores without the consultation of the Ministry. This will further increase the types of weapons, their spares and components, cost of maintainability which will result in non-compatibility and standardisation problems in near future.
India's defence output value increased to roughly ₹1.27 lakh crore in FY 2023-24, from ₹1,08,684 crore in FY 2022–23, marking the country's highest-ever rise. The value of defence output has climbed by more than 60% during FY 2019–20. According to the Ministry of Defence, of the overall value of output in FY 2023–2024, PSUs contributed around 79.2%, while the private sector provided 20.8%. In FY 2023–24, defence exports reached a record high of ₹21,083 crore, up 32.5% from the previous fiscal year when they were ₹15,920 crores.
Research and development.
In 2024, Rajnath Singh, the Minister of Defence, stated that private sector defence companies need to take a more leading role in the industry, as they are better suited to innovate and respond to sectoral changes. As of 2024, research and development (R&amp;D) in the Indian defence industry is low compared to global peer companies, with Indian defence companies allocating 1.2% of their revenue to R&amp;D compared to the global average of 3.4%. There are companies that are exceptions to the low levels of R&amp;D, with HAL allocating 9.3% of revenue to R&amp;D, making the company among a leader in R&amp;D spending globally, and Bharat Dynamics allocating 6.1% to R&amp;D spending.
FDI in defence.
Even though the Modi government has been trying hard to get FDI in the defence sector by