2 weeks ago
Rs 9.3 lakh crore defence approvals mask slower domestic pipeline
India's government wants to buy a lot of new equipment for its military, and before it buys something it must first approve the purchase.
That approval is called an 'Acceptance of Necessity.'
This year, the total value of those approvals reached about 9.3 lakh crore rupees, which sounds like a huge jump.
But a big part of that number comes from just a few very expensive foreign purchases, like French Rafale fighter jets and Russian S-400 air defence systems.
If we remove those, the amount approved for everything else is about 4.5 lakh crore rupees, close to the level two years ago.
Experts at a company called Kotak Institutional Equities studied these approvals.
They expect the approvals to turn into around 6.5 to 7 lakh crore rupees of real orders in the next few years.
They also noticed that new technology like drones and missiles is becoming more important in India's military shopping list.
Indian companies like HAL, BEL, Tata Advanced Systems and L&T are expected to build many of these systems.
India's Acceptance of Necessity (AoN) approvals for defence procurement hit a record Rs 9.28 lakh crore in FY26, up from roughly Rs 90,600 crore in FY21, according to Kotak Institutional Equities.
The FY26 headline is inflated by import-heavy mega programmes, including a roughly Rs 3.2 lakh crore Rafale fighter deal with France's Dassault and about Rs 2.4 lakh crore for the S-400 air defence system, Medium Transport Aircraft and tank ammunition sourced from Russia, Lockheed Martin, Airbus and Embraer.
Excluding those programmes, the underlying AoN run-rate falls to around Rs 4.5 lakh crore, broadly comparable with FY24 rather than a dramatic acceleration.
Kotak estimates the pipeline could produce Rs 6.5-7 lakh crore of defence orders during FY27-29, implying about 15% compound annual growth in order inflows.
FY26 approvals also covered new-age technologies such as loitering munitions, drones, Astra Mk-II missiles and high-altitude pseudo satellites, with HAL, BEL, Tata Advanced Systems and L&T among likely beneficiaries.
Kotak noted the front-loading of approvals is significant because approvals create a pipeline for future contracts, though conversion into actual orders is not immediate.
- Who
- The Defence Acquisition Council (DAC) granted the Acceptance of Necessity approvals; brokerage Kotak Institutional Equities analysed the pipeline; companies such as HAL, BEL, Tata Advanced Systems and L&T are positioned to benefit.
- What
- India's defence procurement approvals jumped to a record Rs 9.28 lakh crore in FY26, though the underlying domestic run-rate is closer to Rs 4.5 lakh crore.
- Where
- India.
- When
- FY26, with trend data from FY21 to FY26 presented in Kotak Institutional Equities' July report.
- Why
- The government is front-loading approvals to build a future defence order pipeline for modernising the military and supporting Indian industry.
Pipeline Growth Optimists
Caution on Headline Numbers
Reading the Rs 9.3 lakh crore approval surge
Pipeline Growth Optimists
The sharp jump in AoN approvals signals a substantially expanded defence procurement pipeline that should translate into Rs 6.5-7 lakh crore of orders during FY27-29 and roughly 15% annual growth in order inflows.
Caution on Headline Numbers
The record FY26 figure is inflated by a few import-heavy mega programmes; excluding them, the underlying run-rate of around Rs 4.5 lakh crore shows the domestic procurement cycle has not accelerated at the same pace.
Domestic industry versus foreign platforms
Pipeline Growth Optimists
The growing pipeline creates major opportunities for Indian public and private companies across aerospace, defence electronics, missiles and shipbuilding, with offset obligations adding further scope.
Caution on Headline Numbers
The core procurement in the largest programmes involves foreign platforms from Dassault, Russia, Lockheed Martin, Airbus and Embraer, so a large share of the spending may not accrue to Indian manufacturers.
Key facts
- FY26 AoN approvals
- Rs 9.28 lakh crore (record high; up from Rs 90,600 crore in FY21)
- Underlying FY26 run-rate
- Rs 4.5 lakh crore after excluding import-heavy mega programmes
- Rafale/MRFA programme
- About Rs 3.2 lakh crore; roughly 30% of FY26 approvals; largest single DAC clearance on record
- S-400, Medium Transport Aircraft & ammunition programmes
- About Rs 2.4 lakh crore; roughly another quarter of FY26 approvals
- Projected defence orders FY27-29
- Rs 6.5-7 lakh crore; about 15% compound annual growth in order inflows
- Cumulative AoNs FY21-FY26
- Rs 16.16 lakh crore vs defence capital expenditure of Rs 9.16 lakh crore
- FY24 highlights
- 97 Tejas Mk1A fighters, 156 Prachand helicopters and Su-30 MKI upgrades totalling about Rs 2.2 lakh crore (46% of FY24), accruing to HAL
- Likely beneficiaries
- HAL, BEL, BDL (public); Tata Advanced Systems, L&T, Bharat Forge, Solar Industries (private); GRSE, Mazagon Dock, Cochin Shipyard (naval)
Quotes
Kotak Institutional Equities
Analyst team from Kotak Institutional Equities
“Kotak estimates that the current pipeline could translate into Rs 6.5-7 lakh crore of defence orders during FY27-29”
financialexpress.com
“After stripping the major import‑heavy programmes, the underlying domestic run‑rate sits near Rs 4.5 lakh crore”
financialexpress.com
Sources
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