India’s FY25 defence capex stays at 0.49% of GDP vs 1% in US; Private sector defence production hits milestone – key stocks in focus

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Capex Trends and Global Comparison Market Impact and Sectoral Signals Outlook Ahead

New Delhi, July 11, 2025 – India may be at par with global economies in terms of total defence expenditure as a percentage of GDP (~1.8–2%), but it continues to significantly lag behind in capital investment, especially when compared to countries like the US, UK, and EU. In FY25, only 24.9% of India’s ₹6.2 lakh crore defence budget is earmarked for capital expenditure (capex) — well below the 37% in the US, 33% in the UK, and 31% in the EU.

This capex-GDP mismatch is critical as India seeks to modernise its armed forces and boost indigenous production amid rising geopolitical tensions in the Indo-Pacific and Middle East. Experts argue that unless capex allocation improves, defence readiness and domestic manufacturing targets could face serious constraints.

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Capex Trends and Global Comparison

India’s defence capex in FY25: ₹1.55 lakh crore (0.49% of GDP)
EU average capex: 0.4% of GDP
UK: 0.6% of GDP
US: 1% of GDP, rising from 0.92% in FY17
India: Declined from 0.56% in FY17 to 0.49% in FY25

Despite a steady defence budget, the capex share has remained flat at ~25% over 8 years, showing a limited structural shift in India’s procurement priorities. “We will seek to increase the share of defence expenditure in GDP from 1.9% to 2.5%,” a senior official from the Defence Ministry said, echoing similar strategies announced by NATO nations.

Market Impact and Sectoral Signals

With FY25 marking a pivotal year for India’s defence sector, traders are closely watching defence-linked stocks, especially in the private space. According to government data, private firms are expected to contribute 25% of India’s total defence production this fiscal, a new record. The number of indigenised items has doubled to 14,000 between FY23 and FY25, largely driven by startups and MSMEs.

Stocks to Watch:

Bharat Electronics (BEL) – PSU major with strong visibility from radar, missile systems
HAL, Mazagon Dock, BEML – with strong order books and indigenous push
Data Patterns, Paras Defence, Astra Microwave – private players benefiting from import substitution

While defence stocks have rallied over the past year, market participants believe the next leg of growth will come from the execution of Make-in-India contracts, export approvals, and visibility on multi-year orders.

Outlook Ahead

As India negotiates strategic defence pacts and explores tech transfer with the US, France, and Israel, the market anticipates more policy clarity on increasing capex allocation. Global volatility, China’s assertiveness, and the Russia-Ukraine war are likely to keep global defence stocks buoyant.

Traders should stay tuned for updates from the Defence Acquisition Council (DAC), budget reallocations in the upcoming Parliament session, and new orders under the iDEX and DAP frameworks.