India's Strategic Defence Indigenisation and BEL's JV with Safran: A Long-Term Investment Opportunity

India's defense manufacturing sector is undergoing a transformative phase, driven by aggressive policy reforms, strategic partnerships, and a clear shift toward self-reliance. At the heart of this evolution is the joint venture (JV) between Bharat Electronics Limited (BEL) and France's Safran Electronics & Defence, which exemplifies the country's commitment to reducing import dependence while fostering advanced technology collaboration. For investors, this ecosystem presents a compelling long-term opportunity, underpinned by robust growth metrics, favorable policy tailwinds, and a surge in domestic and international demand.

Policy Framework and Strategic Partnerships

India's push for defense indigenisation has gained momentum through initiatives like Make in India and Aatmanirbhar Bharat, which aim to localize production and reduce reliance on foreign imports. A landmark development in this effort is the BEL-Safran JV, established in 2025 to manufacture the HAMMER (Highly Agile Modular Munition Extended Range) precision-guided air-to-ground weapon system in India. This 50:50 partnership, structured as a private limited company, is expected to produce the modular, high-precision HAMMER system locally, aligning with India's strategic goals of enhancing military capabilities and promoting domestic manufacturing according to reports.

The collaboration is not merely symbolic; it reflects a broader Indo-French security convergence. The HAMMER system is already integrated with the Indian Air Force's Rafale aircraft and is under evaluation for the Light Combat Aircraft (LCA) Tejas, signaling its operational relevance according to reports. By raising indigenous content to up to 60%-covering electronics, mechanical assemblies, and testing-the JV supports India's procurement philosophy of prioritizing local production in high-technology systems according to the government.

Financial and Market Growth Metrics

India's defense manufacturing sector has demonstrated resilience and growth, even amid global economic uncertainties. In FY25, the sector's production value reached Rs. 1,50,590 crore (US$17.57 billion), with defense public sector undertakings contributing Rs. 21,821 crore (US$2.55 billion). The government has set an ambitious target of Rs. 3,00,000 crore (US$34.7 billion) by FY29, reflecting a clear long-term trajectory according to the IBEF.

Capital expenditure in the defense sector has also surged. The FY26 Union Budget allocated Rs. 6.81 lakh crore (US$78.7 billion) to the Ministry of Defence, a 9.5% year-on-year increase, with Rs. 1.80 lakh crore (US$20.8 billion) earmarked for procuring new weapons, aircraft, and warships according to the IBEF. Defense exports have similarly boomed, rising from Rs. 686 crore (US$81.1 million) in FY14 to Rs. 23,622 crore (US$2.76 billion) in FY25, with a 12% year-on-year increase in FY25 alone according to the IBEF.

Private sector participation is accelerating. JSW Defence's Rs. 800 crore (US$92.4 million) investment in Telangana for drone manufacturing and Tata Advanced Systems Limited's (TASL) production of 56 C-295 military transport aircraft highlight the sector's diversification according to the IBEF. Meanwhile, foreign direct investment (FDI) in defense has grown steadily, with cumulative equity inflows reaching Rs. 154 crore (US$21.74 million) between April 2000 and June 2025 according to the IBEF.

Long-Term Investment Potential

The India defense manufacturing sector is projected to grow at a Compound Annual Growth Rate (CAGR) of 4.24% between 2025 and 2030, expanding from USD 30.52 billion in 2025 to USD 37.57 billion by 2030 according to Mordor Intelligence. This growth is fueled by geopolitical tensions, technological advancements (e.g., AI-enabled combat systems), and policy-driven localization mandates such as the 75% domestic-sourcing requirement for modernization funds according to Mordor Intelligence.

The BEL-Safran JV, in particular, is a bellwether for the sector's potential. BEL's recent financial performance underscores its strength: in Q3 FY25, the company reported a 47.33% surge in standalone net profit to Rs. 1,316.06 crore, driven by a 39.15% increase in revenue from operations. With an accumulated order book of Rs. 18,415 crore for FY25, BEL's operational capacity and strategic partnerships position it as a key beneficiary of India's indigenisation drive according to BEL's financial report.

Moreover, the innovation ecosystem is gaining traction. The iDEX program has identified 549 problem statements, engaging 619 startups and MSMEs, with 430 contracts signed as of February 2025 according to the IBEF. Tax reforms under the GST 2.0 framework-such as slashing tax rates on commercial drones and abolishing them on military drones-further incentivize domestic production according to the IBEF.

Conclusion

India's defense manufacturing ecosystem is transitioning from a historically import-dependent model to a self-reliant, innovation-driven sector. Strategic JVs like BEL-Safran not only enhance military capabilities but also serve as catalysts for long-term economic growth. With a supportive policy environment, rising capital expenditure, and a CAGR of 4.24% through 2030, the sector offers a compelling investment case. For investors, the combination of geopolitical tailwinds, technological collaboration, and a robust domestic demand base makes India's defense manufacturing a high-conviction opportunity.