Material Insights · Understanding the Material World

Aerospace and defence and Public administration, defence and security

Governments are the defence industry's customer, regulator and often owner: world military spending reached about USD 2.9 trillion in 2025, and in India about 75% of the defence capital acquisition budget is reserved for domestic industry, so budgets and procurement rules set the industry's order book.

Aerospace and defence (industry) and Public administration, defence and security (industry): 4 relationships.

How they are linked

1. The state is the customer

Physical flow · Strong · Aerospace and defence to armed forces and defence ministries

Weapons, warships, combat aircraft and military satellites are bought almost only by governments, so defence ministries' budgets are the main source of demand for defence makers; the site rates the industry 5 of 5 for armed forces and defence ministries.

  • about USD 2,887 billion world military spending, 2025
  • 2.5% of world GDP, 2025, up from 2.4% in 2024
  • USD 92.1 billion India's military spending, 2025, fifth largest

World spending rose almost 3% in 2025 even as US spending fell 7.5% to USD 954 billion, so growth came mainly from Europe, up 14%, and Asia and Oceania, up 8.1%. Only part of military spending goes on equipment, with pay, pensions and operations taking much of the rest, so procurement and capital budgets are the better guide to industry demand.

Enterprise types that depend on it:

  • Airworthiness authorities and defence certifiers: state regulatory and defence bodies (criticality 5 of 5)
  • Airlines, lessors and defence ministries: defence budgets (criticality 3 of 5)

Sources: Material Insights; Lokmat Times

2. Small intermediate flows

Physical flow · Weak · Both ways, but small in input-output terms

In input-output tables, government purchases of weapons count mostly as final demand rather than as inputs, so the measured intermediate flows between the two industries are small: about ₹0.2 to ₹0.3 per ₹100 of output each way.

  • ₹0.3 per ₹100 of aerospace and defence output going to public administration, all rounds (India 2022)
  • ₹0.2 per ₹100 of public administration output going to aerospace and defence, all rounds (India 2022)

These small figures understate the tie: the state buys the industry's output as final demand, which input-output tables record outside the intermediate flows. The flow from public administration to the industry most likely reflects fees and services from regulatory and testing bodies.

Sources: OECD

3. Certification and licensing

Physical flow · Strong · Certification and licensing bodies to aerospace and defence

No aircraft can fly and no weapon can be sold or exported without approval from state airworthiness, defence certification and export control bodies, so the industry depends on them; the site rates airworthiness authorities and defence certifiers 5 of 5 for the industry.

  • 5 of 5 criticality of airworthiness authorities and defence certifiers

Certification affects the time and cost to bring a new aircraft or system to market, and export licences decide which foreign buyers a firm can serve, so the capacity of these bodies is part of the industry's supply chain.

Enterprise types that depend on it:

  • Airworthiness authorities and defence certifiers: state regulatory and defence bodies (criticality 5 of 5)
  • Airlines, lessors and defence ministries: defence budgets (criticality 3 of 5)

Sources: Material Insights

4. Domestic procurement in India

Policy · High in India · India reserves defence capital spending for domestic industry

India uses its procurement rules to build a domestic defence industry, reserving most of the capital acquisition budget for Indian suppliers.

  • ₹7.85 lakh crore Ministry of Defence allocation, 2026-27, 14.67% of central spending
  • ₹1.39 lakh crore of ₹1.85 lakh crore capital acquisition earmarked for domestic industry, 2026-27
  • ₹1.78 lakh crore India's defence production, 2025-26, up 15.6%

Public sector units made about 76% of 2025-26 output and private firms 24%, up from 22% a year earlier, and exports were ₹38,424 crore. Output has grown about fourfold from ₹43,746 crore in 2013-14, and with most capital acquisition reserved for domestic firms, Indian defence makers' revenue depends closely on the ministry's capital budget.

Sources: Press Information Bureau, India; The Statesman

For investors

Key learnings

  1. Defence demand is set by budgets: world military spending rose almost 3% to about USD 2.9 trillion in 2025, with growth coming from Europe and Asia.
  2. In India about 75% of capital acquisition, ₹1.39 lakh crore in 2026-27, is earmarked for domestic industry, which underpins Indian defence makers' order books.
  3. Input-output tables show only small flows between the two because state purchases are final demand, so budget data, not input-output links, are the guide.

What to track

  • Defence capital acquisition budget and actual spending: Drives orders for Indian defence firms (Yearly · Union Budget; quarterly · Controller General of Accounts)
  • Defence Acquisition Council approvals: Early signal of future contracts (Monthly · Ministry of Defence)
  • Defence exports: Diversifies revenue away from the domestic budget (Yearly · Ministry of Defence)

For policymakers

Key learnings

  1. Reserving about 75% of capital acquisition for domestic firms has coincided with India's defence output rising to a record ₹1.78 lakh crore in 2025-26, about four times the 2013-14 level.
  2. The private sector's share of output rose only from 22% to 24% in 2025-26, so domestic procurement still flows mainly to public sector units.
  3. Certification and export licensing capacity shape how fast new systems reach service and export markets, so regulators' capacity matters alongside budgets.

What to track

  • Private sector share of defence production: Shows whether procurement is widening the supplier base (Yearly · Department of Defence Production)
  • Capital outlay share of the defence budget: A rising share means more equipment spending relative to pay and pensions (Yearly · Union Budget)

India

India was the fifth-largest military spender in 2025 at USD 92.1 billion; its 2026-27 defence allocation is ₹7.85 lakh crore, and domestic defence production reached a record ₹1.78 lakh crore in 2025-26.

Sources

  1. Aerospace and defence: materials, Material Insights (2026)
  2. OECD Input-Output Tables 2025 edition, India 2022, OECD
  3. India's military expenditure rose by 8.9% to USD 92.1 bln in 2025 (SIPRI data), Lokmat Times (2026)
  4. Ministry of Defence, Union Budget 2026-27, Press Information Bureau, India (2026)
  5. India's defence production hits record high of Rs 1.78 lakh crore in FY26, The Statesman (2026)