The price of defence

Summary: India's defence story is being told in two registers at once — a strategic one about a country finally building its own arms, and a financial one about businesses priced for a decade of near-flawless compounding. A look at what the investor who buys in today is actually paying for, and how long it takes for that payment to be validated by cash.

Summary: India's defence story is being told in two registers at once — a strategic one about a country finally building its own arms, and a financial one about businesses priced for a decade of near-flawless compounding. A look at what the investor who buys in today is actually paying for, and how long it takes for that payment to be validated by cash. India’s defence sector is being told in two registers simultaneously. The first is strategic: a country that spent six decades as one of the world’s largest arms importers is now building a domestic manufacturing base through policy architecture that is legally binding and politically difficult to reverse. The second is financial: a set of businesses trading at multiples that require earnings to compound at rates most Indian companies have never sustained, for a full decade, without delay. Both stories are true. India’s listed defence companies have compounded impressively over the last five years. The question is not whether to own the sector but what the investor who buys now is actually paying for, and how long it will take for that payment to be validated by cash. The one budget line governments cannot cut Every government budget is a competition among priorities constrained by arithmetic. When fiscal pressure arises, discretionary spending compresses first. Defence has a fundamentally different logic. A country can choose to spend less on highways, hospitals or subsidies. But it cannot choose to be defenceless. This makes defence expenditure the precondition for all other policies, which is why even governments under severe fiscal stress rarely cut it meaningfully. The data reflects this. Global defence spending reached $2.89 trillion in 2025, accounting for 2.5 per cent of the GDP, driven not by prosperity but by deteriorating threat environments. Germany committed a €100 billion special defence fund, the most significant shift in German strategic policy, with the fund mostly utilised by now. This is the first time since 1990 that Germany has spent more than 2 per cent of its GDP on defence. NATO’s 2 per cent GDP compliance has jumped from fewer than 10 members a decade ago to all 32 members meeting the threshold in 2025 for the first time. India’s own defence budget grew from Rs 5.47 lakh crore in FY20 to Rs 8.28 lakh crore in FY25, protected through a period of signi

This article was originally published on July 01, 2026.