As per a recent report, India is set to ease foreign investment norms in the defence sector, making it simpler for overseas companies to invest in licensed defence manufacturers. The move is part of a broader push to strengthen domestic manufacturing. Under the proposal, the foreign direct investment cap for defence firms with existing licences under the automatic route (where prior government approval is not required) will be increased from 49% to 74%.
What increased defence FDI means
This registers as quite a significant jump in FDI in defence. Currently, foreign companies that want to buy shares in Indian defence makers can only own up to 49% of the company without special government approval. The new plan would raise this limit to 74% under the “automatic route”, meaning foreign investors could take a majority stake without needing government clearance. (This change only applies to companies that already have defence licences.)
Why does it matter?
Defence manufacturing has been given strategic importance by the government for the past several years, and the government wants to build and scale local manufacturing strength instead of relying heavily on imports. The new investment limits may encourage more global companies to invest in the Indian defence sector, bringing in funds, new technologies and expertise, thereby helping grow India’s production base.
But what does the defence manufacturing landscape look like now? And what are some of the small companies that make significant contributions to the sector? Here’s a closer look.
The defence manufacturing split
Indian government data shows that at present, 65% of defence equipment is manufactured domestically, compared to an earlier 65–70% import dependency. As per a PIB release from November 2025, India recorded its highest-ever defence production of ₹1.54 lakh crore in
FY2024-25, with indigenous defence production touching a record ₹1,27,434 crore in FY 2023-24, registering a 174% surge from ₹46,429 crore in 2014-15. India’s defence exports have also grown during this period: it reached a record of ₹23,622 crore in FY 2024 25 from less than ₹1,000 crore in 2014. This indicates that indigenous/domestic manufacturing capability is improving. The release also states that MSMEs have been the game-changers in this shift, with 16,000 small companies strengthening India’s homegrown defence capabilities.
The smallcaps helping build India’s arsenal
MSMEs have been credited with powering some of the upswing in India’s defence manufacturing. Here are 3 companies that have made a contribution over the past year.
ideaForge Technology (Mcap ₹1738 cr as of publishing date): ideaForge specialises in UAVs (unmanned aerial vehicles) and drone-based surveillance systems. The company is UAV market leader, with a 50% market share and was the first to develop VTOL hybrid UAVs and high-altitude drones. (VTOL stands for Vertical Take-Off and Landing and is a type of drone that can take off, hover, and land vertically like a helicopter, and then move into horizontal forward flight like an airplane, making them highly efficient.)
ideaForge secured key defence orders from the Indian Army under the Ministry of Defence’s emergency procurement framework in 2025. These included a ₹75 crore Capital Emergency Procurement order (expected within 12 months) for its newly launched ZOLT tactical UAV unveiled at Aero India 2025. The company also won an additional emergency order of ₹137 crore for Hybrid Mini UAVs, which have been battle-tested and inducted into the Army’s inventory for ISR (Intelligence, Surveillance, and Reconnaissance) operations.
Paras Defence and Space Technologies (Mcap ₹5158 cr as of publishing date): Paras is a well-diversified defence electronics and systems provider. It operates across domains: defence optics and optronics, defence electronics, EMP (electromagnetic pulse) solutions and heavy engineering. Its offerings cover defence automation and control systems, rugged command-and-control consoles, and integrated avionic suites. The heavy engineering segment includes flow-formed rocket and missile motor tubes, electromechanical assemblies, remote-controlled border defence systems, and turnkey execution capabilities.
In 2025, the company secured notable domestic orders, including a ₹45 crore contract from Bharat Electronics Ltd (BEL) for the supply of Signal and Data Processing Systems and Multi-Sensor Fusion Systems for air defence applications, as well as a ₹35 crore order from the Ministry of Defence for portable counter-drone systems.
Zen Technologies (Mcap ₹11,542 cr as of publishing date): Zen is a leading provider of combat training simulators and counter-drone (C-UAS) solutions for defence forces, offering advanced training systems for infantry, armoured and mechanised units, alongside anti-drone warfare technologies. Zen is also actively involved in the technology indigenisation, helping the Indian armed forces, state police forces, and paramilitary forces.
Over the course of 2025, Zen secured multiple high-value orders from the Ministry of Defence, including a ₹289 crore contract for rapid upgrades of anti-drone systems, as well as aggregate MoD orders totalling approximately ₹404 crore for Anti-Drone Systems, also referred to as Counter Unmanned Aerial Systems (C-UAS), along with training simulators and related equipment.
Marching ahead?
These developments point to a defence manufacturing ecosystem that is gradually maturing beyond large PSUs and imports. The proposed easing of FDI norms could act as a big boost, bringing in capital, technology, and global partnerships, while domestic players, particularly MSMEs and smallcap companies, continue to anchor production and innovate on the ground.
Sources
PIB: Make in India Powers Defence Growth
Ideaforge Technology Ltd share price
Make in India Powers Defence Growth
ideaForge Secures ~₹137 Crore Emergency Procurement Order from Indian Army for hybrid Mini UAVs
What is a VTOL Drone? Types, Advantages, and Industry Use Cases
Paras Defence and Space Technologies Ltd share price
Zen Technologies Ltd share price
Zen Technologies: Zen Technologies Secures ₹289 Crore MoD Order for Rapid Anti-Drone System Upgrades
Smallcap Spotlight: Zen Technologies Secures ₹404-Crore Defence Orders from Ministry of Defence