AI Adoption To Drive India’s Defence Tech Market To $19 Bn Opportunity By 2030

The recent military conflict between India and Pakistan has showcased how modern warfare is changing and how the battlefield of the future will be shaped by drones, artificial intelligence (AI), defence tech prowess and the ability to innovate and deploy advanced, indigenous systems quickly. 

According to Inc42’s latest report — India’s Defence Tech Startup Ecosystem Report 2025 — the country’s defence tech market is projected to grow from $7.6 Bn in 2025 to $19 Bn by 2030, reflecting a compound annual growth rate (CAGR) of 20%.

Almost half of this market value of around $19 Bn is expected to be driven by advanced technologies such as AI, autonomous systems, quantum computing, and next-generation radar and surveillance platforms.

Moving on, the growth rate of India’s defence tech market outpaces the broader defence market, expected to grow at a CAGR of 8% from $27 Bn in 2025 to $40 Bn by 2030, up 48%. 

With increasing reliance on drones or unmanned aerial vehicles (UAVs), AI-powered decision-making tools, and highly mobile electric radar systems, the shift is only getting prominent. 

The Inc42 report predicts these technologies will constitute 48% of India’s defence market, up from 28% in 2025, by 2030.

There’s an urgent need for India to establish full sovereignty when it comes to defence technologies, particularly with the rise of AI in defence. But, where do we stand in the larger scheme of things? Let’s find out.

A Will To Fortify Frontiers, But AI Takes A Backseat

At a time when global conflicts, think of the Armenia and Azerbaijan kamikaze drone war, have pushed global defence spending to record levels, reaching $2.7 Tn in 2024, up 51% since 2014, India, too has seen a rise in its defence spending. 

Finance minister Nirmala Sitharaman allocated a budget of INR 6.81 Lakh Cr, up 9.53% YoY, to fortify our frontiers. While a significant portion of this budget is still dedicated to revenue expenditure, like salaries and pensions, the government has also prioritised capital expenditure for new equipment and infrastructure.

Meanwhile, the government’s emergency procurement, which allows the armed forces and other critical government agencies to acquire essential equipment, goods and services on an urgent basis, has seen a more significant boost in recent times.

India has granted emergency procurement powers to its armed forces with an overall financial limit of approximately INR 40,000 Cr (around $4.8 Bn). The move allows the Indian defence forces to fast-track the acquisition of critical equipment and ammunition.

Alongside, the rapidly expanding role of AI has also become an integral part of transforming warfare. AI is no longer a futuristic concept but a practical tool being deployed for everything from predictive maintenance on aircraft to autonomous drone swarms and enhanced surveillance capabilities.

Upon analysing the Inc42 report, you will find that India is currently spending more on its defence capabilities compared to AI sophistication. This is on par with how countries like Saudi Arabia and Ukraine are integrating AI into their defence systems.

What’s unfortunate is that India’s AI spending in defence is nowhere closer to how much the US and China splurge on advancing their defence capabilities leveraging AI.

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Investor Interest In Defence Tech Startups

Although AI is not yet a key driver for India’s defence capabilities, the country’s defence tech space is poised for exponential growth, with investor funding giving this sector a major overhaul. 

India’s defence tech startups have cumulatively raised $432 Mn across 56 deals since 2014. Interestingly, 70% of the total amount, or $307 Mn, was bagged between 2024 and the first half of 2025, per the Inc42 report.

The boost has come on the back of large funding rounds for companies like Raphe mPhibr, a leading drone manufacturer, and Sanlayan, which builds advanced electronic radar systems. Raphe mPhibr became the most valued Indian defence tech startup when it raised $100 Mn at a valuation of $900 Mn. 

However, what’s curious is that investor interest in defence has been driven largely by innovations in the drone tech ecosystem. 

Since 2014, startups focussed on drones and anti-drone technology have accounted for 71%, or $305 Mn, of total defence tech funding.

Some of the notable drone tech names that have helped dilate the funding flow in this space include ideaForge, DroneAcharya, IG Drones, Armory, 8OL Robotics, et al.

Although drones are currently dominating investments, interest in AI-powered surveillance, autonomous combat systems, and quantum-secure communications is on the rise.

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Come as it may, AI in defence is going to be India’s next big bet, as 89% of Indian defence tech startups claim to have already integrated AI into their offerings. The widespread integration will generate significant value in the Indian defence tech sector, something investors are unlikely to let go of easily. AI is set to power India’s $19 Bn defence tech market by 2030.

(Edited by: Shishir Parasher)