India’s aerospace and defence (A&D) sector is set for sustained growth over the coming years, supported by rising defence spending and strengthening trade ties with key global partners, according to a report by Goldman Sachs. However, the brokerage cautioned that the development of indigenous aircraft engines and advanced manufacturing capabilities will remain a gradual process.
The report highlighted three major tailwinds for the sector, including an 18 per cent year-on-year (Y-o-Y) increase in capital procurement in the
Union defence budget for FY27 (Budget Estimates), the proposed India-European Union (EU) free trade agreement (FTA), and a potential India-US trade deal.
"While an increase in defence budget provides domestic opportunities to A&D companies, the FTA with the EU and trade deal with the US enable them to expand their footprint abroad. The latter is particularly relevant for Aero component players that are in the global supply chains of OEMs," the brokerage said in its note.
During an interaction hosted by the brokerage, Ashish Saraf, vice-president and country head - India operations at Pratt & Whitney, said bookings in commercial aerospace look solid with engine suppliers globally having order book visibility up to 2035.
Every global original equipment manufacturer (OEM) is looking to build the supply chain, Saraf added.
Rafale to boost MRO prospects
According to Saraf, a proposed order for 114 Rafale fighter jets could create a significant maintenance, repair and overhaul (MRO) opportunity for India. If the order goes through, India would become the largest operator of Rafale aircraft, with over 175 jets, including earlier procurements and the recently ordered Rafale-M variant.
Additionally, the 80 Rafale F4 aircraft ordered by the UAE could also present additional MRO prospects for India. Together, this translates into servicing potential for over 250 aircraft, including spares and consumables, benefiting domestic component suppliers.
“This could position India as a regional MRO hub for Rafale aircraft,” the report said.
Reforms in defence procurement
According to the report, Saraf said the draft Defence Acquisition Procedure (DAP) 2026 is broadly reform-oriented, with a focus on reducing procurement timelines, introducing technical excellence as an evaluation criterion alongside cost, and creating a fast-track procurement route for equipment worth up to ₹75 crore.
However, he raised caution over the shift in emphasis from 'Made in India' to 'Owned by India', adding that advanced nations are unlikely to share cutting-edge technology and source codes.
“Such an endeavour would either delay the projects or leave us owing the outdated technology,” he said, adding that collaboration would have been the better way forward.
Saraf also noted that the draft policy does not adequately address long-standing demands of foreign OEMs to set up large-scale production bases in India with maximum local sourcing.
AMCA and private sector participation
He noted that while private sector consortia shortlisted for the programme have strong execution capabilities, they lack experience in assembling fighter jets. However, private sector leadership could improve quality and delivery timelines.
“Aerospace is a multi-player market in major manufacturing regions such as the US, Europe, Russia and China. Competition is healthy and expedites delivery despite initial learning curves,” he said.
China+1 boosts sourcing from India
The report noted that India has emerged as a credible alternative to China, particularly post-Covid. He mentioned that all the global OEMs are looking to include Indian companies in their supply chain.
Saraf said RTX is planning to increase sourcing from India by 10 times by 2030 compared to 2025 levels. Rising costs in Western markets, inflated by 45–50 per cent since the pandemic, have prompted OEMs to diversify their supply chains.
Increasing trend of customer-led acquisitions, where global OEMs direct Indian vendors to approved overseas facilities in the West. India's key differentiators include its extensive talent pool, cost competitiveness and strong build-to-print capabilities.
Positive outlook on domestic players
Goldman Sachs said Saraf’s views reinforce its positive outlook on India’s defence manufacturing ecosystem. The brokerage expects increasing total addressable market size, gradual indigenisation, and improving export potential to drive growth.
It identified processed materials and complex machining as key capabilities in demand, while the transition from build-to-print to build-to-specification manufacturing will take time.
Among listed players, Saraf cited PTC Industries as an emerging processed materials supplier, Solar Industries for its work in ammunition and drones, Azad Engineering for complex machining, and Data Patterns for radar electronics.
Key risks to its outlook include a potential shift in capital allocation by the government to other sectors, a delay in companies’ product development, and global OEMs shifting focus to other regions for sourcing. Disclaimer: The views or investment tips expressed by the brokerage in this article are their own and not those of the website or its management. Business Standard advises users to check with certified experts before taking any investment decisions.
 "Trade deals, capex push boost India's aero, defence outlook: Goldman Sachs")
