Budget 2026: Defence Capex Surge to Propel Drone, Aerospace Startups

• Union Budget 2026 is expected to significantly increase defence capital expenditure, potentially by 15-20% or more, focusing on military modernisation and indigenous manufacturing.
• India's defence tech sector, with over 200 startups in drones, aerospace, and surveillance, is at an inflection point, moving from innovation to large-scale production.
• Despite $711 million in funding, investment is concentrated, with over half going to just five companies like Raphe, ideaForge, and NewSpace Research, highlighting a shift towards execution-ready firms.
• 2025 saw a record $247 million investment in Indian defence tech startups, driven by late-stage rounds backing companies capable of industrial-scale production.
• Potential FDI cap increase from 49% to 74% in defence manufacturing could attract global players, further strengthening India's production ecosystem ahead of Budget 2026.

Why It Matters: Budget 2026's increased defence spending and policy reforms are set to transform India's defence tech startups.