India’s defence procurement pipeline has sharply expanded in recent years, with the value of Acceptance of Necessity (AoN) approvals reaching Rs 9.3 lakh crore in FY26, up from around Rs 80,000-90,000 crore in FY21, according to Kotak Institutional Equities.
In its July report on India’s aerospace and defence sector, the brokerage firm pointed out at the sharp increase in AoN approvals points to a substantial defence procurement pipeline that could translate into orders for Indian defence companies over the coming years. However, it also cautioned that the headline FY26 figure needs to be viewed in context. A huge portion of the approvals came from a handful of large programmes involving foreign platforms and equipment.
Based on the historical time lag between procurement approval and contract finalisation, Kotak estimates that the current pipeline could translate into Rs 6.5-7 lakh crore of defence orders during FY27-29, potentially resulting in around 15% compound annual growth in order inflows.
What is an Acceptance of Necessity?
An Acceptance of Necessity (AoN) is an initial approval in India’s defence procurement process. According to Kotak, AoNs are accorded by the Defence Acquisition Council (DAC) and precede subsequent stages such as requests for proposals, trials and contract negotiations.
AoN approvals have multiplied since FY21
Kotak’s compilation of Press Information Bureau data shows the sharp increase in AoN approvals over the past six years. AoNs stood at around Rs 90,600 crore in FY21 and declined slightly to about Rs 80,800 crore in FY22. The value then jumped to around Rs 2.62 lakh crore in FY23, followed by Rs 4.84 lakh crore in FY24.
Approvals moderated to approximately Rs 2.49 lakh crore in FY25, before surging to around Rs 9.28 lakh crore in FY26.
Across FY21-FY26, the cumulative value of AoNs stood at around Rs 16.16 lakh crore, compared with defence capital expenditure of approximately Rs 9.16 lakh crore over the same period, based on Kotak’s compilation.
AoN-to-capex ratio signals front-loaded procurement
Kotak also highlights the increase in the ratio between AoN approvals and defence capital expenditure. The ratio stood at 0.7 times in FY21 and 0.6 times in FY22. It increased to 1.8 times in FY23 and reached 3.1 times in FY24.
It subsequently stood at 1.6 times in FY25 before rising to around 2.4 times in FY26. In effect, the value of procurement receiving initial approval has increasingly exceeded annual defence capital expenditure. Kotak said the front-loading of approvals is significant because these approvals create a pipeline for future contracts.
However, the conversion from approval to an actual order does not happen immediately.
Kotak sees Rs 6.5-7 lakh crore order opportunity
Based on the typical one-to-two-year lag between AoN approval and contract finalisation, Kotak estimates that the current pipeline could result in Rs 6.5-7 lakh crore of new defence orders between FY27 and FY29. The brokerage expects this to translate into around 15% compound annual growth in defence order inflows during the period.
But the estimate comes with an important qualification because of the composition of FY26’s approvals.
Three mega programmes inflate the FY26 headline
Kotak has identified three major procurement programmes that account for a substantial portion of the FY26 AoN figure. The first is the Multi-Role Fighter Aircraft (MRFA)/Rafale programme, estimated at around Rs 3.2 lakh crore.
According to Kotak, this accounts for roughly 30% of FY26’s total AoN value and represents the largest single DAC clearance on record. While the programme could create opportunities for Indian companies through offset obligations, the core procurement involves aircraft from France’s Dassault.
Another group of programmes involving the S-400 air defence system, Medium Transport Aircraft and armour-piercing tank ammunition is estimated at around Rs 2.4 lakh crore. Together, these procurements account for roughly another quarter of FY26’s AoN approvals, according to Kotak.
The sourcing for these programmes includes Russia as well as foreign manufacturers such as Lockheed Martin, Embraer and Airbus.
Underlying AoN figure is closer to Rs 4.5 lakh crore
Removing these large programmes significantly changes the picture. Kotak has estimated that the FY26 AoN run-rate, after excluding the major import-heavy programmes, falls to around Rs 4.5 lakh crore. That is broadly comparable with FY24 rather than representing the same dramatic acceleration suggested by the Rs 9.3 lakh crore headline figure.
The overall procurement pipeline has clearly expanded, but the underlying domestic procurement cycle has not accelerated at the same pace as the headline number.
FY24: Fighter aircraft dominated the pipeline
FY24 was already a major year for defence procurement approvals, with AoNs worth approximately Rs 4.8 lakh crore, according to Kotak. Three major programmes accounted for about Rs 2.2 lakh crore, or roughly 46% of the year’s total. These included approvals for 97 Tejas Mk1A fighter aircraft, 156 Prachand Light Combat Helicopters and Su-30 MKI upgrades. Kotak said these three programmes accrued to Hindustan Aeronautics Ltd (HAL).
Other significant approvals included 26 Rafale Marine aircraft for the Navy, valued at around Rs 63,000 crore, and three Scorpene-class submarines, valued at around Rs 36,000 crore.
FY25: Procurement becomes more diversified
AoN approvals declined to around Rs 2.5 lakh crore in FY25, with the absence of major fighter-aircraft programmes contributing to the lower headline number. However, Kotak noted that the procurement pipeline became more diversified. Land systems included Future Ready Combat Vehicles and T-90 engine upgrades.
The naval pipeline included 31 fast attack craft and 120 fast interceptor craft, involving shipbuilders such as GRSE, Mazagon Dock Shipbuilders, Cochin Shipyard and others.
The electronic warfare and aerospace segments also saw approvals for AEW&C systems, Su-30 MKI electronic warfare suites and Varunastra torpedoes, among other programmes.
FY26 brings new-age defence technologies
Beyond the large import programmes, Kotak highlighted a growing focus on emerging defence technologies in FY26. The approvals included loitering munitions, HALE and MALE drones, Astra Mk-II missiles, drone-detection systems and high-altitude pseudo satellites.
The brokerage also noted a marked increase in the potential participation of private-sector companies. Tata Advanced Systems, L&T, Adani and Solar Industries are among the private-sector players positioned to benefit from the emerging procurement opportunities identified by Kotak.
Who stands to benefit from the pipeline?
The potential order pipeline cuts across India’s public and private defence industries. Among public-sector companies, HAL, Bharat Electronics Ltd (BEL) and Bharat Dynamics Ltd (BDL) remain prominent across aerospace, defence electronics and missile-related programmes.
In the private sector, Tata Advanced Systems, L&T, Bharat Forge and Solar Industries have increasingly established positions across aerospace, land systems and munitions.
In naval procurement, GRSE, Mazagon Dock Shipbuilders and Cochin Shipyard continue to feature prominently. However, the actual revenue opportunity for each company will depend on the procurement category, localisation requirements, contract finalisation and execution timelines.