India's Defence AI Sector
Venture capital interest in India’s defence technology sector is surging, driven by a focus on indigenous drones and supportive government policies. Nearly 90% ($68 million) of the $78 million raised by Indian defence tech startups over the last decade occurred in 2025 alone, according to Inc42. However, gaps remain, particularly in AI and software-driven systems.
India lacks large defence AI companies comparable to Palantir or Anduril. Amardeep Singh of drone defence company Armory noted India’s software capabilities are established, but manufacturing at the scale and precision required by the defence and aerospace sectors remains a challenge.
India’s defence budget increased 15.19% YoY to ₹7.85 Lakh Cr in FY27. Schemes like Innovations for Defence Excellence (iDEX) fund startups up to ₹25 Cr under the ADITI scheme. The Army Design Bureau publishes problem statements for startups to bid against, creating a structured procurement path.
Talent attraction remains a bottleneck, as defence startups struggle to compete with compensation levels in mainstream technology sectors.
India’s defence stack is shaped by a software-first, AI-led approach, but hardware realities hold it back. While startups are building smarter systems, core electronics and IP still depend on foreign sources. Manish Gupta, managing partner at growX Ventures, noted that core IP for electronic components like drone controllers and motherboards are still being made abroad or through technology transfers from China, Israel, or Russia.
Abhishek Prasad, the managing partner at Cornerstone Ventures, highlighted a three-layer stack for evaluating opportunities: physical defence infrastructure, autonomous defence systems, and cyber defence. Vipul Patel, partner at IIMA Ventures, sees the most credible bets emerging at the intelligence stack layer, specifically perception, sensor fusion, and autonomous decision-making.
Prasad invests in founders who balance domain depth with commercial speed. Gupta said his firm backed Armory pre-revenue, pre-product, and pre-technology based on the strength of the founding team.
IG Defence’s Mishra said technology built for India’s extreme terrains can be used by other countries as well.
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