Morgan Stanley Flags Gaps in India’s Defence Export Push
Morgan Stanley highlights India’s defence export potential while flagging technology gaps, bureaucratic hurdles and execution challenges holding back its global ambitions.
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India has significant potential to expand its defence manufacturing industry, supported by a large domestic market and government efforts to promote local production. However, execution challenges, bureaucratic procurement processes and technology gaps could limit its ability to emerge as a major global defence exporter, according to a Morgan Stanley report released in November.
The report, authored by the emerging markets equity team at the US-based investment bank, said India’s opportunities in the global defence market are likely to remain selective rather than broad-based. It identified electronics, radars, sensors, missiles and ammunition as the most promising areas, where domestic manufacturers can benefit from import substitution and growing demand for locally developed equipment.
The assessment comes amid a significant increase in global military expenditure. Worldwide defence spending reached a record $2.9 trillion in 2025. During the year, NATO’s European members and Canada increased their military spending by nearly 20% in real terms, marking the highest annual growth since 1953.
Europe has emerged as a major driver of global defence demand as countries increase military investments following years of underinvestment and growing security concerns. NATO members have committed to spending up to 5% of their gross domestic product on defence and related security requirements by 2035.
According to Morgan Stanley, this spending shift has created investment opportunities beyond traditional defence suppliers in the US. While the US remains the world’s largest defence spender and supplier, emerging markets are increasingly positioned to benefit from demand for affordable equipment, faster deliveries and reliable local support.
The report noted that countries continue to seek American defence equipment but are also looking for suppliers capable of providing quicker deliveries, local maintenance and greater certainty around contract execution.
Supply constraints across Europe could further accelerate this shift. Deliveries of ammunition to Ukraine through NATO’s procurement agency can take between 24 and 36 months. Meanwhile, the UK’s plan to significantly increase production of 155mm artillery shells has faced delays, with full operations expected to begin in 2027.
These bottlenecks highlight the challenges facing Europe’s defence industry as it attempts to rebuild manufacturing capacity. Morgan Stanley expects the region’s defence expansion to be a prolonged and uneven process, creating opportunities for suppliers with established production capabilities.
The nature of security threats has also expanded beyond conventional warfare. Cyberattacks, navigation jamming, disinformation campaigns and attacks on critical infrastructure have increased demand for advanced defence technologies and a broader industrial ecosystem.
Against this backdrop, South Korea has emerged as one of the most credible beneficiaries of the global defence spending cycle among emerging markets. Its defence industry has developed over several decades, supported by continuous military investment driven by security tensions with North Korea.
This has helped South Korea build large-scale domestic manufacturing capabilities, specialised supply chains and an established weapons production ecosystem. Its position as a major US ally has also allowed it to develop defence capabilities within a Western-aligned security framework.
Brazil represents another opportunity, although Morgan Stanley described its defence industry as a smaller part of the emerging market investment story. Unlike South Korea, Brazil lacks comparable production scale and a broad defence manufacturing ecosystem. However, it has developed capabilities in military transport aircraft, rocket artillery and armoured vehicles.
Its KC-390 Millennium military transport aircraft has been adopted by several NATO members, demonstrating that defence platforms developed in emerging markets can meet the procurement standards of developed economies.
For India, the global defence expansion presents an opportunity to strengthen domestic manufacturing and increase exports. However, the report suggests that closing technology gaps, improving procurement efficiency and developing a stronger industrial ecosystem will be essential before the country can compete with established global suppliers.
India has significant potential to expand its defence manufacturing industry, supported by a large domestic market and government efforts to promote local production. However, execution challenges, bureaucratic procurement processes and technology gaps could limit its ability to emerge as a major global defence exporter, according to a Morgan Stanley report released in November.
The report, authored by the emerging markets equity team at the US-based investment bank, said India’s opportunities in the global defence market are likely to remain selective rather than broad-based. It identified electronics, radars, sensors, missiles and ammunition as the most promising areas, where domestic manufacturers can benefit from import substitution and growing demand for locally developed equipment.
The assessment comes amid a significant increase in global military expenditure. Worldwide defence spending reached a record $2.9 trillion in 2025. During the year, NATO’s European members and Canada increased their military spending by nearly 20% in real terms, marking the highest annual growth since 1953.
