Budget Overview
The Indian defence sector is set for a significant financial boost, receiving a record allocation of ₹7.85 lakh crore in the 2026-27 Union Budget. This
represents a 15.19% increase compared to the previous year's budget estimates and accounts for 2% of the projected GDP. The total defence budget constitutes 14.67% of the central government's expenditure. This large allocation highlights the government's priority on national security and signals a strategic move towards further strengthening the nation's defence capabilities. The Defence Minister, Rajnath Singh, expressed his satisfaction with the budget, emphasizing its role in fulfilling the nation's expectations and supporting the vision of 'Atmanirbhar Bharat' and 'Viksit Bharat 2047'.
Capital Expenditure Surge
A significant portion of the budget is directed towards capital expenditure, with a total of ₹2.19 lakh crore allocated to the Defence Forces. This figure is 21.84% higher than the budget estimates for the previous fiscal year. Within this, ₹1.85 lakh crore is earmarked for capital acquisition, a 24% increase from the previous year. This substantial increase in capital spending, particularly for modern equipment, signifies a strategic imperative in the current geopolitical landscape. The Defence Secretary, Rajesh Kumar Singh, further highlighted that the capital expenditure outlay has risen by 21%. These funds will enable the acquisition of next-generation fighter aircraft, advanced weaponry, ships, submarines, unmanned aerial vehicles, and more, thereby bolstering the capabilities of the armed forces.
Modernization Focus
The budget underscores a strong focus on the modernization of the armed forces. A substantial amount, ₹1.85 lakh crore, has been provisioned for the modernization of the three wings of the armed forces. This represents a 24% increase compared to the previous fiscal year. This investment will equip the military with advanced technologies and equipment, ensuring that it remains at par with global standards. The modernization drive aims to enhance the operational effectiveness and technological capabilities of the armed forces, safeguarding the nation's security interests. The allocation recognizes the need to equip the armed forces with cutting-edge equipment and technological upgrades for enhancing their capabilities, aligning with the strategic goals of 'Atmanirbhar Bharat'.
Boosting Indigenous Industry
The budget prioritizes the promotion of domestic industries and self-reliance in the defence sector. A substantial ₹1.39 lakh crore, accounting for 75% of the capital acquisition budget, is earmarked for procurement through domestic industries during FY 2026–27. This initiative supports the 'Atmanirbhar Bharat' vision, encouraging indigenous manufacturing and reducing dependence on foreign suppliers. This approach gives assurance to domestic players regarding their investments and enhances their role in the Armed Forces' capability development. Furthermore, increased funding for capital acquisition, specifically benefiting domestic industries, is expected to have a long-term positive impact on the national economy by generating employment opportunities and fostering the growth of ancillary industries.
Veteran Welfare Measures
The welfare of veterans and their families is a key consideration in the budget. A significant allocation of ₹1,71,338.22 crore has been made for defence pensions, reflecting a 6.56% increase compared to the previous financial year. This allocation will facilitate the disbursement of monthly pensions to over 34 lakh pensioners. Additionally, the Ex-Servicemen Contributory Health Scheme (ECHS) receives a substantial allocation of ₹12,100 crore, which is 45.49% higher than the current year's allocation, highlighting the government's commitment to providing better healthcare facilities to veterans and their dependents. The allocation to ECHS has grown by over 300% over the last five years, showcasing the commitment to their well-being.
DRDO and Infrastructure
The Defence Research and Development Organisation (DRDO) also benefits from increased funding, with an allocation of ₹29,100.25 crore in FY 2026–27, up from ₹26,816.82 crore the previous year. A major portion, ₹17,250.25 crore, is allocated towards capital expenditure within DRDO. Moreover, the Border Roads Organisation (BRO) is allocated ₹7,394 crore under the capital head, supporting strategically important projects like tunnels, bridges, and airfields. This allocation is aimed at improving regional development, tourism, and last-mile connectivity in border areas. These allocations ensure continuous development of new defense technologies and improvement in infrastructure, supporting overall national development.
Expenditure Allocation Details
The allocated funds are distributed across various categories. A significant 27.95% of the total allocation is dedicated to capital expenditure, which supports long-term projects and acquisitions. Revenue expenditure, which covers sustenance and operational preparedness, accounts for 20.17%. A further 26.40% is allocated for revenue expenditure on pay and allowances, ensuring the timely payment of salaries and benefits. Defence pensions constitute 21.84%, while civil organizations receive 3.64%. The revenue allocation stands at ₹3,65,478.98 crore, which is 17.24% higher than the previous year, with a significant amount allotted for operational needs and maintenance of vital platforms.
