OPINION OPINION | Defence budget gets a big boost, hits 2% of GDP

The DRDO's budget has been hiked by 9%.

• India boosts Defence budget by 15% to Rs 7.85 lakh crore for FY 2026-27
• Defense budget up 19%, capital expenditure for modernization up 22%.
• 75% of modernization funds allocated to domestic industry for self-reliance.

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Presenting her ninth consecutive budget, Finance Minister, Nirmala Sitharaman, allocated Rs 7.85 lakh crore ($86 billion) to the Ministry of Defence (MoD) for the fiscal year 2026-27. Accounting for a 15% of the total central government expenditure (CGE) and 2% of the estimated gross domestic product (GDP), the MoD’s latest budget represents a 15% increase over the previous allocation.

Coming as the first budget post-Operation Sindoor, the double-digit increase in the MoD’s latest allocation is not just a mere budgetary response to its arch rival, Pakistan, but a powerful statement of how the country perceives its security threats in a complex geopolitical environment that is increasingly being characterized by inter-state conflicts, trade and tariff war and great power competition.

Growth in defence spending outpaces that of nominal GDP

MoD’s latest budget has three major distinctions. From resource allocation point of view, the defence budget has arrested its declining share in both GDP and the CGE, indicating government’s resolve to bring its focus back on security and defence modernisation in particular. Noticeably, the 15% increase in defence budget is significantly higher than the 10% estimated increase in the nominal GDP and 6% increase in the overall Union Budget.

Second, the growth in the defence budget comes in backdrop of the previous budget being revised upward by 8% or Rs 51,301 crore. Significantly, both the revenue and capital segments of the MoD’s previous allocations have been revised upward—a rarity in the MoD’s budget making history.

Defence capex growth outpace revenue expenditure rise

Third, in percentage terms, the expansion in overall capital expenditure of the MoD’s latest budget has outgrown that in revenue expenditure, signifying a greater focus on modernisation (while the capital expenditure has increased by 20% to Rs 2.31 lakh crore, the revenue budget has grown by 13% to Rs 5.53 lakh crore).

Cutting edge of the military establishment get the biggest budgetary boost

Of the MoD’s total allocations, 75% is earmarked for the defence services, which includes the army, navy, air force and the Defence Research and Development Organisation (DRDO); the balance is distributed between defence pensions (22%) and MoD Civil expenditure (4%) that caters to the organisations such as Border Roads Organization and Coast Guard, among others. Among these three broad components, the budget of the defence services has growth the most—19% in comparison to 7% hike in pensions; MoD’s Civil expenditure has remained nearly stagnant.

Considering that the defence services are at the heart of India’s defence posture and military capability, the 19% increase in their budget is big boost. Within the defence services, capital expenditure has increased by 22% (to Rs 2.19 lakh crore), in comparison to 17% increase in the revenue expenditure (to Rs 3.65 crore). Significantly, much of the growth in the capital expenditure is driven by the capital acquisition or the modernisation budget which has seen a hike of 24% to Rs 1.85 lakh crore.

Air Force gets most of the modernisation funds

Among the various modernisation budget heads, ‘Aircraft & Aero Engines’ has grown the most—by 31% to Rs 63,734 crore, closely followed by ‘Other Equipment’ which has seen its budget growing by 30% to Rs 82,218 crore. Interestingly, the budget for ‘Naval Fleet’—which caters to acquisition of various ships and submarines—has grown modestly by 3% to Rs 25,024 crore. Considering that Indian navy is at the advanced stage of signing the much awaited $8 billion deal under P75I project to acquire eight submarines, the marginal increase in the budget seems inadequate.

Maintaining its focus on indigenization and self-reliance, the MoD has retained the share of the acquisition budget devoted to procurement from the domestic industry at 75%. In other words, domestic industry would be benefited from Rs 1.39 lakh crore worth of capital acquisitions which will come their way in 2026-27.

DRDO gets more attention this year

To further bolster self-reliance efforts in defence, the budget of the DRDO, which is at the center of India’s defence innovation efforts, has been hiked by 9% to Rs 29,100 crore. Though DRDO’s budget increase pales in front of hikes in the MoD’s overall budget or the capital expenditure/acquisition budget, it nonetheless is a big hike considering the modest increases in its budget in the recent past.

Post-Sindoor, there’s a change in spending

The 15% increase in the MoD’s overall budget, on the top of the 24% hike in modernisation budget and 75% of modernisation budget for domestic industry, is a clear statement of how the Modi government looks at the country’s security. The big budgetary hike is a much-needed boost to not only replenish the arsenal expended during the Operation Sindoor but to further bolster the country’s security apparatus through greater focus on domestic industry-driven modernisation.

(Laxman Kumar Behera is Associate Professor at Special Centre for National Security Studies, Jawaharlal Nehru University, New Delhi.)

Views are personal and do not represent the stand of this publication.