Defence spending gets 15 percent lift, touches 2 percent of GDP
At Rs7.85 lakh crore, the Union Budget raises funding for the armed forces and modernisation, with emphasis on domestic manufacturing
Last Updated: Feb 02, 2026, 17:27 IST3 min
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The Union Budget for 2026-27 raised India’s defence allocation to Rs7.85 lakh crore, a 15.19 percent increase over the previous year’s Budget estimate of Rs6.81 lakh crore. The allocation is pegged at 2 percent of the country’s projected gross domestic product (GDP), the defence ministry said. The allocation did not feature in Finance Minister Nirmala Sitharaman's Budget speech, which focussed largely on growth, infrastructure and manufacturing.
The total allocation for the Ministry of Defence includes Rs3.65 lakh crore for defence services (revenue), Rs2.19 lakh crore for capital expenditure, Rs1.71 lakh crore for defence pensions and Rs28,554 crore for civil expenditure.
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What do the budget numbers say?
Speaking to news agency ANI after the Budget, Defence Minister Rajnath Singh said the allocation reflected the government’s approach to security and self-reliance. “This budget lives up to the sentiments and expectations of the people,” he said. “It reinforces our resolve to further strengthen the country’s defence system. The focus is on the modernisation of our three armed forces, and on self-reliance.”
Where the money is being directed
A large share of the increase was directed towards capital spending, which crossed Rs2 lakh crore for the first time. Aircraft and aero engines received an allocation of Rs63,733 crore, the largest among capital heads. Other equipment accounted for Rs82,217 crore, while the naval fleet was allocated Rs25,023 crore. Construction works, including strategic infrastructure, were allocated Rs11,752 crore, alongside higher funding for defence research and development and prototype development under the ‘Make’ procedure.
Prasanna Tantri, associate professor of finance at the Indian School of Business, says the increase in defence capital expenditure was a positive step but flagged limits to its real impact. “Given the depreciation of the rupee and India’s import dependence in defence, a larger real increase would have been justified,” he says.
The Budget also continued policy support for indigenisation. It proposed an exemption from basic customs duty (BCD) on raw materials imported by defence public sector units for the manufacture of aircraft parts used in maintenance, repair and overhaul (MRO). The measure is intended to strengthen domestic MRO capability and reduce reliance on overseas facilities for servicing military aircraft.
Industry executives say the combination of higher spending and duty relief could improve manufacturing conditions over time. Venkatesh Mudragalla, co-founder and chief operating officer at Jeh Aerospace, says the impact of the Budget extended beyond the headline allocation. “Increased infrastructure spending and basic customs duty exemptions on critical aerospace inputs together improve manufacturing economics and supply chain predictability. These are structural levers needed to help Indian aerospace suppliers scale faster and compete more effectively on a global stage,” Mudragalla adds.
Sashi Mukundan, executive vice president at Rolls-Royce India, says the move would support the sector. “In aerospace and defence, the BCD waiver on components that also supports maintenance, repairs and overhaul services will help the aviation sector," he explains.
“The allocation of Rs7.85 lakh crore to defence, with capital modernisation crossing Rs2 lakh crore for the first time, shows intent,” says Ashok Atluri, chair of the defence and homeland security committee at PHD Chamber of Commerce and Industry. “The government has shown the ambition; now we need procurement timelines that match it. And as we spend this historic sum, let us ensure the money flows to companies that design and develop in India, not just assemble in India.”
Revenue spending
On the revenue side, the Army accounted for Rs1.75 lakh crore, the Navy Rs20,042 crore and the Air Force Rs24,441 crore. Revenue spending on defence research and development stood at Rs6,809 crore. Allocations under the Agnipath recruitment scheme exceeded Rs17,300 crore across the three services.
Beyond equipment and platforms, the Budget also provided for defence pensions, border roads, innovation schemes such as Innovations for Defence Excellence (iDEX) and Acing Development of Innovative Technologies with iDEX, and continued support for defence corridors and testing infrastructure.
Read Forbes India's complete Budget 2026-27 coverage here
First Published: Feb 02, 2026, 17:27
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