Overall military spending increased to 4.9 trillion rupees ($57 billion) from over 4.6 trillion rupees a year ago. Much of the allocation is on account of salaries and pensions, said Laxman Kumar Behera, a professor at the Special Centre for National Security Studies at New Delhi’s Jawaharlal Nehru University, told Bloomberg.
Capital Expenditure and Modernisation Efforts
The capital budget for modernisation—including the procurement of new fighter jets, drones, artillery guns, tanks, and helicopters—has seen a modest increase of Rs 8,000 crore, from Rs 1.72 lakh crore in the current fiscal to Rs 1.80 lakh crore in the new budget. However, the armed forces were unable to fully utilise last year’s capital budget, returning Rs 13,000 crore. Notably, the budget documents do not provide specific allocations for the Army, Navy, and Air Force.
The capital outlay for modernisation—including procurement of new fighters, drones, artillery guns, tanks, and helicopters—has been increased only marginally by Rs 8,000 crore to Rs 1.80 lakh crore. The capital budget constitutes 26.43% of the total defence allocation, with Rs 1,48,722.80 crore specifically earmarked for capital acquisitions. Of this, Rs 1,11,544.83 crore—or 75% of the modernisation budget—has been designated for procurement from domestic sources, while Rs 27,886.21 crore is reserved for private industries.
However, the Indian armed forces, which had hoped for a substantial increase in capital expenditure, failed to fully utilise last year’s budget, returning Rs 13,000 crore in unspent funds. This shortfall in spending has raised concerns about procurement delays and the efficiency of fund utilisation.Notably, 75% of the modernisation budget (Rs 1,11,544.83 crore) is allocated for domestic procurement, reinforcing the government’s push for self-reliance. Rs 27,886.21 crore from this share is set aside for purchases from private Indian industries.
Rising Revenue Expenditure
The allocation for revenue expenditure, which covers salaries, allowances, and operational preparedness, stands at Rs 3,11,732.30 crore—45.76% of the total budget. This marks a 24.25% increase from the previous year’s budgetary estimates. The increase is attributed to additional troop deployment in border areas, extended sea deployments, and higher operational costs for aircraft.
Under the revenue head, Rs 1,97,317.30 crore has been allocated to cover salaries and allowances for the armed forces. The Ministry of Defence has assured that any additional requirements will be addressed during the mid-year review.
Border Security and Strategic Infrastructure
Recognising the ongoing border tensions with China and Pakistan, the budget has made provisions for strengthening border infrastructure. The Border Roads Organisation (BRO) has received an allocation of Rs 7,146.50 crore, marking a 9.74% increase. These funds will be used to construct critical tunnels, bridges, and roads, including projects in Arunachal Pradesh, Jammu & Kashmir, and Rajasthan.
India’s defence posture is also being shaped by evolving geopolitical challenges. The country is under pressure to play a more active regional security role, particularly amid Houthi-sponsored attacks on Gulf shipping and piracy threats from East Africa.
Defence Research and Development Boost
The Defence Research and Development Organisation (DRDO) has received an allocation of Rs 26,816.82 crore for FY 2025-26, marking a 12.41% increase from the previous year’s Rs 23,855.61 crore. Of this, Rs 14,923.82 crore is dedicated to capital expenditure for R&D projects, underscoring the government’s focus on technological advancements in defence.
Revenue expenditure, which includes pay and allowances for armed forces personnel and operational readiness, has been significantly increased to Rs 3,11,732.30 crore. This marks a 24.25% jump compared to the previous financial year. The Ministry of Defence stated that this allocation would support additional troop deployments in border areas, extended naval operations, and increased flying hours for aircraft. Under this head, Rs 1,97,317.30 crore has been set aside for salaries, with provisions for mid-year reviews if necessary.
Industry Reactions and Push for Self-Reliance
The Indian defence industry has broadly welcomed the budget’s focus on self-reliance and modernisation. As told to ET Manufacturing, Rajinder Singh Bhatia, President of the Society of Indian Defence Manufacturers (SIDM), stated, “The continued increase in capital outlay for defence procurement from industries will drive self-reliance, innovation, and global competitiveness in the sector. The emphasis on indigenisation of critical defence technologies, along with policy support for industries, will further accelerate the development of a robust domestic defence supply chain.”
Similarly, Vivek Merchant, Director of Swan Defence and Heavy Industries Limited, highlighted the impact on the shipbuilding sector, “The Rs 25,000 crore Maritime Development Fund is a game-changer, signaling the government’s serious intent to make India a global hub for shipbuilding. However, the industry still needs policy reforms that encourage private sector participation and reduce dependency on imports for critical components.”
Focus on Aerospace and Aviation
A substantial portion of the budget has been allocated to modernising the Indian Air Force, particularly in aircraft and aero-engines. Venkatesh Mudragalla, COO and Co-founder of Jeh Aerospace, remarked:
“We welcome the Modified UDAAN Scheme, which will add 120 new destinations and 4 crore additional passengers, significantly enhancing regional connectivity and logistics. Strengthening air travel access is crucial for fostering economic growth and creating new opportunities in the aerospace and manufacturing sectors.”
Path to a Self-Reliant Future
The budget’s strong emphasis on research, skill development, and policy reforms aims to create a vibrant and resilient defence sector. Jaikaran Chandock, Director of Balu Forge Industries Ltd, noted, “Earmarking a sizable part of the modernisation outlay for domestic procurement is a move in the right direction. The focus on AI and deep-tech innovation will also lead to the development of a future-ready talent pipeline, positioning India as a global leader in defence manufacturing.”
Despite the increased budget, challenges remain. A 2023 parliamentary report highlighted that only 15% of the Army’s equipment is classified as ‘new’, while 45% is ‘older generation equipment’.
As told to Bloomberg, Laxman Kumar Behera pointed out that India’s defence spending remains below 2% of GDP, despite facing a hostile neighbourhood. “Countries across the world, including small geographies like Poland, are spending around 5% as uncertainty grows,” he observed.
Nevertheless, the budget lays the foundation for India’s long-term vision of becoming a global defence powerhouse. With increased allocations for domestic procurement, R&D, and infrastructure development, the government is taking strides towards self-reliance, but sustained investment and policy reforms will be necessary to ensure comprehensive modernisation of the armed forces.
