Defence Budget 2026: India Allocates ₹7.84 Lakh Crore

Introduction

In a significant move reflecting India's assertive strategic posture, the Union Budget for 2026-27 has allocated a substantial ₹7.84 lakh crore for the Ministry of Defence. This double-digit increase marks a decisive shift from incremental adjustments to a sustained strengthening of the country's military capabilities. Presented against a backdrop of heightened geopolitical volatility and the operational lessons from the successful Operation Sindoor, the budget prioritises long-term deterrence, technological advancement, and strategic autonomy through a sharp focus on capital expenditure and domestic manufacturing.

A Sharp Rise in Defence Outlay

The government has earmarked ₹7,84,678 crore as the total defence outlay for the fiscal year 2026-27, a notable increase from the ₹6,81,210 crore allocated in the previous financial year. This represents a year-on-year growth of over ₹1 lakh crore, or approximately 15.2%, one of the most robust hikes in recent years. Excluding the pension component, the allocation for defence spending stands at around ₹5.9 lakh crore, up from ₹4.9 lakh crore in FY26, highlighting a clear focus on enhancing operational readiness. The allocation has also reversed the recent trend of a declining share in the national economy, rising to 1.997% of the GDP from 1.91% in 2025-26.

Capital Expenditure Takes Priority

A defining feature of the Defence Budget 2026 is its strong emphasis on capital expenditure, which is critical for the modernisation of the armed forces. The total capital outlay has been pegged at ₹2,19,306 crore, a sharp increase of nearly 22% from the ₹1,80,000 crore allocated in the budget estimates for 2025-26. Capital expenditure now constitutes about 28% of the total defence budget, up from 26% in the previous year. This structural shift underscores a strategic move towards acquiring advanced platforms, sophisticated weaponry, and cutting-edge technology rather than focusing solely on revenue and manpower-related expenses. Over the past decade, the capital outlay has more than doubled from ₹86,357 crore in 2016-17, signaling a consistent push towards building a future-ready military.

Strategic Allocations: Where the Money Goes

The increased capital outlay is directed towards critical areas to bolster India's multi-domain capabilities. A significant portion, ₹63,733 crore, has been earmarked for the procurement of aircraft and aero-engines, reflecting the continued priority on air power. The naval fleet has been allocated ₹25,023 crore to strengthen maritime security in the Indian Ocean Region. Furthermore, substantial funds have been directed towards acquiring advanced missile systems, modern artillery, armoured vehicles, unmanned aerial vehicles (UAVs), and sophisticated surveillance platforms. The budget also continues to focus on strengthening air defence systems, a key lesson reinforced by recent global conflicts and Operation Sindoor.

Key Financial Metrics at a Glance

The 'Aatmanirbhar Bharat' Boost

In line with the government's vision of self-reliance, the budget introduces significant measures to promote the domestic defence industry. Finance Minister Nirmala Sitharaman announced exemptions on basic customs duty for components and parts required for manufacturing various types of aircraft. Additionally, customs duties on raw materials imported for manufacturing aircraft parts for Maintenance, Repair, and Overhaul (MRO) activities by defence units have been waived. These policy initiatives are designed to reduce import dependency, lower production costs for Indian manufacturers, and encourage greater participation of the private sector in the defence ecosystem, thereby strengthening the 'Aatmanirbhar Bharat' initiative.

Geopolitical Context and Operational Readiness

The substantial budget increase is a direct response to India's complex and challenging security environment. Persistent tensions along the Line of Actual Control with China, ongoing asymmetric threats from Pakistan, and emerging security considerations on the eastern border with Bangladesh necessitate a high level of preparedness. The budget is structured to sustain military readiness across multiple fronts simultaneously. The lessons from Operation Sindoor, which validated India's capabilities in precise, intelligence-driven joint operations, are clearly reflected in the budget's focus on network-centric warfare systems, electronic warfare assets, and rapid response capabilities.

Expert Analysis and Market Sentiment

The defence allocation has been received positively by experts and markets. The consensus among economists and policy analysts is that a sustained, calibrated rise in defence capital expenditure is essential. Yuvika Singhal, an economist at QuantEco, noted that a higher defence capex outlay is a “natural corollary” to the challenges in India's neighbourhood. Market sentiment has remained buoyant, with the Nifty Defence Index outperforming broader market indices, rising over 21% since the last budget. This reflects investor confidence in the long-term growth prospects of the domestic defence sector, fueled by a strong order pipeline and a clear policy direction from the government.

The Road Ahead: Ambitious Targets

The budget sets the stage for achieving ambitious long-term goals. The government is targeting ₹3 lakh crore in annual defence manufacturing and ₹50,000 crore in defence exports by 2029. This vision positions the defence sector not just as a guardian of national security but also as a significant contributor to economic growth and a tool for strategic diplomacy. Achieving these targets will depend on efficient fund utilisation, streamlined procurement processes, and continued policy support for research, development, and innovation.

Conclusion

The Union Budget 2026-27 sends a clear and powerful message of India's resolve to build a modern, self-reliant, and technologically advanced military. By significantly increasing the defence outlay and prioritising capital expenditure, the government has reinforced its commitment to safeguarding the nation's sovereignty and strategic interests. The budget acts as a crucial enabler for the armed forces to modernise and for the domestic industry to grow, laying a robust foundation for India's long-term security and its emergence as a credible military power in an uncertain world.