Tuesday, 03 Feb, 2026
A defining feature of the FY 2026–27 budget is the sharp rise in capital expenditure, which has been increased to Rs 2.19 lakh crore from Rs 1.80 lakh crore in FY 2025–26, amounting to a growth of 21.84 percent. Image Source: PIB
A significant portion of the increase has been necessitated by emergency procurements undertaken following Operation Sindoor, as the Armed Forces sought to rapidly replenish stocks of arms, ammunition, and critical platforms under both capital and revenue heads.
The Union Budget for FY 2026–27, presented in the immediate aftermath of Operation Sindoor, marks a decisive inflection point in India’s defence planning and resource prioritisation. With an allocation of Rs 7.85 lakh crore, the defence budget has reached an unprecedented scale, reflecting the government’s assessment of a more contested and unpredictable security environment. This allocation amounts to nearly 2 percent of the estimated GDP for the forthcoming financial year and represents a substantial 15.19 percent increase over the Budget Estimates of FY 2025–26. At 14.67 percent of total Central Government expenditure, defence once again commands the largest share among all ministries, underscoring its centrality in national policy at a time of heightened geopolitical uncertainty.
The enhanced outlay goes well beyond routine expenditure for salaries, maintenance, and incremental modernisation. A significant portion of the increase has been necessitated by emergency procurements undertaken following Operation Sindoor, as the Armed Forces sought to rapidly replenish stocks of arms, ammunition, and critical platforms under both capital and revenue heads. These procurements highlighted the enduring requirement for flexibility and fiscal headroom in defence budgeting, especially in scenarios involving short-notice operations and prolonged force deployment.
A defining feature of the FY 2026–27 budget is the sharp rise in capital expenditure, which has been increased to Rs 2.19 lakh crore from Rs 1.80 lakh crore in FY 2025–26, amounting to a growth of 21.84 percent. This expansion reflects a strategic recognition that force modernisation can no longer proceed at a gradual pace, given the rapid evolution of military technologies and the increasingly blurred distinction between peace, crisis, and conflict. Out of the total capital outlay, Rs 1.85 lakh crore has been earmarked for capital acquisitions alone, marking an increase of nearly 24 percent over the previous year. This enhanced allocation is intended to support the induction of next-generation fighter aircraft, advanced naval platforms including ships and submarines, smart and precision-guided weapons, unmanned aerial systems, drones, specialist vehicles, and network-enabled battlefield systems that are critical for future multi-domain operations.
Source: Union Budget Documents
The scale of ongoing and planned acquisitions is reflected in the Ministry of Defence’s recent procurement activity. During FY 2025–26, contracts worth approximately Rs 2.10 lakh crore were concluded up to the third quarter, while Acceptance of Necessity approvals exceeding Rs 3.50 lakh crore have already been accorded. This pipeline indicates a sustained acceleration in capital procurement that is likely to continue over the medium term, driven by operational lessons, force restructuring, and the imperative to maintain technological parity with potential adversaries.
The budget also reinforces India’s strategic shift towards indigenisation and reduced dependence on external suppliers. Disruptions in global supply chains, export controls, and the tendency of supplier nations to prioritise domestic requirements during crises have once again exposed the vulnerabilities associated with import-heavy defence procurement. In response, the government has further strengthened its policy of reserving capital acquisition funds for domestic industry. For FY 2026–27, Rs 1.39 lakh crore, amounting to nearly 75 percent of the capital acquisition budget, has been earmarked for procurement from Indian vendors. This measure provides long-term demand assurance to domestic manufacturers and is expected to catalyse investment in advanced manufacturing, design capabilities, and critical sub-systems.
Source: Union Budget Documents
The emphasis on domestic procurement has broader economic and strategic implications. Increased participation of Indian industry in defence production is expected to generate multiplier effects across ancillary sectors, including metallurgy, electronics, propulsion, software, and advanced materials. It also contributes to employment generation and skill development while strengthening supply-chain resilience. Over time, this approach is intended to transform India from a predominantly import-dependent military power into a country with a robust and competitive defence industrial base capable of sustaining prolonged operations and supporting future force modernisation.
On the revenue side, the defence budget has made a provision of Rs 3,65,478.98 crore, representing a 17.24 percent increase over FY 2025–26. Of this, Rs 1,58,296.98 crore has been allocated for operational and sustenance-related expenditure, ensuring that the Armed Forces retain high levels of readiness, mobility, and endurance. The remaining allocation caters to salaries and allowances, reflecting the continued importance of personnel welfare in a force that remains manpower-intensive even as it adopts greater automation and technological sophistication.
Infrastructure development has also received sustained attention, particularly in border areas where mobility, logistics, and connectivity have direct operational significance. The capital allocation for the Border Roads Organisation has been enhanced to Rs 7,394 crore from Rs 7,146.50 crore in the previous financial year. These funds will support the construction of strategically important roads, tunnels, bridges, and airfields, which not only enhance military preparedness but also promote regional development, tourism, and last-mile connectivity in remote border regions. Such infrastructure investments have assumed greater importance in recent years as forward deployment and rapid force mobilisation have become integral to deterrence.
Investment in defence research and development has seen a parallel increase, with the allocation for DRDO rising to Rs 29,100.25 crore in FY 2026–27 from Rs 26,816.82 crore in FY 2025–26. A substantial portion of this, amounting to Rs 17,250.25 crore, has been earmarked for capital expenditure. This funding is expected to support the development of advanced technologies across emerging domains such as cyber, space, artificial intelligence, hypersonics, and autonomous systems, all of which are becoming central to future warfare.
The broader orientation of the defence budget aligns with India’s stated ambition to achieve indigenous defence production worth Rs 3 lakh crore and defence exports of Rs 50,000 crore by 2029. These targets are underpinned by greater industry participation and capacity enhancement, guided by the Technology Perspective and Capability Roadmap 2025. The roadmap provides a 15-year vision across land, air, maritime, cyber, and space domains, identifying 457 products and services that offer a structured framework for aligning military requirements with industrial capabilities.
Taken together, the expansion of industrial capacity, the entry of new private-sector players, and a growing pipeline of domestic and foreign investment point towards a maturing defence manufacturing ecosystem. In a rapidly shifting global security environment marked by strategic competition, supply-chain coercion, and technological disruption, the defence budget for FY 2026–27 reflects a clear and balanced approach. It seeks to simultaneously advance force modernisation, sustain operational readiness, strengthen infrastructure and research capabilities, and deepen India’s journey towards strategic autonomy in defence.
