India’s Defence Budget 2026-27: A Strategic Leap in Security and Modernisation

In a year marked by shifting regional security dynamics and renewed emphasis on military readiness, the Government of India has approved its largest ever defence budget. For the fiscal year 2026-27, the Ministry of Defence (MoD) has been allocated ₹7.85 lakh crore, up about 15 % from the ₹6.81 lakh crore in the previous budget estimate — a clear signal of strategic prioritisation following “Operation Sindoor” and ongoing geopolitical pressures near the northern and western borders. 

Big Picture: Numbers That Matter (Explained)

Total Defence Allocation: ₹7.85 lakh crore — up ~15% year-on-year

The defence allocation for FY 2026–27 stands at ₹7.85 lakh crore, marking the highest defence budget in India’s history and a substantial 15% increase over the previous year. This rise reflects a deliberate policy shift following heightened operational commitments, lessons from recent military operations, and sustained border tensions. The increase also signals the government’s intent to accelerate military modernisation while maintaining readiness across all three services. In absolute terms, the growth strengthens India’s position among the world’s top defence spenders and reinforces deterrence credibility in a volatile regional security environment.

Defence Share of GDP: Approaches 2% — reversing a multi-year decline

 For the first time in several years, India’s defence spending has climbed back close to 2% of GDP, reversing a gradual downward trend that had raised concerns among strategic analysts. While still short of the often-recommended 2.5% benchmark, this recovery is significant. It indicates recognition at the highest policy levels that sustained under-investment could erode combat preparedness. The near-2% level also aligns India more closely with peer militaries facing similar threat environments, especially in the Indo-Pacific and continental border theatres.

Capital Expenditure: ₹2.19 lakh crore — up nearly 22%

Capital expenditure, which funds new platforms, weapons, and modernisation programmes, has risen sharply to ₹2.19 lakh crore, representing a nearly 22% increase over last year. This is the most strategically important component of the budget, as it directly impacts force capability. The enhanced allocation supports fighter aircraft acquisitions, naval vessels and submarines, armoured systems, missile programmes, space-based assets, and unmanned platforms. Importantly, around 75% of this capital budget is earmarked for domestic procurement, reinforcing the Atmanirbhar Bharat push and giving a major boost to India’s defence industrial ecosystem.

Revenue Expenditure: ₹5.54 lakh crore — sustaining operations and manpower

Revenue expenditure has been allocated ₹5.54 lakh crore, covering salaries, allowances, training, fuel, spares, maintenance, logistics, and day-to-day operational requirements. While often viewed as non-modernisation spending, this component is critical for force sustainment and readiness. India’s large standing military, deployed across diverse terrains from high-altitude borders to maritime zones, requires consistent revenue funding to remain combat-ready. However, the continued dominance of revenue expenditure also highlights a structural challenge: balancing manpower-heavy force structures with the need for technology-driven modernisation.

Defence Pensions: ₹1.71 lakh crore — supporting over 34 lakh veterans

Defence pensions account for ₹1.71 lakh crore, supporting more than 34 lakh veterans, widows, and dependents. This allocation underscores India’s long-term obligation to its armed forces personnel, including commitments under the One Rank One Pension (OROP) framework. While pensions are a non-negotiable social and moral responsibility, their growing share of the defence budget continues to constrain flexibility in capital spending. The figure reinforces the need for future reforms in manpower planning, tour lengths, and post-retirement absorption to ensure fiscal sustainability without compromising veteran welfare.

This distribution underscores an ongoing balancing act: funding modernisation and procurement while sustaining day-to-day operations and personnel costs. 

Modernisation & Procurement: Where the Hike Goes

The government has emphasised capital outlay to boost India’s military capabilities and indigenous defence production.

Key Increases & Allocations: Strategic Breakdown and Insights

Aircraft & Aero Engines: ₹63,733 crore

The allocation of ₹63,733 crore for aircraft and aero engines represents one of the most consequential elements of the Defence Budget 2026–27. This funding directly addresses long-standing capability gaps in the Indian Air Force (IAF) and supports fleet sustainability across the Army and Navy aviation arms.

Key focus areas include:

• Fighter aircraft acquisition and sustainment, including follow-on procurements, upgrades to existing fleets, and associated weapons and avionics.
• Transport and special-mission aircraft, critical for logistics, humanitarian assistance, and rapid force mobility.
• Aero-engine development and upgrades, an area historically dominated by imports. Increased funding strengthens indigenous programmes such as advanced turbofan development, engine life-extension projects, and maintenance, repair and overhaul (MRO) infrastructure within India.

This allocation signals a strategic acknowledgment that air power is central to deterrence, particularly against near-peer adversaries. It also reflects lessons from recent operations where availability rates, spares, and engine serviceability proved as important as platform numbers. Over time, sustained investment in engines could reduce India’s dependence on foreign OEMs—one of the most critical vulnerabilities in its aerospace ecosystem.

Naval Fleet: ₹25,023 crore

The ₹25,023 crore allocation for the naval fleet underlines India’s growing emphasis on maritime security, sea denial, and power projection across the Indian Ocean Region (IOR).

This funding supports:

• Indigenous warship construction, including destroyers, frigates, corvettes, and auxiliary vessels.
• Submarine acquisition and sustainment, particularly under long-term plans to counter expanding undersea threats in the IOR.
• Modernisation of sensors, weapons, and combat management systems aboard existing platforms.

The Indian Navy remains the most capital-intensive service, and this allocation reflects a strategic shift toward a blue-water posture. With increased Chinese naval presence and dual-use infrastructure across the IOR, naval capital spending is no longer discretionary—it is central to India’s strategic autonomy and maritime deterrence. Importantly, the majority of naval capital expenditure continues to flow through Indian shipyards, reinforcing domestic industrial capacity.

Domestic Procurement: ~₹1.39 trillion (≈75% of capital acquisition budget)

Approximately ₹1.39 trillion—or 75% of the capital acquisition budget—has been earmarked for procurement from Indian industry, marking one of the strongest endorsements yet of the Atmanirbhar Bharat defence manufacturing agenda.

This includes:

• Big-ticket platforms produced domestically.
• Subsystems, electronics, weapons, ammunition, and spares sourced from Indian MSMEs and private firms.
• Long-term production orders that provide industry with scale, predictability, and export potential.

This allocation represents a structural shift rather than a symbolic one. By ring-fencing capital funds for domestic vendors, the government is reshaping defence procurement behaviour—forcing system integrators, DPSUs, and private players to build local supply chains. Over time, this approach is expected to reduce import dependence, improve lifecycle support, and position India as a competitive exporter in selected defence segments.

DRDO Funding: ₹29,100 crore (Capital R&D ~₹17,250 crore)

The Defence Research and Development Organisation (DRDO) has been allocated ₹29,100 crore, up from approximately ₹26,800 crore in the previous year. Notably, around ₹17,250 crore is earmarked for capital R&D, indicating a focus on advanced and high-risk technologies.

Priority areas include:

• Missiles, precision-guided munitions, and strategic systems.
• Sensors, radars, electronic warfare, and space-based surveillance.
• Unmanned systems, AI-enabled command and control, and next-generation materials.

The higher capital R&D allocation reflects a recognition that technological superiority—not just numerical strength—will define future conflicts. Importantly, DRDO’s role is increasingly that of a technology enabler, working alongside private industry and startups rather than acting as a sole developer. This shift improves transition from lab to battlefield and reduces induction delays.

Ex-Servicemen Welfare: Enhanced focus on veterans

Funding for ex-servicemen welfare, including healthcare, pensions administration, and rehabilitation schemes, has seen enhanced emphasis in Budget 2026–27. Key among these is continued support for the Ex-Servicemen Contributory Health Scheme (ECHS), including hospital empanelment expansion and digital health initiatives.

Other supported areas include:

• Skill development and resettlement programmes.
• Welfare grants for widows and disabled veterans.
• Digitisation of pension and grievance redressal systems.

Veteran welfare is no longer viewed solely as a social obligation but as a strategic manpower issue. Effective post-retirement support improves morale, retention, and recruitment while strengthening civil–military relations. However, the rising welfare and pension bill also reinforces the urgency of long-term manpower reforms to ensure fiscal sustainability without diluting commitments to veterans.

Reductions & Status Quo Positions: What Did Not Change and Why It Matters

• While the Defence Budget 2026–27 records a strong topline increase, a closer examination reveals areas of continuity, restraint, and structural inertia. These are as important as headline gains, as they define the limits of reform and modernisation in the near term.

Absence of Landmark Defence Policy Announcements

• Despite the significant budgetary increase, the Finance Minister’s Budget Speech did not introduce any new, headline-grabbing defence policy initiatives. Instead, defence priorities were embedded within detailed budget documents and demand-for-grants statements, rather than announced as legislative or doctrinal reforms.
• This reflects a deliberate policy choice. Defence reforms—particularly those related to procurement, force structure, and industrial policy—are increasingly being handled outside the annual budget speech, through executive decisions by the Ministry of Defence. While this reduces political signalling, it also means that transformational reforms lack public visibility, potentially slowing institutional momentum and stakeholder alignment.

Defence Spending Still Below the 2.5% GDP Benchmark

• Although defence spending has climbed back to around 2% of GDP, it remains below the 2.5% level long recommended by military planners and strategic analysts. This gap is significant in the context of:
• Sustained deployment across two active land borders.
• Expanding maritime responsibilities in the Indian Ocean Region.
• Rapid military modernisation by regional competitors.
• The shortfall suggests that the government is attempting to balance strategic imperatives with fiscal discipline rather than adopting a wartime-style expansion. While 2% represents an improvement, analysts warn that capability accretion at this level may only be sufficient to avoid degradation—not to achieve decisive overmatch. In effect, India is modernising selectively, not comprehensively.

High Legacy Costs Constraining Capital Flexibility

• A substantial portion of defence revenue expenditure continues to be absorbed by legacy platforms and ageing fleets, including older aircraft, naval vessels, armoured vehicles, and associated logistics chains. Maintenance, spares, mid-life upgrades, and manpower costs tied to these systems limit the funds available for next-generation acquisitions.
• This highlights a structural challenge rather than a budgeting failure. India operates a large, manpower-intensive force with long equipment service lives, which creates high sunk costs. Until older platforms are retired at scale or manpower structures are rebalanced, capital modernisation will remain partially constrained, even in years of budgetary growth. This also explains why incremental increases in capital outlay do not always translate into rapid induction of new platforms.

Strategic Implications

• Taken together, these reductions and status quo positions indicate that Budget 2026–27 is evolutionary, not revolutionary. The government has prioritised stability, readiness, and steady modernisation over dramatic reform. While this approach reduces operational risk, it also means that long-standing issues—such as force restructuring, procurement timelines, and pension sustainability—remain unresolved.

Most analysts view this as a consolidation phase rather than a pause. The emphasis is on absorbing recent capital increases, strengthening domestic industry, and maintaining operational readiness before embarking on deeper structural reforms. However, without addressing legacy costs and GDP-share limitations, future budgets may face diminishing returns despite higher allocations.

Strategic Priorities & Policy Signals

Enhanced Flexibility in Procurement

Recent structural changes in budgetary practice — such as relaxed constraints on committed liabilities and strategic contracting practices — signal a shift toward faster approvals and parallel project execution, especially for capital equipment. 

Transparency & Digitalisation

The defence ministry is set to roll out ‘Sampurna’, a digital procurement management system aimed at streamlining contract lifecycles and improving transparency across defence buys. It will cover everything from initiation to payment tracking. 

Focus on Self-Reliance

Aligning with Atmanirbhar Bharat goals, domestic procurement remains high. Industrial corridors in Uttar Pradesh and Tamil Nadu have attracted significant investment, underscoring an ecosystem approach to defence manufacturing. 

What This Means for the Armed Forces

Indian Army — Enhanced Mechanisation, Artillery & Unmanned Systems

The Army continues to receive focused funding for modern mechanised systems, artillery upgrades and persistent border readiness, especially after recent engagements along both the China (LAC) and Pakistan (LoC) frontiers. These investments include:

• Upgrades to armoured vehicles, artillery platforms and rocket systems to boost both firepower and mobility on difficult terrain.
• An expanded role for drones and unmanned aerial systems (UAS) for ISR (Intelligence, Surveillance, Reconnaissance), logistics and force protection.

Regional Comparison:

India maintains one of the largest standing armies in the world, significantly larger than Pakistan’s forces, with India outnumbering Islamabad in tanks, armoured vehicles and rocket artillery by substantial margins. 

Although India’s manpower advantage is clear, neighbour China’s People’s Liberation Army (PLA) is still numerically larger and equipped with more advanced long-range strike systems. The recent budget boost helps India narrow capability gaps but does not match China’s overall spending scale or technological depth. 

Indian Air Force — Air Superiority & Next-Generation Platforms

The Air Force sees one of the largest capital infusions among the services, with ₹63,733 crore earmarked for aircraft and engines—fueling continued acquisition of advanced fighters and aero engines. This supports:

• Further orders of Rafale jets and enhancements to existing fleets.
• Induction and upgrade of transport and multi-role aircraft for operational flexibility.
• Expansion of engine maintenance and life-extension programmes to improve sortie rates and readiness.

Regional Comparison:

This allocation reflects India’s strategic emphasis on air superiority—critical for two-front deterrence against both China and Pakistan, especially in high-altitude theatres.

India’s air fleet strength and capabilities remain significantly ahead of Pakistan, which fields fewer modern combat aircraft and relies more on ageing fleets and Chinese collaborative platforms. 

However, compared with China’s People’s Liberation Army Air Force (PLAAF), India still lags in sheer numbers and technological penetration (such as stealth and hypersonic), although its focus on modern multirole fighters and indigenous systems narrows the gap meaningfully. 

Indian Navy — Strengthened Surface & Subsurface Forces

The ₹25,023 crore allocation for the naval fleet supports expansion of India’s surface and undersea capabilities at a time when maritime security in the Indian Ocean Region (IOR) is a strategic priority.

Investments include:

• Building new warships, submarines and patrol vessels to enhance sea denial and sea control.
• Increased emphasis on unmanned platforms and long-range surveillance systems.
• Strengthening maritime cooperation with friendly navies — a force multiplier in peace and crisis. 

Regional Comparison:

India’s naval expansion places it well ahead of Pakistan’s maritime capabilities in the Arabian Sea, both in ships and submarines. Investments also ensure India remains a key security contributor for commercial maritime lanes, particularly against increasing Chinese naval presence. 

Compared to China’s People’s Liberation Army Navy (PLAN), India’s fleet is smaller but growing in sophistication. China maintains the world’s largest navy by number of major surface combatants and rapidly developing nuclear submarine forces; India’s budget increase aims to improve its capacity to operate effectively across the IOR and deter distant threats. 

DRDO & Innovation — Indigenous Tech, Missiles & Sensors

The budget boost also sends a strong signal to Defence Research and Development Organisation (DRDO) and India’s broader innovation ecosystem. Funding increases support:

• Next-generation missile systems including extended-range BrahMos variants and enhanced air-defence systems. 
• Hypersonic weapons and advanced air-defence networks. 
• Greater integration of unmanned systems, AI-enabled ISR suites, and combat sensors.

Beyond hardware procurement, this emphasises India’s ambition to transition from a buyer to a developer and exporter of critical defence technologies — a strategic shift with both security and economic implications.

However, India still spends a smaller percentage of its defence budget on R&D compared with major powers (e.g., China and the United States), meaning that priority remains on balancing procurement with innovation. Analysts have noted that countries like South Korea allocate a significantly larger share of their defence budgets to research relative to India. 

Strategic Impact: A Regional Perspective

Taken together, the 2026-27 defence allocations signal that India is modernising its armed forces in a calibrated yet comprehensive manner, aiming to strengthen deterrence along both its land and maritime borders.

• Against Pakistan: India’s defence spending (~₹7.85 lakh crore) remains over ten times larger, enabling far greater procurement, sustainment and technological depth. 
• Against China: While India’s budget is far smaller than China’s multi-hundred-billion-dollar defence spending, its focused modernisation — particularly in air power, indigenous R&D and naval reach — helps maintain credible deterrence in key theatres, especially the Himalayas and IOR. 

The 2026-27 defence budget reinforces India’s strategic posture across all services:

• Army: more mechanised firepower and unmanned systems to sustain readiness.
• Air Force: accelerated air superiority projects and engine sustainment.
• Navy: broadened maritime influence in the Indian Ocean.
• DRDO & Innovation: stronger indigenous capabilities stretching into advanced weapons and sensor domains.

This approach reflects India’s unique security calculus — balancing near-term operational needs with long-term self-reliance, even in the face of neighbours with varying scales of defence capability.

Regional Military Comparison (India vs Neighbours)

(Approximate figures | 2025–26 timeframe)

Impact on R&D, Innovation & Industry Schemes

iDEX (Innovations for Defence Excellence)

What it is:

• iDEX is a flagship defence innovation scheme aimed at fostering technology development in defence and aerospace by engaging startups, MSMEs, innovators and academia, managed through the Defence Innovation Organisation (DIO). 

Funding & Budget Context:

• Historically, iDEX has received specific funding (about ₹449.62 crore in Budget 2025-26 for iDEX and sub-schemes like ADITI). 
• Under Budget 2026-27, while the overall defence R&D figure rises (e.g., DRDO funding climbed to ₹29,100 crore from ~₹26,800 crore) and capital R&D for new tech was significantly expanded, formal detailed figures for iDEX alone in the 2026-27 appropriation aren’t separately published yet. The trend of increased R&D and capital support suggests likely continued or expanded backing for innovation schemes.

What iDEX Does (Practical Impact):

• Provides grants & funding to startups/MSMEs to build prototypes and defence tech (e.g., AI-based systems, maritime/autonomy solutions, comms and sensors). 
• Offers access to defence test facilities, mentorship, and procurement pathways under the Defence Acquisition Procedure. 
• Encourages co-creation with services (e.g., Mission DefSpace for dual-use space tech, cyber and AI projects). 

Although individual budgets for iDEX schemes aren’t itemised in the main 2026-27 documents like the overall defence allocation, the expansion in R&D spending and emphasis on “Make in India” procurement shows policy support for innovation pathways that iDEX enables. 

Areas With Lesser Impact or Relative Reductions

Legacy Weapon Systems & Sustainment

• A large share of revenue expenditure still goes to maintenance, operations, salaries, and pensions—limiting capital available for big-ticket buys. 

Broader Scheme & Industrial Impact

Domestic Procurement & Policy Changes

• ₹1.39 lakh crore (75% of capital acquisition) has been earmarked for Buy (Indian) procurement. 
• Customs duty exemptions on raw materials for defence part manufacture/MRO were proposed to strengthen the domestic ecosystem. 
• Policy emphasis on industry reforms and easing procurement bottlenecks supports the defence industrial base.

Overall Strategic Insight

Expert Take: Balancing Act in Uncertain Times

Industry and policy analysts note that while India’s defence budget continues to grow in absolute terms, it reflects a compromise — expanding modernisation and readiness while bearing the brunt of revenue commitments and pensions. The uptick in procurement funds and domestic sourcing aligns with long-term strategic goals, but maintaining this trajectory requires sustained prioritisation and reforms beyond annual allocations. 

India’s Defence Budget for 2026 signals more than an annual rise in allocations — it reflects a structural shift in how the country prepares for future conflict, sustains its armed forces, and builds long-term strategic autonomy. While headline numbers focus on overall spending growth, the real story lies in the defence schemes and programmes that channel these funds into equipment, innovation, manufacturing, and personnel welfare.

Together, these schemes reveal a deliberate attempt to balance modernisation, readiness, indigenisation, and fiscal realities in an increasingly uncertain security environment.

From Spending to Capability: The Strategic Context

India’s defence expenditure has steadily moved back toward 2% of GDP, reversing years of stagnation. However, unlike earlier eras dominated by import-heavy acquisitions, the 2026 framework prioritises:

• Indigenous production over foreign dependence
• Long-term R&D over short-term fixes
• Ecosystem building rather than platform-centric purchases

This shift is most visible through a network of interlinked defence schemes that now form the backbone of India’s military modernisation.

Capital Procurement Schemes: Equipping the Armed Forces

At the core of defence modernisation lies the Capital Acquisition Budget, where nearly 75% of funds are reserved for domestic procurement under the Indian-IDDM (Indigenously Designed, Developed and Manufactured) category.

Equipment Impact

These allocations directly influence programmes such as:

• Fighter aircraft (LCA Mk1A, AMCA development)
• Naval warships and submarines
• Artillery systems like ATAGS and mounted gun platforms
• ISR assets, drones, and loitering munitions

This approach strengthens Indian primes such as HAL, BEL, Mazagon Dock, GRSE, L&T, Tata Advanced Systems, and Bharat Forge, while reducing lifecycle costs associated with imports.

Strategic Partnership Model: Slow but Structural

The Strategic Partnership (SP) Model, though progressing gradually, remains critical for mega-projects such as:

• Project 75(I) submarines
• Future infantry combat vehicles
• Advanced aviation platforms

Its significance lies not in immediate outcomes but in creating long-term private-sector capability in complex defence manufacturing — a gap India historically struggled to bridge.

DRDO and Mission-Mode R&D: Quiet Enablers of Power

The Defence Research and Development Organisation (DRDO) continues to receive enhanced funding, with a growing share dedicated to capital R&D. This supports mission-mode projects in:

• Missiles and air defence systems
• Hypersonic and counter-hypersonic technologies
• Electronic warfare and advanced radars
• Directed-energy weapons
• Autonomous and unmanned systems

Rather than headline platforms, DRDO funding increasingly targets critical technologies that define future warfare.

iDEX and TDF: Innovation at the Tactical Edge

Among the most impactful — though modestly funded — schemes are iDEX (Innovations for Defence Excellence).

Designed to link startups and MSMEs with operational challenges of the Armed Forces, iDEX focuses on:

• AI-enabled ISR
• Counter-drone solutions
• Secure communications
• Battlefield logistics and autonomy

Complementing this is the Technology Development Fund (TDF), which provides up to 90% project funding for indigenous technology development by MSMEs and private firms.

While these schemes account for a small fraction of the defence budget, their strategic return is disproportionate — shortening development cycles, encouraging dual-use innovation, and nurturing a new generation of defence entrepreneurs.

Make in India for Defence: From Policy to Production

The Make-I, Make-II, and Make-III procurement categories underpin India’s effort to replace imports with domestic alternatives.

• Make-I: Government-funded prototype development
• Make-II: Industry-funded with assured procurement
• Make-III: Import substitution of legacy equipment

These are reinforced by Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu, which are steadily emerging as hubs for ammunition, UAVs, electronics, and small arms manufacturing.

Exports and Global Positioning

India’s defence schemes increasingly view exports as a strategic multiplier. Platforms such as:

• Dornier-228 aircraft
• BrahMos missiles
• Coastal surveillance systems
• Indigenous UAVs

are now actively promoted through government-to-government frameworks, export facilitation mechanisms, and diplomatic outreach.

Personnel Welfare Schemes: The Fiscal Reality

A significant portion of defence spending continues to be absorbed by pay, pensions, and welfare, with defence pensions alone exceeding ₹1.7 lakh crore. Schemes such as OROP and the Ex-Servicemen Contributory Health Scheme (ECHS) remain essential for morale and social obligation.

However, these commitments also constrain fiscal flexibility, reinforcing the need for procurement efficiency and lifecycle cost reduction through indigenisation.

Emerging Domains: Space, Cyber, and Autonomy

Several priority areas do not always appear prominently in budget speeches but receive funding through classified or embedded allocations. These include:

• Military space capabilities
• Cyber defence and information warfare
• Swarm drones and maritime unmanned systems

Their quiet funding reflects a recognition that future conflicts will be shaped as much by information dominance as by conventional firepower.

The Big Picture: A Deliberate Balancing Act

India’s defence schemes in 2026 illustrate a careful compromise. The government is expanding modernisation and innovation while managing the unavoidable burden of revenue expenditure and pensions. The emphasis on domestic procurement, startup-driven innovation, and mission-mode R&D aligns clearly with long-term strategic objectives.

Yet, sustaining this momentum will require reforms beyond budgetary allocations — faster procurement processes, deeper private-sector participation, and continued political commitment to indigenisation.

India’s defence budget is no longer merely about buying equipment; it is about building a resilient defence ecosystem. Schemes such as iDEX, TDF, Make-II, and domestic capital procurement may appear incremental in isolation, but collectively they are reshaping how India equips, sustains, and innovates for its national security.

In an era of contested borders, maritime competition, and rapid technological change, these schemes — more than the headline figures — will determine India’s military readiness in the decade ahead.