Defence allocation for FY2026–27 raised 15% to ₹7.85 lakh crore, with capital expenditure up 28%
Modernisation and self-reliance remain priorities; customs duty exemption granted for defence manufacturing inputs
No major defence policy announcements in the Budget speech; focus remains on continuity and preparedness
The Union Budget allocated a 15% higher budget for the defence sector for FY2026–27. Union Finance Minister Nirmala Sitharaman presented the budget for the ninth consecutive time today.
The defence budget was raised to ₹7.85 lakh crore from ₹6.81 lakh crore a year ago. The higher allocation for the defence sector signals that the government is focused on military preparedness amid rising regional threats from both Pakistan and China, reports suggested.
1 January 2026
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India’s defence allocation for the current financial year ending March 31 stood at 1.9% of GDP, lower than Pakistan’s defence allocation of 2.3% of GDP for the same year. Over the past decade, defence capital expenditure has risen to ₹2.31 lakh crore from ₹83,614 crore in FY16.
Sitharaman did not announce any specific policy pertaining to the defence sector in her budget speech. Over the last five years, India’s defence expenditure has grown by over 40%, with annual growth of around 9.2% since 2020, a report by CNBC said.
Defence capital expenditure rose sharply by 28% to ₹2.31 lakh crore, compared with ₹1.80 lakh crore a year ago. India has been actively enhancing its acquisition of advanced weapon systems and strengthening domestic defence manufacturing.
A key highlight mentioned by Sitharaman during the speech was the government’s decision to exempt basic customs duty on imports of raw materials used for the manufacturing, servicing, repair, or overhaul of defence equipment.
The budget allocation for the Agnipath scheme under the revenue head has been increased from ₹9,414 crore to ₹15,173 crore.
Priority in the defence sector remains on greater self-reliance, modernisation, faster procurement, and reducing import dependence. In the FY27 budget, the modernisation budget alone has been revised upward by 24%.
"The allocation of ₹7.85 lakh crore to defence—with capital modernisation crossing ₹2 lakh crore for the first time—is a decisive post-Operation Sindoor signal that India will no longer outsource its security," Ashok Atluri chair, PHDCCI Defence & HLS Committee said. "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. That’s the difference between strategic autonomy and strategic dependence with an Indian label."
