Anticipated Budget 2026 for Defence: Key Reasons to Increase Capital Outlay for ‘Atmanirbharta’
Finance Minister Nirmala Sitharaman is urged to prioritize productive capital expenditure in the upcoming Union Budget 2026, particularly in the defence sector, as highlighted by the Federation of Indian Chambers of Commerce and Industry (FICCI). With global uncertainties and escalating military advancements from adversaries, FICCI emphasizes the need for India to enhance its defence capabilities through technology-driven innovations. The organization’s pre-Budget memorandum outlines a strategic approach to bolster national security and promote indigenous defence production.
Strategic Focus on Defence Innovation
FICCI stresses the importance of a technology-driven approach to defence innovation in its recommendations for the Union Budget 2026. The organization notes that the current external security environment is fraught with challenges, including rising disputes and conflicts. Adversaries are investing significantly in advanced military technologies, such as autonomous weapons and AI-enabled warfare, which heightens the risks for India. To counter these threats, FICCI advocates for a robust and modern defence architecture that ensures the country’s territorial integrity and strategic autonomy. The organization calls for a shift from traditional platform-centric strategies to integrated, AI-enabled capabilities that leverage indigenous innovations. This transition is deemed essential for preparing India for future multi-domain conflicts that encompass land, air, sea, cyber, and space.
Four-Pronged Approach to Budget Allocation
FICCI proposes a four-pronged approach to enhance the defence budget in the upcoming fiscal year. The organization suggests that the overall budgetary support for the Ministry of Defence should maintain a growth rate of approximately 10%, with an increased focus on capital outlay. Currently, capital outlay accounts for around 26% of the defence budget, and FICCI recommends raising this figure to 30%. This additional funding is crucial for modernizing military infrastructure, particularly in acquiring frontline assets, UAVs, and electronic warfare systems.
Moreover, FICCI emphasizes the need for a substantial increase in the budget allocation for the Defence Research and Development Organisation (DRDO). The previous budget saw a 12.4% increase, but FICCI advocates for an additional Rs 10,000 crore to strengthen DRDO’s capabilities in developing new technologies. This funding would support fundamental research and foster collaboration with private entities through initiatives like the Technology Development Fund.
Strengthening Indigenous Defence Production
Under the Atmanirbhar Bharat initiative, FICCI acknowledges the government’s progress in promoting defence indigenisation through the establishment of Defence Industrial Corridors in Uttar Pradesh and Tamil Nadu. To build on this momentum, the organization recommends the creation of an Eastern India Defence Industrial Corridor. This initiative would align with the ‘Purvodaya Scheme’ to rejuvenate industrial clusters in Eastern India, thereby stimulating job creation and research and development. FICCI believes that such measures would position India as a global hub for defence exports while securing national interests across its borders.
Boosting Defence Exports
FICCI also highlights the importance of enhancing defence exports, which have seen a remarkable compound annual growth rate of 46% from 2016-17 to 2023-24, largely driven by private sector contributions. The central government aims to achieve defence exports worth Rs 50,000 crore by 2028-29. To facilitate this growth, FICCI suggests the establishment of a Defence Export Promotion Council (DEPC). This council would coordinate efforts among armed services, private manufacturers, and government entities to streamline communication with foreign governments and potential buyers, ultimately boosting India’s position in the global defence market.
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