Insights from Five Years of Data on India’s Defence Spending Ahead of Budget 2026
As Finance Minister Nirmala Sitharaman gears up to unveil the Union Budget for 2026 on February 1, a significant focus is anticipated on defence spending. This comes in light of escalating geopolitical tensions and an ongoing commitment to military modernization. The budget is expected to reflect the government’s prioritization of national security, with defence expenditure projected to reach Rs 6.81 lakh crore, marking a consistent increase over recent years.
Defence Outlay Shows Steady Rise
India’s defence expenditure has seen a notable upward trend over the past five years. In the fiscal year 2021, the spending was recorded at Rs 4.85 lakh crore, which has risen to Rs 6.41 lakh crore in the revised estimates for FY25. For FY26, the budget estimates indicate a further increase to Rs 6.81 lakh crore. This growth underscores the government’s ongoing commitment to enhancing national security and military preparedness. Since FY21, defence spending has surged by nearly Rs 2 lakh crore, with more pronounced increases in recent years due to heightened border tensions and evolving global conflicts. The consistent rise in defence outlay highlights the government’s strategic focus on maintaining a robust military posture.
Shift Towards Modernisation and Capital Spend
The increasing allocations for defence have been closely aligned with modernization efforts and capital expenditure. According to a recent PIB release regarding the Budget for 2025-26, approximately Rs 1.80 lakh crore, or about 26% of the total defence budget, has been designated for capital expenditure. This allocation includes a strong emphasis on domestic procurement under the Atmanirbhar Bharat initiative. A significant portion of the modernization budget is set aside for procurement from Indian industries, including private sector players. The Federation of Indian Chambers of Commerce and Industry (FICCI) has advocated for a deeper commitment to this trend, suggesting that capital outlay should be increased to around 30% of the total defence budget. FICCI emphasizes that future warfare will be increasingly technology-driven and multi-domain, necessitating investments that extend beyond traditional military platforms.
Budget 2026 Expectations: Technology, R&D, and Exports
With defence spending on a steady rise, the upcoming Budget 2026 is expected to prioritize qualitative enhancements rather than merely increasing the overall figures. FICCI has proposed higher allocations for defence research and development, including a suggested increase of Rs 10,000 crore for the Defence Research and Development Organisation (DRDO). The focus is also on advancing AI-enabled systems, unmanned aerial vehicles (UAVs), and capabilities in cyber and space domains. Additionally, defence exports are identified as a crucial area for growth. Between 2016-17 and 2023-24, defence exports have expanded at a compound annual growth rate of 46%, primarily driven by private sector contributions. The government has set an ambitious target of Rs 50,000 crore in defence exports by 2028-29. Analysts are keenly observing whether the forthcoming Budget will effectively translate India’s increasing defence spending into sustained self-reliance and enhanced global competitiveness.
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