Ms Shobhana Joshi, Co-Chairperson SAMDeS
The allocation for the first Union Budget for Defence after Operation Sindoor received an increase of 15.19 per cent over Budgetary Estimates (BE) 2025–26, and places national security at the core of India’s modernisation, self-reliance and innovation priorities. The allocation is Rs. 7,84,678 crores asagainst the Budget Estimates of Rs. 6,81,210 crores in 2025-26. The increase over the Revised Estimates 2025-26 of Rs. 7,32,512 crore however, is about 7.12 per cent . The total allocation is 14.67 per cent of the Budget Estimates of the Union of India. As a percentage of GDP, the 2026-27 defence budget is now touching 2 per cent as against 1.91 per cent in 2025-26.
The budget attempts to balance manpower, sustenance, operations and force modernisation, but still almost 50 per cent of the budget constitutes pay and pension expenditure. While manpower costs on pay and pensions constitute 48.24 per cent, capital acquisitions, sustenance and operations account for 48.12 per cent. Out of the total allocation made to the Ministry of Defence, 27.95 per cent of the Defence Budget allocation is for capital expenditure, 20.17 per cent for revenue expenditure on sustenance and operational preparedness, 26.40 per cent for revenue expenditure on pay and allowances, 21.84 per cent for defence pensions, and 3.64 per cent for civil organisations.
Allocations for Defence Services 2026-27
The allocation for the Defence Services (Demand numbers 20 and 21) is 19 per cent more than BE 2025-26 and 9.05 per cent more than RE 2025-26. The trends in Revenue Capital breakup from BE and RE 2023-24 are shown below : (Values in crore).It is pertinent to note that there has been the highest allocation of funds at revised estimate stage in 2025-26 as compared to financial years 2023-24 and 2025-26. Also, for the first time revenue expenditure received substantial additional funds of Rs. 38,038 crores.
Capital Outlay on Defence Services – 2026-27
Under capital outlay on Defence Services, as against the allocation of Rs. 2,19,306.47 crore, the armed forces received an allocation of Rs 1,98,792.36 crore. The balance of the capital allocation is for Research & Development, DGQA and the newly created DPSUs. The allocation for ‘Capital (Acquisition)’ is Rs.1,79,299.17 crore and for ‘Capital (Other than Acquisition)’ is Rs. 19,393.19 crore.
Budget Utilization 2025-26
A comparison of the BE and RE 2025-26 shows that against a BE 2025-26 of Rs.1,61,528.02 crore the RE 2025-26 was Rs. 1,67,7792.38 crore, an increase Rs. 6,247.43 crore.
The break-up of allocations between capital and other than capital acquisition and its utilization from BE to RE stage in 2025-26 are shown in the table below. In Capital (Acquisition), there was an overall excess expenditure, however the expenditure across various heads has been uneven. The main heavy expenditure has been incurred in the head ‘Aircraft and aero engines’ with an excess expenditure of Rs 24,166.09 crore over the BE allocation. This was offset by a sizeable amount of slippage from the allotted budget in ‘Other Equipment’ of Rs. Rs.12,338.57. As the head ‘Other Equipment’ is very generic it is difficult to assess from the budget documents where exactly the slippages have taken place. ‘Naval Fleet’ had a slippage of Rs. 2994.14 crore, and Joint Staff had a slippage of Rs. 636.66crore. In Capital (Other than Acquisition) there was a slippage of Rs. 1900.04 crore under the heads of Land, Construction Works and Special Projects.
There was an additional allocation of funds at RE stage in the following heads;
- Rs. 24,166.09 crore in ‘Aircraft &Aeroengines’,
- Rs. 45.94 crore in ‘ Heavy & Medium Vehicles’
- Rs. 72.00 crore in ‘Rashtriya Rifles’
. Defence Services (Revenue)
Rs 3,65,478.98 crore has been allocated for Defence Services (Revenue) against an allocation of 3,11,732.30 in BE 2025-26, which is an increase of 17.24 per cent . However, a major step up took place at RE 2025-26 stage and the allocation increased to Rs. 3,49,770.06 crore, which is 12.20 per cent . The break- up of allocations is as follows (Value Rs in crore):
Operational Expenditure
Another major change introduced in the budget documents 2026-27, is to classify the operational expenditure of the three services and R&D separately. Previously the Revenue budget of the three services was categorized as ‘Establishment expenditure of the centre’. Now a separate category ‘Other Central sector expenditure’ has been introduced from RE 2025-26 which has mapped the line items of ‘Transportation’, ‘Stores’, ‘Works’, ‘Repairs &Refits’ as operational expenditure. In addition, Spectrum charges paid to Department of Telecommunication have also been included. This step will bring visibility regarding operational expenditure incurred during the year. Consequently, in RE 2025-2026 the allocation for ‘Other Central Sector Expenditure‘ was Rs. 1,37,579.30 crore which is 39.99 per cent of the total revenue allocation. The allocation in BE 2026-27 is Rs. 1,38,215.04 crore. The details of the three services are given in the table below:
Continued Focus on Indigenous Capacity
The budget continues with the focus on building up indigenous production of weapons and systems and strengthen the domestic industries. Accordingly, a substantial share of the modernisation budget has been earmarked for the capital procurement from domestic industries. In order to encourage the private sector for manufacturing and technological development in the defence sector, a notable percentage of domestic share is further earmarked for acquisition from domestic private industries.
As per PIB press release the following provisions have been made in the budget to give a fillip to the domestic defence industry:
- ₹1.39 lakh crore allocated for procurement from domestic defence industries.
- Around 75 per cent of the Capital Acquisition budget is reserved for domestic defence industries in FY 2026-27
- Basic custom duty on raw materials imported for manufacture of parts of aircraft to be used in maintenance, repair, or overhaul requirements by Units in the Defence sector to be exempted.
Defence Research & Development
The budgetary allocation to the Defence Research and Development Organisation (DRDO) has been increased to Rs.29,100.25 crore in BE 2026-27 from Rs. 26,816.82 crore in BE 2025-26. Out of this allocation, a major share of Rs. 17,250.25 crore has been allocated for capital expenditure.
Conclusion
The 15.19 per cent increase in theDefence Budget 2026-27 has received a positive response. The hike under the capital head shows serious intent to modernise the defence capability. But at the same time gaps in the utilisation of the higher allocations and an even expenditure pattern, remains a cause for concern. Industry will also need to keep pace in their production capacity for ensuring that the higher allocations for acquisition of weapon systems are spent in an equitable and balanced manner. The introduction of a separate category for operational expenditure in the revenue head is also a correct step. Maintenance and sustainment of weapons and platforms however also needs to have better visibility. It is hoped that by the next budget this reform is also made.