India raises defence spending to Rs 7.85 lakh crore with sharp push on modernisation

India on Sunday set aside Rs 7,84,678 crore as defence outlay for 2026-27, marking a 15 per cent increase over the current fiscal’s allocation of Rs 6.81 lakh crore, with a significant rise in capital expenditure as the armed forces focus on modernisation amid security challenges from China and Pakistan.

Out of the total allocation, Rs 2,19,306 crore has been earmarked as capital expenditure for the armed forces, largely for the acquisition of new weapons, aircraft, warships and other military hardware.

The capital outlay is more than Rs 39,000 crore higher than the budgetary estimate of Rs 1.80 lakh crore in the current fiscal. The revised capital outlay for 2025-26 has been pegged at Rs 1,86,454 crore.

Under capital expenditure, Rs 63,733 crore has been allocated for aircraft and aero engines, while Rs 25,023 crore has been set aside for the naval fleet.

The revenue expenditure has been placed at Rs 5,53,668 crore, including Rs 1,71,338 crore for pensions.

In her budget speech, Finance Minister Nirmala Sitharaman proposed exempting basic customs duty on components and parts required for the manufacture of civilian, training and other aircraft. She also announced the waiver of basic customs duty on raw materials imported for the manufacture of aircraft parts used for maintenance, repair or overhaul requirements by defence sector units. The two measures are expected to support the defence aerospace industry.

Defence Minister Rajnath Singh said the “most important” aspect of the budget was the modernisation of the three services.

“I express my heartfelt gratitude to our Prime Minister Modi ji for allocating Rs 7.85 lakh crore for the defence sector,” Singh said. “Coming after the historic success of Operation Sindoor, this budget has further strengthened our resolve to make the country’s defence system even more robust,” he added.

Singh said a provision of Rs 2.19 lakh crore has been made for the overall capital expenditure of the armed forces.

“The most important aspect of this Budget is the modernisation of our three services. For this, a provision of Rs 1.85 lakh crore has been made this year, which is approximately 24 per cent higher than the previous financial year,” he said. “As a result of this increase, our military capability will become even more powerful,” Singh added.

The defence minister said the welfare of ex-servicemen and their families has also been prioritised.

“Under the Ex-Servicemen Contributory Health Scheme, a provision of Rs 12,100 crore has been made, which is an increase of approximately 45 per cent compared to the current year,” he said.

“This budget strengthens the balance between security, development, and self-reliance,” Singh noted.

The defence allocation works out to around two per cent of the projected GDP for 2026-27.

The defence ministry said the outlay focuses on modernisation, technological innovation and streamlined procurement for optimal utilisation of resources.

(With inputs from agencies)