New Delhi: India has increased the capital outlay for defence by about 18% to nearly ₹2.2 trillion for the financial year starting 1 April (FY27), as the country looks to acquire sophisticated weapons and modernise its military assets amid rising security risks.
The revised estimates put the defence sector’s capital outlay at ₹1.86 trillion in FY26.
“In the current geopolitical scenario, quantum jump in the modernisation budget is a strategic imperative. During FY 2025-26, up to 3rd quarter i.e., till December 2025, MoD (ministry of defence) has concluded contracts worth ₹2.10 lakh crore and has, so far, given Acceptance of Necessity approval for more than ₹3.50 lakh crore. The upcoming projects under capital acquisition will equip the Armed Forces with next generation fighter aircraft, smart and lethal weapons, ships/submarines, unmanned aerial vehicles, drones, specialist vehicles, etc,” the defence ministry said in a statement on Sunday.
Capital outlay refers to the allocation of capital for acquisition, upgradation and maintenance of assets, which in this case would mean artillery, and heavy machinery. Out of the overall capital expenditure for FY27, ₹63,733.94 crore will go towards purchase of aircraft and aero engines, ₹82,217.82 crore towards other equipment and ₹25,023.63 crore towards naval fleet.
The push to acquire and manufacture defence assets follows last year’s Operation Sindoor, in which India struck terrorist base camps in Pakistan. The strikes were followed by air skirmishes between the two countries’ air forces, during which the Indian Air Force also hit Pakistan’s strategic Noor Khan airbase.
In the statement, defence minister Rajnath Singh said that the budget strengthens the “security-development-self-reliance balance, and it is in the best interest of the nation”. He emphasized that the budget further strengthens the government’s resolve to bolster the country’s security and enhance military capabilities.
The overall allocation for the defence ministry for FY27, including pensions, salaries and civil expenditure, was ₹7.85 trillion, accounting for about 15% of the total central government expenditure, and 2% of the estimated gross domestic product (GDP). This allocation is around 15% higher than the previous year’s allocation of ₹6.81 trillion (budget estimates) and over 7% more than the FY26’s revised estimates of ₹7.33 trillion..
Commenting on the allocation for defence budget, C. Uday Bhaskar, director, Society for Policy Studies, said, “The value of the rupee against the US dollar has declined significantly in the last one year. We have to review this factor in capex allocation and the resultant shrinkage in value and related buying power. That’s why the enhanced allocation is a case of two cheers.”
He added that there is a huge inventory gap in the the armed forces that needs to be systematically redressed.
Baba Kalyani, chairman and managing director, Bharat Forge Ltd, said: “Aligned with the geo-strategic realities, the defence sector emerges as a key pillar of this budget. With defence receiving the second-highest allocation with the increase in the modernisation budget, the emphasis is firmly on upgrading platforms, systems and technologies, while improving procurement efficiency. The message to industry is clear: deepen long-term capability, technology and Aatmanirbharta or self-reliance.”
In bid to develop local defence manufacturing, finance minister Nirmala Sitharaman on Sunday proposed to exempt basic customs duty on raw materials imported for manufacture of parts of aircraft to be used in maintenance, repair, and overhaul requirements by units in the defence sector.
Rajnath Singh said that increased allocation will further enhance India’s military capabilities. “Modernisation of the Armed Forces is an important aspect of this budget,” he said.
Singh added that ₹12,100 crore has been allocated for the Ex-Servicemen Contributory Health Scheme, which is 45.49% higher than the budget estimates of FY26.
He said that the Union budget for the upcoming fiscal is designed to ensure that the dividends of growth reach every section of society.
(Vijay C Roy contributed to the story)
