Defence in Union Budget 2026–27: Modernisation, Indigenisation and Challenges

Download PDF 📄

Defence Budget 2026-27: The Government of India has allocated a record ₹7.85 lakh crore to the defence sector in the Union Budget 2026–27, marking the highest-ever defence outlay. The allocation reflects India’s strategic focus on military modernisation, indigenous manufacturing, defence research, and veterans’ welfare.

The budget comes in the aftermath of Operation Sindoor, which tested India’s combat readiness in real conditions, and places national security at the core of India’s long-term vision of self-reliance.

Why in News?

Defence allocation touched a record ₹7.85 lakh crore.
Capital expenditure crossed ₹2.19 lakh crore.
Strong focus on Atmanirbhar Bharat in defence.
Enhanced support for veterans and infrastructure.
Budget builds on lessons from recent military operations.

How Does the Budget Promote Defence Modernisation?

1. Capital Investment Push

Capital allocation: ₹2.19 lakh crore+
Induction of next-generation aircraft, submarines, drones, and missiles
Strengthening naval and air capabilities
Expansion of network-centric warfare systems

Enhanced funding to the Border Roads Organisation for:

2. Strategic Infrastructure Development

Tunnels and bridges
Forward airfields
Border connectivity

Investment in optical fibre-based defence communication networks supports joint operations.

Boost to Indigenous Defence Manufacturing

The budget strongly promotes Atmanirbhar Bharat in defence.

Key Measures:

₹1.39 lakh crore for domestic procurement
About 75% of capital acquisition reserved for Indian firms
Customs duty exemptions for MRO imports
Support to MSMEs and startups

These measures aim to deepen India’s defence industrial base and generate skilled employment.

Research, Development and Innovation

The allocation to the Defence Research and Development Organisation has increased by about 8.5%.

Focus Areas:

Advanced weapon systems
AI and cyber warfare
Hypersonic and drone technologies
Dual-use technologies

The budget promotes collaboration with industry, startups, and academia through Centres of Excellence and faster technology transfers.

Veterans’ Welfare and Pension Support

Healthcare

The Ex-Servicemen Contributory Health Scheme received ₹12,100 crore (45% rise) to support ex-servicemen.

Pensions

Pension allocation increased by 6.56%
Payments through System for Pension Administration Raksha
Benefits over 34 lakh pensioners

This reflects the government’s commitment to veterans’ dignity and welfare.

Key Defence Indigenisation Initiatives

India’s self-reliance drive is supported through:

Defence Production and Export Promotion Policy (DPEPP) 2020
Technology Development Fund (TDF)
SRIJAN Portal
Positive Indigenisation Lists (PILs)
Innovations for Defence Excellence (iDEX)
Defence Acquisition Procedure (DAP) 2020

Challenges Despite Higher Defence Allocation

1. High Revenue Expenditure

Salaries and pensions ≈ 50% of budget
Capital share remains below 30%
Limits modernisation

2. Low GDP Share

Defence spending ≈ 2% of GDP
Below recommended 3% benchmark

3. Currency Depreciation

Dollar-based imports reduce purchasing power

4. Committed Liabilities

Large payments for past contracts
Reduces funds for new projects

5. Import Dependence

According to Stockholm International Peace Research Institute, India is the world’s second-largest arms importer.

6. Domestic Quality Issues

Delays in DRDO projects
CAG reports on faulty equipment

7. Capability Gaps

Army: Only ~15% new-generation equipment
Air Force: 31 squadrons vs sanctioned 42
Aging MiG fleet phase-out

8. Procurement Delays

DAP 2020 cycles often exceed 15–20 years
Unsuitable for AI-era warfare

Measures Needed to Strengthen Defence Preparedness

1. Financial Restructuring

Operationalise Modernisation Fund
Non-lapsable capital fund

2. Private Sector R&D

Promote “Make-I” co-development
Fund private prototypes
Reduce DRDO monopoly

3. Faster Procurement

Simplify AoN process
Enable emergency purchases

4. Theatre Commands

Establish Integrated Theatre Commands
Improve jointness

5. Realistic Indigenisation

Align import bans with domestic readiness
Allow interim imports when needed

Strategic Significance

Enhances deterrence against China and Pakistan
Strengthens defence exports
Supports Viksit Bharat @2047
Improves border management
Boosts defence diplomacy

Conclusion

The Union Budget 2026–27 reflects a decisive shift towards building a modern, self-reliant, and innovation-driven defence ecosystem. While record allocations, indigenous manufacturing, and R&D support mark significant progress, structural constraints such as high revenue spending and procurement delays remain. Sustained reforms and efficient implementation are essential to translate financial inputs into real military capability.

Summary

The Union Budget 2026–27 strengthens India’s defence preparedness by prioritising modernisation, indigenous manufacturing, R&D, and veterans’ welfare. However, challenges such as high revenue expenditure, slow procurement, import dependence, and capability gaps continue to constrain the transformative impact of higher allocations.

Topics Covered: Defence Budget 2026–27, India military modernisation, Atmanirbhar Bharat defence, DRDO funding, Indigenous defence manufacturing, Defence budget 2026 UPSC analysis, India defence modernisation challenges, Capital vs revenue expenditure defence, Atmanirbhar Bharat military sector, defence budget, union budget 2026, military modernisation, DRDO, Atmanirbhar Bharat, defence indigenisation

📌 Exam-Oriented Facts

Defence Budget 2026–27: ₹7.85 lakh crore
Capital Outlay: ₹2.19 lakh crore+
Domestic Procurement: ₹1.39 lakh crore
ECHS Allocation: ₹12,100 crore
Pension Beneficiaries: 34 lakh+
GDP Share: ~2%

📝 Mains Value Addition (GS III – Internal Security & Economy)

Higher defence allocations must be supported by procurement reforms, R&D investment, and private-sector participation to achieve genuine military modernisation.