The defence budget for 2026-27 has increased by 14%, with the proposed budget at 11%, up from last year’s 8%. Compared with last year’s allocation of Rs 81 lakh crore, Rs 85 lakh crore has been allocated this year under the capital head. Rs 2.19 lakh crore has been allocated under the capital head, and Rs 3.65 lakh crore has been allocated under the revenue head for various expenditures, including salaries. In addition, Rs 1.71 lakh crore is earmarked for pensions and related expenses. Under the capital head, the three arms of the military have been allocated Rs 62,217 crore to the Army, Rs 63,737 crore to the Air Force, and Rs 25,023 crore to the Navy for modernization and equipment replacement.
In the 2026 defence budget, given emerging geopolitical risk and the recent operational developments, especially operations Sindoor and conflicts in the Middle East, a significant policy shift has been observed while keeping revenue expenditure, which includes salaries, allowances, pensions, operations, and other expenses of the three branches at last year’s level. Capital allocation has increased by 21%.
The increase in capital allocation has been given special attention to modernize all three branches of the military, equip them with resources for research, indigenization, and the development of Technology and capabilities, and strengthen capital acquisition through various research and development sources and domestic capacities.
The 2026 union budget has opened up collateral opportunities in the defence management sector, as well as support for developing an integrated module for public-private and government partnership in the fields of defence research, innovation, and production, as well as advanced technology development in the exploration of rare earth materials, outer space technology, AI, and other cyber and IT-related systems.
The government’s push to establish rare Earth corridors in Odisha, Kerala, Tamil Nadu, and Andhra Pradesh will mark a landmark shift in India’s strategy to advance its rare Earth minerals sector. The Indian government has set a major target to drive high-impact transformation in electric vehicles, renewable energy systems, and military warfare by exploring the use of high-strength REMs.
China alone currently controls over 90% of the exploration and manufacturing of the raw materials required to produce REMs. The rapid rise in demand for REMs is evident in India, and to maintain strategic and diplomatic independence, India needs to develop its own strength and capabilities in REMs. As of today, beach sand and materials (BSM) are the primary sources of rare earths in India, which contain phosphate minerals that contain uranium and phoria, both of which are crucial for aerospace and defense technology. Hence, establishing rare Earth corridors in these four coastal states is indeed a landmark decision.
Another important step outlined in the 2026 budget is the redefinition and restructuring of the Defence Research and Development module, including the restructuring of DRDO and the establishment of the Anusandhan National Research Foundation (ANRF), which signals a paradigm shift in defence R&D.
The defence budget has focused on developing strategy, research, and innovation capabilities by allocating accelerated multi-year deployment funds of Rs 100,000 crore for defence-related research, with Rs 20,000 crore in annual tranches. Funds will establish a self-reliant research and technology development ecosystem built on two crucial pillars of future growth, the Indian defense ecosystem and a globally competitive deep technology sector. The Anusandhan National Research Foundation (NRF) will manage funds and target startups working in critical areas such as artificial intelligence, quantum, and semiconductors, as well as the effective use of rare earth elements, to ultimately achieve India’s goal of becoming a hub for global intellectual property powerhouses. ANRF will also create a larger, more predictable market for private R&D firms and defense-tech startups. A multi-year, long-cycle approach will enable R&D in areas such as AI, drones, and cyberwarfare capabilities without annual funding uncertainty. Therefore, the 2026 budget has been allocated to transforming the approach to capital expenditure, promoting research, development, and innovation, and ensuring the judicious use of REM in outer space and defence technologies. These steps will support the development of a system to modernize the security apparatus and create a self-reliant India, focusing on research and production of indigenous technology for complex defence systems, with domestic manufacturers regularly incentivized and the export of weapons prioritized. This will not only reduce import spending but also make the capital budget more meaningful.
Most countries treat only the purchase of defence equipment and infrastructure development as part of the defence budget, while salaries, pensions, revenue expenditure, and building and road construction are kept separate. Russia spends 18% of its GDP, Saudi Arabia 8%, and other countries 3-4% on security. India’s total defence expenditure is only around 2% of GDP and 15-20% of the government’s total budget, which is much lower than in other countries.
According to estimates, the United States defence expenditure is $892.6 billion, China’s $292 billion, Russia’s $149 billion, Britain’s $81.6 billion, and Saudi Arabia’s expenditure are approximately $71 billion. India’s proposed defence budget is only $91 billion, well below the required level. Similarly, countries use different criteria to estimate defence budget and there is limited transparency between actual and declared expenditures.
In any case, given India’s geographical and strategic conditions, there is hardly any scope for further cuts to our military forces and defence expenditures. Rather, additional allocations are required to address potential challenges, including the integration of military systems, theater commands, battle groups, space, and the broader Navy, as well as rapidly evolving changes in military operations, as reflected in Operation Sindoor. Therefore, in the budget allocation process, defence expenditures under the capital head should be increased to up to 3% of GDP through a time-bound process in the near future.
An important point is that the defence expenditures of countries like the United States and Russia are relatively low compared with the resources required to secure their territorial borders, and are primarily driven by their aspirations and roles as international strategic powers. Similarly, China’s massive defence spending is aimed at advancing its expansionist and aggressive ambitions, particularly against India and other South Asian countries. While Pakistan’s entire defence structure is oriented, directly or indirectly, as a war apparatus against India. In contrast, India needs a defence system that is not only suitable for protecting its geographical borders against the growing threats of a combined Chinese and Pakistani attack but also in line with its maritime territories in the Arabian Sea, the Bay of Bengal, the region of the remaining Indian Ocean, and its increasing global responsibilities as a modern, agile, and capable force capable of effectively countering challenges over the next 30 years not only on land, in the air, and at sea but also in space, in the domains of cyber, artificial intelligence, lasers, and nuclear.
At the same time, given recent internal and foreign policy changes in Bangladesh, these developments are likely to have far-reaching implications for Indian security policy; additional allocations for defence spending will be needed to secure additional resources.
Reducing import duties on nuclear power plants, Critical Care Earth minerals (REM), and the civil and military aviation sector is a commendable step. It will accelerate modernization and indigenization in the defence sector and ensure effective use of capital expenditures.
The budget also supports infrastructure development in highly sensitive and significant states in the country’s north and northeast, particularly along the international border, including in high-altitude areas such as Ladakh, Sikkim, Uttarakhand, and Arunachal Pradesh. The budget has accelerated progress by allocating additional funds to the Border Roads Organization and by integrating projects with civil counterparts in the same field.
The allocation from the general budget for transportation by road, rail, and air in remote and border areas, the construction of buildings, the arrangement of alternative energy, and the development of communication facilities is a highly commendable step to announce our strategic capability and to balance the military budget in these areas with a long-term impact.
Major General J.K.S. Parihar, Sena Medal, Bar to Vishisht Seva Medal (Retd.), Former Additional Director General, AFMS and Expert on Defence and International Strategic Affairs.
