The Union Budget 2025-26 has allocated Rs 6.81 lakh crore to defence, marking a 9.52% increase from last year’s Rs 6.22 lakh crore. However, compared to the revised estimates of Rs 6.41 lakh crore, the increase is only 6%. The defence funding allocation accounts for 1.9% of India’s projected GDP and 13.45% of the total, making it the highest allocation among all ministries and yet substantially lower, as compared to other countries in the world.
The budget reflects the growing financial burden of pensions and revenue expenditure, while capital outlay for modernisation and acquisitions has seen only a moderate increase. The government’s continued emphasis on self-reliance in defence manufacturing and border infrastructure development is evident, but challenges remain in terms of fund utilisation and structural inefficiencies.
Revenue Expenditure and Rising Costs of Personnel
A major portion of the security budget, Rs 311,732.30 crore, is allocated to revenue expenditure, covering pay, allowances, maintenance, and operational expenses. This represents 45.76% of the total and marks a 24.25% increase from last year’s allocation.
The bulk of this amount, Rs 1,97,317.30 crore, is set aside for the salaries and allowances of armed forces personnel. The increase is largely due to additional deployment of forces in border areas, longer sea deployments, increased flying hours for aircraft, and higher operational costs. The revenue expenditure for the current fiscal had already risen from Rs 2.82 lakh crore to Rs 2.97 lakh crore in the revised estimates, reflecting the financial strain on sustaining operational readiness.
While these rising costs ensure troop preparedness, they also reduce fiscal space for modernisation, a challenge that policymakers must address in future funding.
Capital Outlay and Modernisation Efforts
The capital budget, which funds modernisation and procurement of new equipment, has been increased from Rs 1.72 lakh crore to Rs 1.80 lakh crore—a mere Rs 8,000 crore increase. This has been disappointing for the armed forces, which had expected a more substantial boost.
A significant concern is the underutilisation of funds, as the armed forces were unable to fully utilise last year’s capital budget, leading to the return of Rs 13,000 crore. This underscores structural inefficiencies in procurement and acquisition processes, which need urgent reform to ensure timely modernisation.
Of the total capital allocation, Rs 1,48,722.80 crore is designated as the modernisation fund allocation for acquiring new platforms and equipment, while Rs 31,277.20 crore will be spent on defence research, infrastructure, and other capital investments.
Key Procurement Allocations
- Aircraft and Aero Engines – Rs 48,614 crore
- Naval Fleet Expansion – Rs 24,390 crore
- Missiles, Artillery, and Defence Equipment – Rs 63,099 crore
- Naval Dockyard Infrastructure – Rs 4,500 crore
The focus remains on fighter jets, warships, drones, artillery systems, tanks, and infantry fighting vehicles, all critical for combat readiness and strategic deterrence. India is investing in next-generation fighter jets to counter China’s J-20 stealth fighters and Pakistan’s JF-17 fleet while addressing its own squadron shortages. The Navy’s modernisation includes new destroyers, submarines, and aircraft carriers to counter China’s expanding naval dominance in the Indian Ocean. Enhanced artillery and armoured vehicle acquisitions strengthen border security against China’s rapid infrastructure expansion and Pakistan’s tactical threats. The limited capital budget growth slows procurement though and impacts long-term military modernisation efforts.
Pensions Continue to Dominate the Budget
The increase in the defence funds, which has risen from Rs 1,41,205 crore last year, can be attributed to the implementation of revisions to the One Rank, One Pension (OROP) scheme, which ensures that retired military personnel receive pensions based on the current pay scales of their respective ranks. This revision has led to a significant rise in pension outlays, placing additional strain on the allocated security funds.
Another factor driving the increase is the growing number of retired personnel, which consequently raises the overall pension liabilities. With more retired personnel, the budget must allocate larger portions to meet these obligations. There has been an upward revision in disability pension payouts and family benefits, further contributing to the rise in expenditure. While these pension payments are crucial to fulfilling the government’s commitment to veterans and their families, they continue to grow at a faster rate than capital expenditure, which impacts the funds available for modernisation of the armed forces. This trend raises concerns about balancing the pension liabilities with the need for defence procurement and infrastructure upgrades.
Emphasis on Self-Reliance in Defence Manufacturing
The government has reinforced its commitment to Aatmanirbhar Bharat (Self-Reliant India) in the sector by earmarking Rs 1,11,544.83 crore (75% of the modernisation allocated funds) for domestic procurement.
Additionally, Rs 27,886.21 crore (25%) is reserved for domestic private-sector industries, reflecting the push to integrate private players into India’s defence ecosystem.
This policy aims to reduce reliance on foreign suppliers while stimulating indigenous manufacturing and job creation. However, India still relies on imports for critical technologies such as jet engines, advanced sensors, and high-end electronic warfare systems.
Strengthening Border Infrastructure
India continues to enhance its border security infrastructure, particularly in high-altitude and remote areas. The Border Roads Organisation (BRO) has received Rs 7,146.50 crore, an increase of 9.74% from last year.
Projects in focus:
- LGG-Damteng-Yangtse Road (Arunachal Pradesh) – Strengthening connectivity near the Line of Actual Control (LAC) with China.
- Asha-Cheema-Anita Road (Jammu & Kashmir) – Improving troop mobility in sensitive areas.
- Birdhwal-Puggal-Bajju Road (Rajasthan) – Enhancing defence logistics in western India.
These infrastructure investments are crucial for rapid troop movement, logistics efficiency, and strategic deterrence in conflict-prone areas.
Boost to Defence Research and Development (R&D)
The Defence Research and Development Organisation (DRDO) has been allocated Rs 26,816.82 crore for the current fiscal year, reflecting a notable increase of 12.41% compared to Rs 23,855.61 crore in the previous year. A significant portion of this funding, amounting to Rs 14,923.82 crore, is earmarked for capital expenditure and various R&D projects aimed at advancing India’s defence capabilities.
The development of hypersonic weapons, which are crucial for enhancing India’s strategic deterrence and offensive capabilities is the main priority. Investment is also directed towards strengthening Artificial Intelligence (AI) and cyber warfare capabilities, with the goal of improving operations, decision-making processes, and the nation’s ability to defend against increasingly sophisticated cyber threats.
It prioritises the enhancement of advanced missile systems and space-based surveillance technologies, which is important for ensuring the country’s space security and missile defence preparedness.
This increased funding underscores the government’s commitment to modernising defence infrastructure and technological innovation, as India continues to build its indigenous capabilities in response to evolving security challenges. The bolstered DRDO allocated funds highlights the focus on next-generation technologies, ensuring that India stays ahead in an increasingly competitive global security environment.
How India’s Defence Funding Compares with China and Pakistan
India vs. China
| Country | Defence Budget | % of GDP |
|---|---|---|
| India (2025-26) | Rs 6.81 lakh crore | 1.9% |
| China (2024-25) | Rs 19.6 lakh crore ($236 billion) | 1.2% |
| China (PPP Estimate) | Rs 59 lakh crore ($711 billion) | – |
China’s defence allocation is almost three times larger than India’s, with consistent year-on-year growth for three decades. However, India allocates a higher percentage of GDP (1.9%) compared to China’s 1.2%, though China’s total GDP is significantly larger.
India vs. Pakistan
| Country | Defence Budget | % of GDP |
|---|---|---|
| India (2025-26) | Rs 6.81 lakh crore | 1.9% |
| Pakistan (2024-25) | Rs 2.12 lakh crore | 1.7% |
Pakistan has increased its defence allocation by 17.6%, maintaining a 1.7% GDP allocation. However, India’s budget remains more than three times larger, ensuring superior force capabilities and modernisation investments.
Strengths, Challenges, and the Way Forward
Strengths
The significant boost to domestic procurement, which supports the growth of India’s indigenous defence industry is a big win. This shift towards sourcing locally manufactured defence equipment enhances self-reliance and reduces dependency on foreign suppliers. It will foster economic growth and job creation within the defence sector.
There is a notable increase in investment towards border infrastructure, particularly in strategic regions. This ensures better logistical efficiency, enabling quicker mobilisation and enhancing the ability to respond to emerging security threats along India’s borders.
The expanded funding for the Defence Research and Development Organisation (DRDO) will accelerate the development of advanced military technologies. The focus on cutting-edge areas such as hypersonic weapons, AI, and cyber warfare strengthens India’s technological edge, essential for maintaining national security in the face of modern challenges.
- Increased domestic procurement, boosting indigenous industry.
- Higher investment in border infrastructure, ensuring logistical efficiency in strategic regions.
- Expanded DRDO funding, accelerating R&D in advanced military technologies.
Challenges
The rising pension costs, driven by an increasing number of retired personnel and higher disability payouts, continue to limit the funds available for modernisation, potentially hindering the pace of military upgrades and a balance has to be found with the same. The underutilisation of the capital budget later results in the return of unspent funds at the end of the financial year. This issue suggests inefficiencies in procurement processes and delays in project execution, which could slow down the desired modernisation efforts.
The absence of a service-wise breakdown for the Army, Navy, and Air Force makes it difficult to track and analyse budget allocations for each service. This lack of transparency can complicate the assessment of whether each branch is receiving adequate funding for its specific needs.
- Rising pension costs limit modernisation funds.
- Underutilisation leads to the return of unspent funds.
- No service-wise breakdown for the Army, Navy, and Air Force, making it difficult to track allocations.
The Way Forward
There is an urgent need to enhance procurement efficiency. Streamlining processes and improving coordination will prevent underutilisation and ensure that funds are spent effectively on critical defence projects.
Prioritising the development of next-generation warfare capabilities—such as AI, cyber warfare, and space defence—is essential. These technologies are pivotal for modernising India’s defence infrastructure and ensuring the country remains resilient against evolving threats.
Improving fiscal discipline in revenue spending is crucial. This would help maintain a sustainable balance between addressing immediate operational needs and investing in long-term modernisation efforts, ensuring a robust defence capability without compromising financial stability.
- Enhancing procurement efficiency to prevent underutilisation.
- Prioritising next-generation warfare capabilities, particularly in AI, cyber warfare, and space defence.
- Improving fiscal discipline in revenue spending, ensuring a sustainable balance between operational needs and modernisation efforts.
The increased security spending by the government of India strengthens domestic procurement, border infrastructure, and DRDO funding for advanced technologies. However, rising pension costs and underutilisation of capital budgets pose challenges. The way forward includes improving procurement efficiency, prioritising next-gen warfare capabilities, and enhancing fiscal discipline to balance operational needs with modernisation.
