India Announces Significant Defence Budget Increase for FY27
New Delhi: In a major move to strengthen national security, India has substantially increased its capital outlay for defence by approximately 18% to nearly ₹2.2 trillion for the financial year starting 1 April (FY27). This strategic decision comes as the country seeks to acquire sophisticated weapons and modernize its military assets in response to escalating security challenges.
Enhanced Capital Allocation for Modernization
The revised estimates reveal that the defence sector's capital outlay stood at ₹1.86 trillion in FY26, making the new allocation a significant jump. According to the defence ministry's statement issued on Sunday, this quantum leap in the modernization budget is a strategic imperative in the current geopolitical landscape.
The ministry highlighted that during FY 2025-26, up to the third quarter ending December 2025, the Ministry of Defence has already concluded contracts worth ₹2.10 lakh crore and granted Acceptance of Necessity approval for more than ₹3.50 lakh crore. These upcoming capital acquisition projects are designed to equip the Armed Forces with next-generation fighter aircraft, smart and lethal weapons, ships and submarines, unmanned aerial vehicles, drones, and specialist vehicles.
Breakdown of Capital Expenditure
Capital outlay specifically refers to the allocation of funds for acquisition, upgradation, and maintenance of assets, including artillery and heavy machinery. For FY27, the detailed breakdown includes:
- ₹63,733.94 crore allocated for the purchase of aircraft and aero engines
- ₹82,217.82 crore designated for other equipment procurement
- ₹25,023.63 crore set aside for naval fleet development
Geopolitical Context and Security Imperatives
This intensified push to acquire and manufacture defence assets follows last year's Operation Sindoor, during which India conducted strikes on terrorist base camps in Pakistan. The operation was followed by air skirmishes between the two countries' air forces, with the Indian Air Force targeting Pakistan's strategic Noor Khan airbase.
Defence Minister Rajnath Singh emphasized that the budget strengthens the security-development-self-reliance balance, which he described as being in the nation's best interest. He reiterated the government's resolve to bolster the country's security and enhance military capabilities through this enhanced allocation.
Comprehensive Defence Allocation
The overall allocation for the defence ministry for FY27, encompassing pensions, salaries, and civil expenditure, amounts to ₹7.85 trillion. This represents approximately 15% of the total central government expenditure and 2% of the estimated gross domestic product (GDP).
This comprehensive allocation marks a 15% increase over the previous year's budget estimates of ₹6.81 trillion and exceeds FY26's revised estimates of ₹7.33 trillion by over 7%.
Expert Perspectives and Industry Response
C. Uday Bhaskar, Director of the Society for Policy Studies, offered a nuanced perspective on the defence budget allocation. He noted that while the enhanced allocation deserves recognition, the significant decline in the rupee's value against the US dollar over the past year must be considered when evaluating capital expenditure allocation and its resultant impact on purchasing power.
Bhaskar pointed out that there remains a substantial inventory gap within the armed forces that requires systematic redressal, suggesting that the budget increase represents a case of two cheers rather than unqualified celebration.
Baba Kalyani, Chairman and Managing Director of Bharat Forge Ltd, expressed strong support for the budget's focus on defence. He stated that aligned with geo-strategic realities, the defence sector emerges as a key pillar of this budget, receiving the second-highest allocation with increased emphasis on modernization.
Kalyani emphasized that the budget prioritizes upgrading platforms, systems, and technologies while improving procurement efficiency. He interpreted the message to industry as clear: deepen long-term capability, enhance technology development, and strengthen Aatmanirbharta or self-reliance in defence manufacturing.
Policy Initiatives for Domestic Manufacturing
In a bid to develop local defence manufacturing capabilities, Finance Minister Nirmala Sitharaman proposed exempting basic customs duty on raw materials imported for manufacturing aircraft parts used in maintenance, repair, and overhaul requirements by units in the defence sector.
Defence Minister Rajnath Singh confirmed that the increased allocation will further enhance India's military capabilities, describing the modernization of the Armed Forces as an important aspect of this budget.
Additional Allocations for Veterans
Singh also announced that ₹12,100 crore has been allocated for the Ex-Servicemen Contributory Health Scheme, representing a substantial 45.49% increase over the budgetary estimates of FY26. This demonstrates the government's commitment to supporting veterans alongside active military modernization efforts.
The defence minister expressed confidence that the union budget for the upcoming fiscal year is designed to ensure that the dividends of growth reach every section of society, balancing security needs with broader developmental objectives.
