The Union Budget is always anticipated with a great deal of enthusiasm and interest by the nation. The most important areas of the budget relate to taxes, both direct and indirect as it impacts the livelihood of the common man. The other areas of general interest are the duties on consumable goods as well as automobiles and electronic items.
There is a very small segment of our society which looks at the Defence Budget. This was amply evident when the finance minister gave her budget speech recently, which only emphasised the populist elements of the budget as would be expected in a democratic system.
Defence has always been a very strategic sector which impacts our National Security and the need to project a deterrence to our adversaries. Consequences of war can be disastrous for the economy of any nation and it needs to be understood that “if you want to buy peace you need to invest in war.” After all, there are no runners up here.
Political Intent and Capability Building
Considering that the assessment of threat perception leads to building of capability, we would need to take a holistic approach in view of the context of future wars.
The important declaration of our political aim being translated into a military aim must relate to whether we are working on preparing towards capture of territorial space or degradation of enemy’s war potential or BOTH.
Defence has always been a very strategic sector which impacts our National Security and the need to project a deterrence to our adversaries. Consequences of war can be disastrous for the economy of any nation and it needs to be understood that “if you want to buy peace you need to invest in war.”
An answer to the above question will bring about the asymmetric capabilities in each of our three-armed forces i.e. Army, Airforce, and Navy and the need to address these.
Further, if we are looking at a multi-domain dimension of war, where we would be fighting our enemy in air, on land and at sea, we would then need to build capabilities for all of these.
Appraisal of Defence Budget 2025-26
Taking a look at the Defence Budget announced by our Finance Minister, Smt Nirmala Sitharaman on 1 February 2025, the Ministry of Defence (MoD) has been allocated Rs 6.81 lakh crore marking an increase of 9.50% from the previous year, with Rs 1.8 lakh crore dedicated to military modernisation through capital acquisition.
If we reduce the research and development portion from this allocation, we would be left with Rs 1.48 lakh crore for defence modernisation, which represents 21.70% of the defence budget. The budget also includes a revenue expenditure of Rs 3.11 lakh crore representing 45.67% of the overall budget and a pension outlay of Rs 1.6 lakh crore, an increase of 13.4% from the previous year.
However, if we take into account the allocation of the defence budget at the RE stage, which was Rs 6.41 Lakh crore, the increase in the present budget is just 6%. If we take into account an inflation of 5% as well as devaluation of the Rupee vs Dollar for this corresponding period as 4.8%, then it seems obvious that the Defence is getting less than what it got the previous year.
It would be worthwhile to note here that the Private Sector in the previous year has contributed to accomplishing 75% of the laid down export targets, whereas the Public Sector has only contributed 25%
Capital Budget: Key Takeaways
If we analyse the capital budget, the Government has specifically not made a demarcation for the three-armed forces probably giving a message for integration and jointness, thereby allocating Rs 48,614 crore for acquiring aircraft/aero-engines and Rs 24,390 crore for acquiring assets for the naval fleet and Rs 63,099 crore for procurement of military equipment such as tanks, artillery, air defence systems and next generation weaponry. This would also include acquisition of Sukhoi-30 Mk-1 aircrafts from Russia for Rs 13,500 crore and MQ 9B Reaper sky/sea drones from USA for Rs 34,500 crore.
It would also be necessary to highlight here that Rs 12,500 crore from the last year budget was surrendered by the armed forces, which is quite unacceptable as it gives a direct reflection of either inefficiency or a result of time delays in clearance of projects by the bureaucracy. A certain account of accountability has to be brought in here, to ensure this does not get repeated again as it directly affects the operational readiness of the forces.
Revenue Budget: Important Features
The hike in Revenue budget by Rs 29000 crore is primarily to cater for additional deployment of forces in the border areas especially long Bangladesh and in the North-East, hiring of vessels and transport, longer sea deployment of ships, and increase in the flying hours of aircrafts.
The Border Roads Organisation (BRO) also sees an increased outlay from Rs 6,500 crore in the previous year to Rs 7,134 crore in the present budget, an increase of Rs 634 crore. This would be required to build tunnels, roads and bridges. It would have been appreciated considering the fast pace of infrastructure development of PLA across our borders, that the BRO budget should have been at least Rs 9,000 crore.
National Security in no way can be undermined, especially when we see our adversaries investing in increasing their defence budgets by more than 15%. The realisation must come now before it is too late
The Public vs Private Sector Debate
It would be extremely relevant to highlight the present policy of the Government to boost Aatmanirbharta, wherein 75% of the capital budget is earmarked for indigenous defence production.
In the current budget considering that the allocation for capital acquisition minus research and development is Rs 1.48 lakh crore, a total of Rs 1.11 lakh crore gets earmarked for domestic procurement.
Out of this, 75% is to be utilised by the public sector and 25% by the private sector, which implies that the private sector gets an allocation of Rs 27,886 crore.
It would be worthwhile to note here that the Private Sector in the previous year has contributed to accomplishing 75% of the laid down export targets, whereas the Public Sector has only contributed 25%.
If we have to achieve an export orientation in Defence, keeping a target of Rs 60,000 crore by the year 2030 in mind, it would be necessary to increase the budget allocation of the domestic capital budget of the private sector to at least 50%. Unless we do that Aatmanirbharta will remain a distant dream.
The Future Ahead
If our financial planners in the Government are under the presumption that there will be no wars, then they need a reality check. In the present context, the defence budget allocation is 1.91% of the GDP. If we remove the pension element from the budget, we are looking at a defence budget of about 1.46% of the GDP.
Our budget analysis of 2025 suggests that out of every expenditure of one rupee, the government spends just 8 paisa, i.e. 8% of the total expenditure on Defence.
If the stated defence reforms as announced, such as formulation of three theatre commands, i.e. Western, Northern and Maritime commands. If cyber and space commands are to be created besides, absorption of niche technologies such as artificial intelligence, hypersonic, quantum computing, machine learning and robotics as well as investing in transfer of technology and exports are to happen then possibly it would remain an illusion.
National Security in no way can be undermined, especially when we see our adversaries investing in increasing their defence budgets by more than 15%. The realisation must come now before it is too late.
-The author retired as Major General, Army Ordnance Corps, Central Command, after 37 years of service. A management doctorate and expert on defence modernisation, he is the author of four books, including the Amazon bestseller “Breaking the Chinese Myth,” and a frequent media commentator. He is affiliated with several leading defence and strategic studies institutions in New Delhi. The views expressed are of the writer and do not necessarily reflect the views of Raksha Anirveda
