The Union Budget for FY2025-26 has allocated Rs 6.8 lakh crore for India’s defence sector, marking a 9% increase from the previous year’s budget of Rs 6.22 lakh crore. Despite the substantial allocation, Finance Minister Nirmala Sitharaman did not explicitly mention the defence budget in her speech, sparking discussions on prioritising defence expenditure within the broader economic agenda. However, a detailed analysis of budget documents reveals a strategic push towards military modernisation, self-reliance in defence manufacturing, and operational preparedness.
The defence outlay for FY2025-26 stands at Rs 6,81,210 crore, an increase of 9.5% from the previous year’s Rs 6,21,940 crore. This includes Rs 1,92,387 crore for capital outlay (procurement of new weapons and equipment), Rs 4,88,822 crore for revenue expenditure (salaries, maintenance, and operations), and Rs 1,60,795 crore for defence pensions (retired personnel). This allocation represents 1.9% of India’s projected GDP, which remains a key discussion point among defence analysts who argue for higher defence spending in light of growing security challenges.
A major highlight of this budget is its focus on modernising the armed forces, with Rs 1.8 lakh crore earmarked for capital acquisitions. Key investments include procurement of fighter jets, helicopters, warships, submarines, tanks, and artillery guns, upgrading drone, missile, and rocket systems, and emphasising indigenous procurement under the Aatmanirbhar Bharat (Self-Reliant India) initiative.
The budget prioritises reducing reliance on foreign arms imports by boosting domestic defence production, aligning with initiatives such as Make in India, the Defence Production and Export Promotion Policy (DPEPP), and the Defence Acquisition Procedure (DAP).
An amount of Rs 1.8 lakh crore has been earmarked for capital acquisitions. Key investments include procurement of fighter jets, helicopters, warships, submarines, tanks, and artillery guns, upgrading drone, missile, and rocket systems, and emphasising indigenous procurement under the Aatmanirbhar Bharat (Self-Reliant India) initiative
The Rs 3.11 lakh crore allocated for revenue expenditure will cover salaries and allowances for defence personnel, operational costs, logistics, and maintenance of defence infrastructure, ensuring readiness for immediate deployment in case of security threats. Additionally, Rs 1.6 lakh crore has been set aside for pensions, aiming to provide financial security to retired personnel. However, defence experts suggest that pension costs need reform, possibly through a contributory pension model, to ensure long-term fiscal sustainability.
A notable trend in this budget is the government’s unwavering commitment to promoting domestic defence production. Key measures include encouraging private sector participation in defence manufacturing, prioritising defence startups and MSMEs in procurement processes, and expanding exports of indigenous defence equipment. India’s push for self-reliance has already resulted in a significant rise in defence exports, reaching a record Rs 21,000 crore in 2023-24. This year’s budget aims to build on this momentum.
The budget underscores the need to modernise the Army, Navy, and Air Force by investing in advanced technologies. Some critical investments include fifth-generation fighter aircraft and advanced helicopters, naval fleet expansion with indigenous aircraft carriers, upgraded missile systems, drones, and cyber warfare capabilities, as well as an increased focus on artificial intelligence (AI) and space defence.
A key component of the budget is the development of strategic infrastructure, particularly in border areas. The government has allocated substantial funds for the expansion of the Border Roads Organisation (BRO) to improve connectivity in sensitive regions along the China and Pakistan borders, upgrading air bases and naval facilities to enhance operational readiness, and strengthening logistics and supply chains to ensure rapid troop movement.
Defence Minister Rajnath Singh has declared 2025 as a ‘Year of Reforms’. Some expected reforms include establishing integrated theatre commands for better coordination among forces, streamlining defence procurement to reduce bureaucratic delays, and simplifying technology transfers and export regulations
To maintain technological superiority, the government has increased funding for the Defence Research and Development Organisation (DRDO). This includes collaborations with private firms and startups for innovation, development of next-generation hypersonic weapons, AI-driven warfare systems, and cybersecurity solutions, and strengthening space-based defence capabilities.
Capital expenditure for aircraft and aero engines has risen to Rs 48,614 crore, naval fleet modernisation has received Rs 24,390 crore, and other equipment purchases stand at Rs 63,099 crore. This is a substantial increase from FY2024-25’s Rs 1,72,000 crore capital outlay, reflecting the government’s commitment to military modernisation.
While the increased allocation is a positive step, India’s defence spending as a percentage of GDP remains below the global average. Countries like China and the US allocate over 2% of their GDP to defence, raising concerns about whether India is spending enough given its security challenges. Defence Minister Rajnath Singh has declared 2025 as a ‘Year of Reforms’. Some expected reforms include establishing integrated theatre commands for better coordination among forces, streamlining defence procurement to reduce bureaucratic delays, and simplifying technology transfers and export regulations.
The growing pension burden necessitates structural reforms. Introducing a hybrid pension model, similar to that of other global defence forces, could help manage costs while ensuring financial security for veterans. The government must accelerate reforms to attract more private investment in defence R&D and manufacturing. The 2025 defence budget reflects a strategic shift towards self-reliance, modernisation, and enhanced military capabilities.
The government must accelerate reforms to attract private investment in defence R&D and manufacturing. The growing pension burden also necessitates structural reforms. The success of the budget depends on the efficiency of implementation, particularly in defence procurement, infrastructure development, and private-sector collaboration
The increased capital outlay ensures that India’s armed forces are well-equipped to handle evolving security challenges. However, the success of this budget depends on the speed and efficiency of implementation, particularly in defence procurement, infrastructure development, and private-sector collaboration.
As India faces an increasingly complex security landscape, this budget sets a solid foundation for long-term defence preparedness. However, to truly emerge as a global defence power, India must focus on sustained investment in R&D, faster decision-making, and deeper integration of emerging technologies. The coming years will determine how effectively these initiatives translate into strategic military strength and geopolitical influence.
The writer is an MBA in Finance, the writer is a SEBI-registered NISM-certified Research Analyst. He has authored over nine articles published in various magazines and journals focusing on finance, defence, and strategic insights. His work reflects a commitment to delivering in-depth analysis and raising awareness in these critical domains
