by Col (Dr.) P K Vasudeva

The Union Budget 2026-27, presented on February 1, 2026, by Finance Minister Nirmala Sitharaman, prioritises defence modernisation and self-reliance. In a decisive push to strengthen national security in the aftermath of Operation Sindoor and focus on indigenous defence production, the Union Budget has allocated a record ₹7.85 lakh crore to defence services, marking the highest-ever outlay for the sector.

The allocation accounts for 2 per cent of the estimated GDP for the next financial year 2026-27, and reflects a 15.19 per cent increase over the Budget estimates for the current year. Defence spending now constitutes 14.67 per cent of the Union government’s total expenditure, which is the highest among all ministries.

A key focus is on bolstering domestic manufacturing through customs duty exemptions on raw materials for aircraft maintenance, repair, and overhaul (MRO). The increase in the defence outlay against the backdrop of "historic success of Operation Sindoor" has further strengthened our resolve to make India's defence system even more robust, Defence Minister Rajnath Singh said.

According to the Defence Ministry, the enhanced allocation is aimed not only at accelerating the modernisation of the armed forces and meeting routine operational requirements, but also at addressing additional financial needs arising from emergency procurement of arms and ammunition undertaken after Operation Sindoor, under both capital and revenue heads. Capital expenditure has been raised sharply to ₹2.19 lakh crore, compared to ₹1.8 lakh crore in 2025-26, underlining the government’s resolve to upgrade military capabilities to global standards, with a strategic emphasis on self-reliance.

Of the Ministry’s total allocation, 27.95 per dent has been earmarked for capital expenditure, 20.17 per cent for operational sustenance and preparedness, 26.40 per cent for pay and allowances, 21.84 per cent for defence pensions, and 3.64 per cent for civil organisations.

Capital allocation to the defence forces has risen almost 22 per cent from the previous year’s Budget estimates, to ₹2.19 lakh crore. Within this, ₹1.85 lakh crore has been set aside for capital acquisition, nearly 24 per cent higher than last year. The Ministry has already concluded contracts worth ₹2.1 lakh crore during the current year up to December, with Acceptance of Necessity approvals exceeding ₹3.5 lakh crore. Upcoming projects include next-generation fighter aircrafts, ships and submarines, UAVs, drones, smart weapons, and specialist vehicles.

A major thrust has been placed on indigenisation, with ₹1.39 lakh crore, or 75 per cent of the capital acquisition budget, earmarked for procurement from domestic industries, boosting self-reliance, investment and job creation, the Ministry added.

Revenue expenditure has been enhanced to ₹3.65 lakh crore, while allocations for border infrastructure, veterans’ healthcare, research and development, and pensions have also seen notable increases.

The budget highlights a continued push towards indigenous development in robotics, drone technology, and electronic warfare. Increased allocation is expected to benefit Bharat Electronics, Hindustan Aeronautics (HAL), and other Defence Public Sector Undertakings (DPSUs). The budget aims to reduce import dependence while enhancing the operational capabilities of the armed forces through sustained financial commitment.

Despite repeated emphasis on Atmanirbhar Bharat, India’s defence budget still shows: High revenue expenditure (salaries, pensions, maintenance) leaving limited space for capital modernisation. Continued dependence on imports for critical technologies (engines, sensors, electronic warfare, precision munitions) is still carrying on. Slow absorption of indigenous systems due to procurement delays and risk-averse mindset is observed. Fragmented R&D ecosystem, with weak linkage between DRDO, armed forces, and private industry are weak fault lines.

Operations like Sindoor underline that wars are increasingly tech-intensive, short, and unforgiving of supply-chain dependence. Steps have to be undertaken to refocus defence budgeting on modernisation & Atmanirbharta and rebalancing the defence budget structure.

There is a need to gradually reduce revenue expenditure as a percentage of total budget and ring-fence a higher capital outlay exclusively for indigenous systems. There is a requirement to create a non-lapsable defence modernisation fund for long-term projects as self-reliance is impossible without sustained capital investment.

Therefore focus should be on spending more on technologies where dependence is most dangerous like aero-engines, semiconductors and defence electronics. More emphasis has to be laid on cyber, space, AI, and EW systems. Main focus should be on precision-guided munitions and loitering weapons. Instead of importing platforms, import only knowledge where unavoidable.

Reforms have to be brought in for defence procurement system for indigenous players by simplifying DAP procedures for Indian MSMEs and start-ups. There is a requirement of expand Make-I and Make-II categories with assured orders and by shifting mindset from L1 (lowest cost) to L1+S (lowest cost plus strategic value). Indigenous systems need confidence, not constant comparison with foreign “proven” systems.

Some other reforms that need to be introduced are (i) strengthen military–industry–R&D integration, (ii) embedding armed forces officers in DRDO and private R&D teams, (iii) allowing user-driven iterative development, not by one-time GSQRs but by encouraging joint testing, field trials, and rapid upgrades, (iv) modern warfare rewards adaptability over perfection should be introduced by promoting a competitive private defence ecosystem, (vi) reduce PSU monopolies in selected segments, (vii) encourage private primes and defence clusters, and (viii) provide long-term visibility of orders to attract investment.

For Atmanirbharta there is a serious requirement of building a Wartime Production & Surge Capacity by incentivising dual-use manufacturing (civil + military) for stockpiling critical components domestically and plan industrial mobilisation as part of defence preparedness. A self-reliant army must be fight-ready even during prolonged conflict.

In order to encourage Atmanirbharta DRDO must shift from import substitution to innovation by moving beyond copying foreign systems and investing in next-generation warfare domains: drones & counter-drone systems, autonomous platforms, space-based ISR and cyber-offensive capabilities. True Atmanirbharta is about leapfrogging, not catching up.

Lessons from operations like Sindoor show that strategic autonomy is as critical as military strength. India’s defence budget must evolve from a maintenance-heavy model to a future-war-oriented investment framework, where modernisation and self-reliance are not slogans, but measurable outcomes.

The writer is former Professor ‘International Trade’ and is a Defence Analyst