Operation Sindoor Inspires Rise In Defence Budget

'If you go by the capital expenditure, this is a good defence budget. But we will have to see if the government can keep defence spending at 2 per cent or higher in 2027-2028.'

IMAGE: India showcased its frontline military assets including the Brahmos and Akash missiles, the Suryastra rocket launcher system, the Main Battle Tank Arjun and the newly raised Shaktiban regiment at this year's Republic Day parade. Photograph: Adnan Abidi/Reuters

Key Points

Defence allocation rises to Rs 7.85 trillion, nearly 2% of GDP
Capital outlay at Rs 2.19 trillion, with Rs 1.85 trillion for acquisitions alone
Private sector participation gains traction

Finance Minister Nirmala Sitharaman on Sunday allocated Rs 7.85 trillion for defence, which is almost 2 per cent of GDP in the 2026-2027 Union Budget.

Within months of Operation Sindoor and with an aim to continue modernising the armed forces, the government has increased defence spending -- but not by a lot. While the increase is about 7 per cent compared to the FY26 revised estimates (Rs 7.33 trillion), the FY27 budget estimates (BE) represent a 15 per cent rise over the FY26 BE.

The overall defence allocation was Rs 6.81 trillion last year and almost Rs 6.22 trillion in FY25. The FY26 budget saw spending hover around 1.9 per cent of the GDP.

Modernisation of the armed forces is an important aspect of the Budget, said the ministry of defence in a media statement. It said in the current geopolitical scenario, a 'quantum jump in the modernisation Budget is a strategic imperative' for India.

Some Rs 2.19 trillion has been allocated under capital outlay, of which Rs 1.85 trillion is kept aside for acquisitions alone -- a 24 per cent jump from the capital-acquisition budget of FY26 (according to BE).

The acquisitions include next-generation fighter aircraft, smart and lethal weapons, ships and submarines, and unmanned aerial vehicles and drones.

An amount of Rs 1.39 trillion, or 75 per cent of the capital acquisition budget, has been earmarked for procurement from domestic industry. The defence ministry decided in 2021 that a substantial share of the modernisation budget will be set aside for capital procurement from domestic sources, with a portion of this share further kept for acquisitions from Indian private firms.

For the FY26 Budget as well, more than Rs 1.11 trillion -- 75 per cent of the modernisation budget -- was earmarked at the BE stage for procurement from domestic sources. The FY27 allocation under this represents a 25 per cent increase over the FY26 BE.

An analysis of the FY27 capital outlay shows that the highest allocation was made under 'other equipment' at Rs 82,217.82 crore, followed by 'aircraft and aeroengines' at Rs 63,733.94 crore.

This stands in contrast to the FY26 revised estimate's allocations, where aircraft and aeroengines topped the list with Rs 72,780.15 crore, up 49 per cent from Rs 48,614.06 crore, according to BE.

"If you go by the capital expenditure, this is a good defence budget," said Lieutenant General S L Narasimhan (retired). "But we will have to see if the government can keep defence spending at 2 per cent or higher in 2027-2028."

Cutting-edge technologies, including artificial intelligence applications 'can serve as force multipliers for better governance', Sitharaman said in her speech.

India is hosting an international AI summit in February. But no separate spending on AI in defence was mentioned in this Budget. The US and China are spending billions of dollars on defence AI.

Sitharaman also announced the lowering and the removal of, respectively, customs duty on some critical minerals and on raw materials to manufacture parts of an aircraft or for the maintenance, repair or overhauling of an aircraft or its components, including engines, when imported by public sector units under the defence ministry. These will reduce input costs, boost domestic manufacturing and promote export competitiveness.

The budgetary allocation to the Defence Research and Development Organisation has been increased to Rs 29,100.25 crore in FY27 from Rs 6,816.82 crore in FY26.

"The overall Union Budget has increased by 5 per cent of the GDP, which means the increase (15 per cent) in the defence budget is good," said Laxman Kumar Behera, who teaches at the Special Centre for National Security Studies, Jawaharlal Nehru University, Delhi.

Operation Sindoor had an effect but the defence budget shows the government is taking the modernisation of the armed forces seriously, he added.

The FY27 budget has allocated Rs 171,338.22 crore for the disbursement of monthly pensions to more than 3.4 million defence pensioners. It is 6.56 per cent higher than FY26 at the BE stage.