Union Budget 2026: Defence Sector Set for Strategic Boost with Focus on Indigenisation and Exports
Finance Minister Nirmala Sitharaman is all set to present the upcoming Union Budget for the financial year 2026-27 on Sunday, February 1. Market experts and analysts are closely watching the budgetary announcements, with widespread anticipation that the government will place a strong emphasis on emerging priority sectors capable of driving long-term economic growth and strategic resilience for the nation.
Defence Sector Expected to Receive Heightened Focus
The defence sector is likely to receive heightened attention in Budget 2026, building on the Centre's recent initiatives including the formation of a dedicated committee to nurture allied defence capabilities. According to industry experts, this focus aligns with India's broader strategic goals of self-reliance and global competitiveness in defence manufacturing.
Pranay Aggarwal, Director and CEO of Stoxkart, emphasized that "the defence sector's growth can be accelerated through stronger Budget support for indigenisation and exports." He outlined several potential measures that could be included:
- Expanding the Positive Indigenisation Lists to include more defence items
- Strengthening defence industrial corridors with better fiscal incentives and infrastructure development
- Simplifying licensing and export procedures to boost overseas sales
- Increasing allocations for research and development, innovation, and technology transfer
- Implementing targeted export incentives and credit support mechanisms
These measures, according to Aggarwal, could help scale defence exports toward India's long-term strategic targets while building domestic manufacturing capabilities.
Building on Previous Year's Defence Allocation
The upcoming budget follows significant defence allocations in previous years. In the Union Budget for FY 2025-26, the government allocated ₹6,81,210.27 crore (approximately $81 billion) to the Ministry of Defence, representing a substantial 9.5% increase from the previous fiscal year. This upward trend is expected to continue with Budget 2026, potentially with even greater emphasis on capital expenditure and modernization.
Expert Perspectives on Defence Sector Expectations
Ravi Singh, Chief Research Officer at Master Capital Services Ltd., believes the defence sector will benefit from continued government support focused on indigenisation. "The Budget may reinforce this through higher capital allocation, stronger preference for domestic procurement, and policies that encourage exports," Singh explained.
He further elaborated that measures speeding up procurement timelines or providing long-term visibility on orders would be particularly helpful for defence manufacturers. Singh also highlighted the importance of export-related support mechanisms, including:
- Easier financing options for defence exports
- Government-backed deals and diplomatic support
- Incentives for overseas sales and market development
"These steps would help Indian defence companies scale up and compete globally," Singh noted. "Overall, the focus is likely to remain on building domestic capability while gradually expanding India's footprint in defence exports."
Specific Defence Segments Expected to Benefit
Singh identified specific segments within the defence sector that are likely to receive particular attention. Defence electronics and aerospace are expected to benefit the most from budgetary support, as modern defence systems increasingly rely on sophisticated electronics including radars, communication systems, sensors, and missile technologies.
The aerospace segment should also gain momentum from ongoing aircraft, helicopter, and engine programs, with potential for increased allocations to support these strategic initiatives.
Long-Term Prospects for Defence Companies
According to Pranay Aggarwal of Stoxkart, companies with strong order visibility, execution capability, and policy alignment appear best positioned for long-term growth. Leading players in aerospace, defence electronics, and naval shipbuilding are particularly well-positioned to benefit from the government's focus on indigenisation, exports, and long-term strategic procurement.
Ravi Singh of Master Capital Services highlighted specific companies that could deliver higher growth as outsourcing increases and exports pick up, mentioning HAL, BEL, and BDL as potential beneficiaries. However, he cautioned investors to focus on companies with solid execution capability and alignment with the government's indigenisation roadmap rather than chasing short-term Budget reactions.
"The key is to focus on companies with execution capability and alignment with the government's indigenisation roadmap rather than chasing short-term Budget reactions," Singh advised, emphasizing the importance of strategic, long-term investment approaches in the defence sector.
