Union Budget 2026 Unveils Major Defence Spending Hike to Rs 7.84 Lakh Crore
In a significant move to bolster national security, the Union Budget for the financial year 2026-27 has allocated a substantial Rs 7,84,678 crore to the defence sector. This marks a notable increase from the previous year's budget of Rs 6,81,210 crore, reflecting the government's intensified focus on military modernization and strategic preparedness.
Breakdown of Defence Expenditure: Capital vs. Revenue
The total defence allocation is strategically divided into capital and revenue expenditures. Capital expenditure, crucial for long-term asset creation and modernization, has been pegged at Rs 2,19,306 crore. This component funds new equipment, technology upgrades, and infrastructure development. In contrast, revenue expenditure, which covers day-to-day operational costs, stands at Rs 5,53,668 crore, including a significant Rs 1,71,338 crore earmarked for pensions to retired defence personnel.
Focus on Aerospace and Naval Capabilities
Within the capital outlay, specific allocations highlight key priorities. A substantial Rs 63,733 crore has been designated for aircraft and aero engines, underscoring a strong emphasis on enhancing air power and aerospace technology. Additionally, Rs 25,023 crore is allocated for the naval fleet, aimed at strengthening maritime security and expanding India's blue-water capabilities. These investments are part of a broader strategy to reduce dependency on imports and boost indigenous manufacturing in critical defence sectors.
Comparison with Previous Year's Budget
The defence budget for 2025-26 was initially set at Rs 6,81,210 crore, with a capital outlay of Rs 1,80,000 crore. This was later revised to Rs 1,86,454 crore at the revised estimates stage, indicating adjustments based on evolving needs. The 2026 allocation represents a significant year-on-year growth, aligning with global trends of increased defence spending amid geopolitical uncertainties.
Policy Measures and Customs Duty Exemptions
Announcing these allocations in her Budget speech, Finance Minister Nirmala Sitharaman introduced key policy measures to support the defence industry. She proposed exempting basic customs duty on components and parts used in manufacturing civilian, training, and other aircraft. Furthermore, a waiver of basic customs duty was announced for raw materials imported for manufacturing aircraft parts used in maintenance, repair, and overhaul (MRO) by defence-sector units. These steps are designed to lower production costs, encourage domestic manufacturing, and enhance the competitiveness of India's defence ecosystem.
Implications for Defence Modernization and Economy
The increased defence budget, with its focus on capital expenditure and aerospace, is expected to drive modernization efforts, including the acquisition of advanced fighter jets, drones, and naval vessels. It also aims to stimulate the domestic defence industry, create jobs, and foster innovation through initiatives like the Make in India program. By prioritizing strategic sectors, the government seeks to ensure national security while contributing to economic growth through investments in high-tech manufacturing and infrastructure.
