Budget 2026 Unveils Strategic Defence Spending Restructuring
In a significant move aimed at fiscal discipline and self-reliance, the Modi government has proposed a restructuring of defence expenditure in the Budget 2026 outlay. The strategy focuses on controlling military spending by overhauling revenue expenditure, leveraging the increased allocation for the Agnipath scheme to lower the pension burden, and emphasizing domestic procurements to reduce costly imports.
Record High Defence Budget with Capped Revenue Spending
Despite a record high defence budget of Rs 7.8 lakh crore for the fiscal year 2026-27, marking a steep 15% increase over last year's allocation of Rs 6.8 lakh crore, the government's approach relies on capping overall revenue expenditure. This measure is designed to ensure fiscal discipline while still supporting modernization efforts. The budget reflects a careful balance between immediate needs and long-term financial sustainability.
Boost for Domestic Defence Industries Under Aatmanirbhar Bharat
Under the Aatmanirbhar Bharat initiative, approximately 75% of the capital acquisition budget for FY 2026-27 is reserved for domestic defence industries. A substantial allocation of Rs 1.39 lakh crore has been earmarked specifically for procurement from these domestic sectors. This funding is intended to modernize the armed forces through indigenous technology and innovations, reducing dependency on foreign suppliers.
The "Buy Indian-IDDM" policy is a key component of this strategy, aiming to expedite domestic procurement processes. However, it requires stringent adherence to delivery timelines to ensure efficiency and effectiveness. The Budget includes various measures to support domestic production, stimulate investment, and create job opportunities within the defence manufacturing sector.
Agnipath Scheme: Addressing Pension Burden with Increased Recruitment
The Agnipath scheme, introduced by the Union government in June 2022, was designed to address the unsustainable growth of the defence pension bill, which was projected to become a major financial burden. By hiring soldiers on a four-year contract, with only 25% retained for longer service, the scheme reduces the number of personnel eligible for lifetime pensions.
In Budget 2026, the outlay for the Agnipath scheme saw a significant jump, rising by 56% to Rs 15,173 crore. This increase supports the recruitment of more Agniveers, with reports suggesting that recruitment is expected to rise to 1.1 lakh this year to address shortfalls in combat-ready soldiers. Despite this push for long-term savings, the total allocation for defence pensions for FY 2026–27 actually increased to over Rs 1.71 lakh crore, a 6.5% rise over the 2025-26 budget estimates, to cover existing obligations.
Specifically, the Indian Army's pension bill increased from Rs 141,751 crore in FY26 to Rs 151,631 crore in FY27, highlighting the ongoing financial commitments to veterans.
Industry Perspective and Future Outlook
Jaikaran Chandock, director of Balu Forge Industries, commented on the budget, stating, "The allocation of Rs 5.95 lakh crore to the defence sector for defence research, land systems, and equipment further strengthens the manufacturing outlook, particularly for precision engineering and high-value domestic production."
With a strong push for indigenous defence manufacturing, focused investments in research and infrastructure, and continued priority for the welfare of veterans, the Budget for the defence sector promises a more secure and resilient India. This aligns with the long-term vision of Viksit Bharat by 2047, emphasizing self-reliance and strategic autonomy in defence capabilities.
