Internal Security
Defence in Union Budget 2026–27
- 06 Feb 2026
- 14 min read
For Prelims: Union Budget 2026–27, Operation Sindoor, Border Roads Organisation,Ex-Servicemen Contributory Health Scheme, System for Pension Administration Raksha
For Mains: Defence Budget and National Security Preparedness, Capital vs Revenue Expenditure in Defence, Atmanirbhar Bharat in Defence Manufacturing
Why in News?
The Union Budget 2026–27 has drawn sharp attention for giving the highest-ever allocation of Rs 7.85 lakh crore to the defence sector, signalling India’s strategic focus on military modernisation, indigenous manufacturing and veterans’ welfare.
- The budget comes in the aftermath of Operation Sindoor, which tested India’s combat readiness in real conditions, and places national security at the centre of India’s long-term vision of self-reliance.
Summary
- The Union Budget 2026–27 strengthens India’s defence preparedness by prioritising modernisation, indigenous manufacturing, defence R&D and veterans’ welfare, building on operational lessons from recent military engagements.
- However, structural challenges such as high revenue expenditure, slow procurement processes, import dependence and a demanding two-front threat continue to limit the transformative impact of higher defence allocations.
How does the Union Budget 2026–27 Advance Defence Modernisation and Self-reliance?
- Modernisation Push: The Union Budget 2026–27 places strong emphasis on defence modernisation, with capital allocation to the Defence Forces crossing Rs 2.19 lakh crore.
- A major share is directed towards capital acquisition, enabling induction of next-generation aircraft, advanced weapons, naval platforms, submarines and unmanned systems.
- Enhanced funding for the Border Roads Organisation strengthens strategic infrastructure such as tunnels, bridges and airfields.
- Investment in optical fibre–based defence communication networks supports network-centric and joint operations, reflecting a shift towards a technology-driven military.
- Boosting Indigenous Defence Manufacturing: The Union Budget 2026–27 gives a strong push to Aatmanirbhar Bharat in defence by prioritising indigenous manufacturing and reducing import dependence.
- Rs 1.39 lakh crore has been earmarked for procurement from domestic defence industries, with about three-fourths of the capital acquisition budget reserved for Indian manufacturers.
- Customs duty exemptions on imported raw materials for aircraft maintenance, repair and overhaul further strengthen domestic capabilities.
- Together, these measures aim to deepen the defence industrial ecosystem, attract investment and generate skilled employment.
- Research, Development and Innovation: The Union Budget 2026–27 strengthens defence research, development and innovation by raising the allocation to the Defence Research and Development Organisation by about 8.5% over the previous year.
- A dominant share of this increase is directed towards capital expenditure, underscoring a focus on capability creation rather than routine spending.
- The budget also deepens collaborative R&D by opening a significant portion of defence research funding to industry, start-ups and academia, expanding Centres of Excellence, and accelerating technology transfers.
- Enhanced Healthcare and Pension Support for Veterans: The Ex-Servicemen Contributory Health Scheme (ECHS) has received Rs 12,100 crore, reflecting a 45.49% increase over the previous year to support medical treatment for ex-servicemen and their dependents.
- Defence pension allocation has increased by 6.56%, ensuring timely monthly disbursement to over 34 lakh pensioners through System for Pension Administration Raksha (SPARSH) and other authorised pension channels.
India’s Initiatives Related to Defence Indigenisation
What are the Key Challenges in India’s Defence Modernisation Despite Higher Allocations?
- Revenue Expenditure: The most significant constraint on modernisation is the high "Revenue" expenditure (salaries and pensions).
- Salaries and pension account for 50% of the estimated spending on defence in 2025-26. Consequently, the share of the budget available for Capital Outlay (modernisation) has remained below 30% in recent years, limiting modernisations.
- Declining Expenditure Relative: The total defence allocation over the years remains at approximately 2% of GDP.
- This falls significantly short of the 3% of GDP benchmark recommended by the Standing Committee on Defence (2018) to achieve meaningful modernization, signaling a potential lack of fiscal resolve to adversaries.
- Currency Depreciation: Since most defence purchases are transacted in dollars, the depreciation of the Rupee significantly reduces the actual buying power of the allocated funds.
- Committed Liabilities: A significant portion of the capital budget goes toward "committed liabilities" (payments for contracts signed in previous years). Shortages here can lead to defaults on contractual obligations.
- Import Dependence: India is the 2nd-largest arms importer, after Ukraine, as per the Stockholm International Peace Research Institute (SIPRI) report.
- A significant amount of modernisation expenditure goes to foreign sources. Dependence on foreign suppliers creates vulnerability during emergencies/wars.
- While the push for Atmanirbharta (self-reliance) is strong, the creation of "negative lists" (banning specific imports) has often blocked foreign options before domestic alternatives are fully mature, creating immediate capability gaps.
- Domestic Quality Issues: In 2022, the CAG (Comptroller and Auditor General of India) has flagged quality issues with Ordnance Factories (accidents due to faulty ammunition) and delays in 119 out of 178 DRDO projects.
- Critical Equipment Shortages: The financial and procedural delays have led to tangible gaps in operational readiness.
- In the Army, only 15% of equipment is "new generation" (target is 30%). There are reported shortages of basic gear like snow goggles and boots for high-altitude troops.
- In the Air Force, the authorized strength is 42 fighter squadrons, but currently, there are only 31 active squadrons. The phasing out of aging MiG fleets without immediate replacements threatens air superiority.
- Disparity in Spending Power: China’s defence spending is much higher than India’s, giving it greater technological and military depth.
- Although India outspends Pakistan, preparing for a two-front conflict forces India to spread its resources across land and maritime theatres, stretching its overall defence capacity.
- DAP 2020 Struggles: The Project 75(I) deal took nearly 6 years after the Defence Acquisition Procedure (DAP) 2020 to reach the contract stage (20 years total cycle), which is considered "functionally obsolete" in the age of AI warfare.
What Measures are Needed to Strengthen India's Defence Preparedness?
- Financial Restructuring: Operationalise the "Modernisation Fund for Defence and Internal Security" (recommended by the 15th Finance Commission).
- This non-lapsable fund would allow the Ministry to carry forward unspent capital budget, ensuring that committed liabilities for large contracts (like submarines or jets) are met without relying on fresh annual allocations.
- Incentivizing Private Sector R&D: Shift from a "buyer-seller" relationship to a "co-development" model with the private sector.
- The government must fund private sector R&D prototypes (under the 'Make-I' category) aggressively.
- This shift reduces dependence on DRDO’s monopolistic timelines, fosters a competitive private industrial base, and aligns with India’s defence export momentum (exports reached Rs 210 billion in 2023–24, with a Rs 500 billion target by 2028–29).
- Accelerating Procurement (Revamping DAP): Building on the Ministry of Defence declaration of 2025 as the Year of Reforms, defence acquisition must be streamlined to accelerate modernisation and strengthen self-reliance.
- This requires reducing bureaucratic layers in the Acceptance of Necessity (AoN) process and enabling fast-track, over-the-counter purchases for urgent capability gaps when indigenous platforms face delays, so operational readiness is not compromised.
- Theaterisation: Expedite the creation of Integrated Theatre Commands. This will ensure better resource utilization, jointness in operations, and a unified approach to threats from China and Pakistan.
- Realistic Indigenisation: A balanced approach is needed where import bans are synchronized strictly with the actual production timelines of domestic industries. If a domestic project (e.g., a light tank or drone) fails quality tests, interim emergency procurement powers must be exercised without hesitation to maintain operational readiness.
Conclusion
The Union Budget 2026–27 reflects a decisive shift towards building a modern, self-reliant and innovation-driven defence ecosystem. With sustained investments in indigenous manufacturing, research and strategic infrastructure, alongside strong support for veterans, the budget aligns defence preparedness with India’s long-term development goals and the vision of Viksit Bharat @2047.
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Drishti Mains Question: Discuss the structural constraints limiting India’s defence modernisation despite increased capital expenditure. |
Frequently Asked Questions (FAQs)
1. Why is the Union Budget 2026–27 significant for the defence sector?
It provides the highest-ever defence allocation, focusing on modernisation, indigenous manufacturing and veterans’ welfare after recent operational experience.
2. How does the budget promote defence modernisation?
By increasing capital allocation for advanced platforms, strategic infrastructure and network-centric warfare capabilities.
3. What measures support Atmanirbhar Bharat in defence?
Priority to domestic procurement, reservation of capital acquisitions for Indian firms, and incentives for defence manufacturing and MRO activities.
4. What are the key challenges in defence modernisation?
High revenue expenditure, slow procurement cycles, import dependence, currency depreciation and persistent capability gaps.
5. Why is Defence Acquisition Procedure (DAP) 2020 criticised?
Due to prolonged procurement timelines, delays in strategic projects and inability to keep pace with rapid technological changes.
UPSC Civil Services Examination, Previous Year Questions (PYQs)
Mains
Q. Foreign Direct Investment (FDI) in the defence sector is now set to be liberalized: What influence this is expected to have on Indian defence and economy in the short and long run? (2014)
Q. “Increasing cross-border terrorist attacks in India and growing interference in the internal affairs of several member-states by Pakistan are not conducive for the future of SAARC (South Asian Association for Regional Cooperation).” Explain with suitable examples. (2016)
Q. The terms ‘Hot Pursuit’ and ‘Surgical Strikes’ are often used in connection with armed action against terrorist attacks. Discuss the strategic impact of such actions. (2016)
