India’s Defense Budget Jumps 15 Percent

 

Defense officials say that the inflated spending reflects a new focus on military modernization triggered by Operation Sindoor.

By Ajai Shukla

The Diplomat, Friday 31st January 

The government of India has signaled its resolve to be militarily prepared to retaliate against terrorist strikes launched from Pakistani-controlled territory at Indian targets. Presenting the Union Budget for the financial year 2026–27, India's Finance Minister Nirmala Sitharaman allocated an all-time high of Rupees 7.85 trillion ($87 billion; 1 Indian rupee=US$0.011) to defense. 

The defense outlay for 2026-27 is Rs 7846.78 billion compared with Rs 6812.10 billion in the previous financial year. This is a 15 per cent increase in India’s defense spending over last year’s allocation. 

With this, India will become, according to the London-based International Institute for Strategic Studies (IISS), the world’s 4^th largest military spender, behind only the United States ($968 billion), China ($235 billion) and Russia ($145 billion). Just behind the top three spenders, India will join a trio of middle powers that include Germany ($86 billion), the United Kingdom ($81.1 billion) and Saudi Arabia ($71 billion). 

Over the past decade, New Delhi’s broad pattern of defense spending has not significantly varied. As a share of the Gross Domestic Product (GDP), the amount the government has allocated for defense has remained in the region of 2 to 2.5 percent. In the coming year, defense spending will be almost 2 percent of GDP. As a percentage of the Central Government Expenditure (CGE), the amount allocated to defense has hovered consistently in the region of 13 to 14 percent.

According to India’s Ministry of Defense (MoD) officials in New Delhi, the inflated spending rise reflects a new focus on military modernization triggered by Operation Sindoor, a series of retaliatory air strikes in May 2025 by the Indian Air Force (IAF) on Pakistani ground targets, in response to a terrorist attack at Pahalgam in Jammu and Kashmir on April 22 that resulted in the death of 26 unarmed civilians.

With the need for equipment modernization a high priority for India’s military, the coming year’s capital outlay has been raised to Rs 2310.1 billion. Meanwhile, revenue expenditure stands at Rs 5536.68 billion, including Rs 1713.38 billion for military pensions. 

 

With this backdrop, India’s MoD has several major projects in the procurement pipeline, including fighter jets, submarines, unmanned systems, and helicopters. The capital outlay in 2025-26 was initially put at the budget stage at Rs 1800 billion. Later, at the revised estimates stage in December, this was raised to Rs 1864.84 billion.

The armed forces will also receive allocations for military modernization, with allocations including Rs 637.33 billion for aircraft and aero engines, and Rs 250.23 billion for the naval fleet.

Fighter Aircraft Procurement

Indian weapons systems that the government has put into the pipeline for India’s defense in 2026-27 include the Rafale and the Sukhoi-57. India’s supply of fighters will follow three parallel tracks: First, a large-scale expansion of the Rafale fleet through indigenous manufacturing; renewed technical talks with Russia on the fifth-generation Sukhoi-57. Finally, New Delhi will also keep its long-term focus on domestic programs.

The defense ministry is preparing to take up Rs 3.25 trillion proposal to acquire 114 Rafael fighter jets from France. Were such a deal to materialize, it would be India’s largest-ever defense procurement cleared under the proposal. Most of the Rafale fighter aircraft would be manufactured in India under a government-to-government deal, but with around 30 percent indigenous content.

Officials are wary of a commitment that could rise to over 60 percent during production. 

Finance Minister Sitharaman also announced the waiver of basic customs duty on raw materials that were imported for the manufacture of aircraft parts. These were used for maintenance, repair or overhaul by defense sector units. This move is expected to provide a boost to the defense aerospace industry.

 Warship Procurement and Production

For the navy of the future, the MoD is considering the acquisition of a stable full of weaponized, unmanned, surface vessels. Under Project 75-I, the Navy seeks to acquire six submarines, fitted with air-independent propulsion. These submarines, which will cost Rs 700 to 720 billion, will be built at Mazagon Dock Limited in partnership with Germany’s Thyssenkrupp Marine Systems (TKMS).

Additionally, large landing platform docks (LPDs), built with amphibious capability, will be required for expeditionary operations across the Indo-Pacific littoral. Battered by the Indian Ocean tsunami in December 2004, it was the Indian Navy’s deliberate and considered response that won support from the U.S. Navy and led on to the current warming of ties.

The Defense Acquisition Council (DAC) cleared the U.S. offer of large amphibious warships that were designed for island-based DAC and Humanitarian Assistance and Disaster Relief (HADR) missions. Also readying for a large role is the induction of the Light Combat Helicopter (LCH), which is expected to serve on air force high altitude missions. 

India’s Own Small Arms

It is the dream of every infantryman to fight the close-in, eye-to-eye, close-quarter battle armed with his country's indigenous small arms weapons. The small arms that are being evaluated include (close-in carbines, assault rifles, and a preference for domestic manufacturers.

Also being considered for domestic employment are high-mobility platforms, protected vehicles and troop carriers. However, there is still resistance within the military, with domestic industry consistently emphasizing the importance of Atmanirbharta (self-reliance) for long-term economic resilience, and this Budget provides a clear thrust in that direction. 

Another encouraging proposal is to scale up manufacturing across seven strategic and frontier sectors, including bio-pharma, critical minerals, electronics and capital goods. This is expected to strengthen India’s research and design capability and its manufacturing ecosystem, reduce import dependence, and create large-scale employment opportunities for the youth.

 

 

Graphic: Defence allocations as percentage of GDP

 

(in Rupees crores and Billion dollars)

	2020-21 (Actual)	2021-22 (Actual)	2022-23 (Actual)	2023-24 (Actual)	2024-25 (Actual)	2025-26  (RE)	2026-27  (BE)
Total defence allocation	Rs 484,736	Rs 500,681	573,098	609,504	636,003	732,512	784,678
Total defence allocation (in $)	$53.59 billion	$55.35 billion	$63.36 billion	$67.38 billion	$70.32 billion	$80.98 billion	$86.75 billion
Central Government Expenditure (CGE)	35,09,836	37,93,801	41,93,157	44,43,447	46,52,867	49,64,842	53,47,315
Defence spending as % of CGE	13.81%	13.20%	13.65%	13.7%	13.7%	14.75%	14.65%
Gross Domestic Product (GDP)	1,98,00,914	2,36,64,637	2,73,07,751	3,01,75,065	324,11,406	357,13,886	393,00,393
Defence spending as % of GDP	2.4%	2.12%	2.1%	1.97%	1.97%	2.05%	2.00%

(Source: Calculated from the Union Budget 2026-27, and NSO figures)