As finance minister Nirmala Sitharaman prepares to present the Union Budget 2026 on February 1, defence spending is expected to remain a key focus amid rising geopolitical uncertainty and sustained emphasis on military modernisation.
Defence outlay shows steady rise
Over the last five years, India’s defence expenditure has followed a clear upward trajectory. Spending rose from Rs 4.85 lakh crore in FY21 to Rs 6.41 lakh crore in FY25 (Revised Estimates). For FY26, the Budget Estimates place defence expenditure at Rs 6.81 lakh crore. This reflects a consistent annual increase, underlining the government’s priority on national security and preparedness.The data shows defence spending has grown by nearly Rs 2 lakh crore since FY21, with sharper increases in recent years as border tensions and global conflicts reshaped security calculations.
Shift towards modernisation and capital spend
The rising allocations have increasingly been aligned with modernisation and capital expenditure. As per the PIB release on Budget 2025-26, Rs 1.80 lakh crore, or about 26% of the total defence outlay, was earmarked for capital expenditure, with a strong push for domestic procurement under the Atmanirbhar Bharat initiative. A significant share of the modernisation budget has been reserved for procurement from Indian industries, including private players.Industry body FICCI, in its pre-Budget 2026 memorandum, has argued that this trend needs to deepen further, calling for capital outlay to be raised to around 30% of the total defence budget. According to FICCI, future warfare will be “technology-driven, multi-domain and information-centric,” requiring investments beyond traditional platforms.
Budget 2026 expectations: technology, R&D and exports
With defence spending already on a rising path, Budget 2026 is expected to focus on qualitative upgrades rather than just headline increases. FICCI has pitched for higher allocations for defence R&D, including a Rs 10,000 crore increase for DRDO, and greater support for AI-enabled systems, UAVs, cyber and space capabilities.Defence exports are another priority area. Exports have grown at a compound annual rate of 46% between 2016-17 and 2023-24, driven largely by private firms, and the government has set a target of Rs 50,000 crore by 2028-29. Analysts say the upcoming Budget will indicate whether India’s steadily rising defence spending can translate into sustained self-reliance and global competitiveness.
