Synopsis: India’s defence budget has grown from Rs. 2.53 lakh crore to Rs. 6.22 lakh crore in a decade, driven by modernisation and self-reliance, while the Nifty Defence Index surged 838% in five years, reflecting booming sector growth.
India’s defence budget has surged over the past decade, driven by modernisation, self-reliance, and rising security challenges. Growing capital outlays, higher R&D funding, and strong domestic procurement policies are strengthening industry growth, reflected in the massive rally of defence stocks.
How did it grow
India’s defence budget has seen a sharp rise over the past decade, reflecting the nation’s evolving security needs and strategic priorities. In FY 2024–25, the defence budget increased to Rs. 6.22 lakh crore, compared to Rs. 2.53 lakh crore in 2014, marking nearly a 2.5 times growth in ten years. Excluding pensions, the allocation rose 8.6% over the previous year, while the overall defence expenditure, including pensions, grew by 7.1%. This sustained rise underscores India’s need to strengthen its military preparedness amid tensions along the northern borders and global geopolitical uncertainties.
A key highlight of recent budgets is the increase in capital expenditure, which supports the acquisition of new technologies, modernisation of forces, and major defence infrastructure projects. In FY 2024–25, capital outlay accounted for 34% of the total defence budget, a significant commitment toward upgrading India’s defence capabilities. The allocation under the capital head for the Armed Forces stood at Rs. 1.72 lakh crore, reflecting the government’s intent to prioritise modernisation.
The last decade’s defence budgets have consistently focused on equipping the military with advanced platforms, surveillance systems, and next-generation combat technologies. This trend has become especially important as India confronts complex challenges from Pakistan and China, while global conflicts such as those in the Middle East and between Russia and Ukraine reshape strategic dynamics. To keep pace with these shifting geopolitical realities, India is expected to further boost capital expenditure in the coming years.
Research and development (R&D) is another area expected to receive increased funding. India’s current defence R&D budget stands at around Rs. 13,200 crore, but the need for indigenous technology, particularly in critical and high-end defence systems, may drive higher allocations. Strengthening R&D will be essential to reduce dependence on foreign suppliers and accelerate domestic innovation.
A major structural shift in the past decade has been the government’s thrust on Aatmanirbharta (self-reliance) in defence manufacturing. The Ministry of Defence allocated 75% of the modernisation budget over Rs. 1.05 lakh crore for procurement from domestic industries in the last financial year. This policy aims to boost Indian defence companies, encourage local manufacturing, and build a resilient ecosystem capable of supporting long-term strategic autonomy.
India’s Defence Budget 2025–26: Balancing Modernisation and
Self-Reliance
The Union Budget 2025–26 has allocated a record Rs. 6.81 lakh crore for the Ministry of Defence (MoD), marking a 9.53% increase over the current financial year. This substantial rise reflects the government’s continued commitment to strengthening national security and enhancing the operational readiness of the Armed Forces.
A major highlight is the allocation of Rs. 1.80 lakh crore under the Capital Budget for the Armed Forces, with modernisation remaining a central focus. Out of this, Rs. 1.12 lakh crore has been earmarked specifically for procurement from domestic industries, underscoring the government’s push for Aatmanirbharta and the expansion of the Indian defence manufacturing ecosystem.
The budget also provides for a 14% increase in Defence Pension, along with an allocation of Rs. 8,317 crore for the Ex-Servicemen Contributory Health Scheme (ECHS), reflecting the government’s commitment to the welfare of veterans and their families.
Defence research has received a notable boost, with a 12% hike in the Defence R&D budget, highlighting efforts to strengthen indigenous technology development. Additionally, the Indian Coast Guard saw a significant 43% jump in its capital budget, while the Border Roads Organisation (BRO) received Rs. 7,146 crore under the capital head to accelerate infrastructure development in border areas.
Commenting on the budget, Raksha Mantri Shri Rajnath Singh stated that the Union Budget is a major step toward fulfilling the Prime Minister’s vision of Viksit Bharat by 2047, reinforcing national security, self-reliance, and long-term strategic capability-building.
Expectations for FY26-27 defence budget
India’s defence ministry is planning to seek a 20% increase in the FY 2026–27 defence budget, significantly higher than the usual 10% annual rise, to meet the growing requirements of the armed forces amid evolving geopolitical challenges. Defence secretary Rajesh Kumar Singh stated that India’s “tough neighbourhood” and long-term capability development plans justify the higher allocation, adding that such hikes may be necessary for several years. He also emphasised strict adherence to delivery timelines, warning that emergency procurement contracts could be foreclosed if suppliers fail to meet deadlines.
The request comes shortly after India allocated Rs. 6.8 lakh crore for defence in the FY 2025–26 Budget, including Rs. 1.8 lakh crore for military modernisation which is about 9% higher than the previous year. Singh expressed confidence that the finance ministry would support a 20% increase, noting that India’s rapidly expanding defence industrial base has the capacity to absorb and effectively utilise additional funding. The heightened budget demand is also set against the backdrop of Operation Sindoor and India’s growing security responsibilities.
Singh highlighted that India’s defence spending currently accounts for 1.9% of GDP, and only 3% of global defence expenditure, despite protecting 17% of the world’s population. He said delays in contract signing and execution have historically held back spending, but improvements are underway. He reiterated that India aims to ensure most defence expenditure stays within the country, urging foreign defence manufacturers to partner with Indian firms for co-production, as global purchases will become the exception, not the norm.
Speaking on India’s global defence relationships, Singh reaffirmed strong ties with Russia while also acknowledging increasing defence procurement from the United States amounting to $30 billion over the last decade. He added that India continues to pursue strategic autonomy, buying essential equipment from both nations. He also announced that the Department of Military Affairs will soon release the sixth positive indigenisation list, building on the previous five lists that placed 509 defence items under import restrictions, about 50% of which have already been indigenised.
The Nifty Defence Index has surged 838% over the past five years, reaching 7,588, while delivering 232% returns in three years and 9% over the past year. Leading defence stocks have also shown exceptional growth, with BEL rising 918%, HAL soaring 904%, Bharat Dynamics up 730%, and Garden Reach Shipbuilders & Engineers gaining 1,111%.
Written by Manideep Appana
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