NEW DELHI: The Government of India has allocated ₹6,81,210 crore to the Ministry of Defence (MoD) for the fiscal year 2025-26, reflecting a 6% increase from the previous year’s revised estimates. Despite this increase, India’s defence spending as a percentage of GDP has fallen to 1.9%, raising concerns about the adequacy of funding in light of mounting security challenges.
The budget prioritizes modernization of the armed forces, strengthening indigenous defence production, and improving operational preparedness. However, concerns remain regarding the rising pension burden, declining defence-to-GDP ratio, and dependence on foreign imports for key military assets.
Key Highlights of the Defence Budget 2025-26
The ₹6.81 lakh crore allocation includes funding for salaries, pensions, procurement of military equipment, research and development, and infrastructure.
Breakdown of the Budget:
- ₹1,92,388 crore allocated for capital outlay (procurement of new weapons, aircraft, warships).
- ₹1,77,923 crore for salaries of armed forces personnel.
- ₹1,60,795 crore for defence pensions.
- ₹90,923 crore for maintenance of equipment and infrastructure.
- ₹59,181 crore for other operational expenses.
The Ministry of Defence remains the largest recipient of government funds, accounting for 13% of the central budget. However, the allocation remains below the 3% of GDP recommendation by the Standing Committee on Defence.
Declining Defence-to-GDP Ratio: A Cause for Concern
Over the last decade, India’s defence spending has not kept pace with GDP growth. In 2014-15, defence accounted for 17% of the total central budget; by 2025-26, this share has declined to 13%. Experts argue that this could impact military preparedness, particularly as India faces increasing security challenges on its borders with China and Pakistan.
Additionally, the Indian Rupee depreciated by 4% against the US Dollar in 2024, affecting procurement costs, as many military purchases are denominated in foreign currencies.
Rising Pension Costs and Agnipath Reform
Defence pensions account for ₹1.6 lakh crore (24%) of the total budget, growing at an 11% annual rate, outpacing the 9% growth in overall defence spending.
To address this, the government introduced the Agnipath Scheme, which recruits soldiers for four-year terms with a one-time severance package instead of lifelong pensions. While this move is expected to reduce pension liabilities in the long run, it has been met with protests and concerns over its impact on combat readiness.
Boosting Indigenous Defence Manufacturing
Despite efforts to promote Atmanirbhar Bharat in Defence, India remains the world’s largest arms importer, accounting for 10% of global imports between 2013-2023.
Key initiatives to address this include:
- Five Positive Indigenisation Lists banning the import of 5,012 defence items.
- ₹3 lakh crore defence production target by 2028-29.
- Increased budget for Defence Public Sector Undertakings (DPSUs) to manufacture tanks, aircraft, and warships domestically.
However, domestic production remains below expectations, with India contributing only 0.2% to global arms exports.
Major Modernization Plans for the Armed Forces
Indian Army:
- Plans to upgrade 45% of its ageing equipment.
- 90% of ammunition variants are now indigenously produced.
- ₹28,654 crore allocated for stores, including new combat gear.
Indian Navy:
- 65 new ships and submarines under construction.
- Delayed Project-75 submarines finally inducted in January 2025.
- Strengthening India’s maritime security in the Indian Ocean Region.
Indian Air Force:
- Fighter jet shortage remains critical—only 31 operational squadrons against the required 42.
- Delays in the Light Combat Aircraft (LCA) program by HAL.
- Plans to procure 180 new fighter jets to address squadron gaps.
Defence Research & Development: Budget Cuts and Delays
The Defence Research and Development Organisation (DRDO) plays a critical role in India’s military modernization, but its share of the defence budget has fallen. In 2014-15, R&D received 4.7% of the defence budget, which has now dropped to 3.9% in 2025-26.
A CAG report on DRDO’s 178 projects found that 119 projects were delayed, impacting India’s ability to develop cutting-edge defence technology.
To address these challenges, the government is:
- Increasing private sector participation through the Technology Development Fund.
- Encouraging collaboration between DRDO and defence startups.
- Revamping the Defence Acquisition Procedure (DAP) in 2025 to streamline procurement.
India’s Rising Defence Exports
India’s defence exports reached ₹21,083 crore in FY 2023-24, a 32.5% increase from the previous year. The private sector accounted for 60% of these exports, while DPSUs contributed 40%.
The government has set ambitious targets of:
- ₹35,000 crore in exports by 2025.
- ₹50,000 crore in exports by 2028-29.
However, India remains a small player in global arms exports, lagging behind the US (39%), Russia (15%), and France (9%).
Challenges and Future Outlook
Despite increased funding, India’s defence sector faces several challenges:
- Budget Constraints: The declining defence-to-GDP ratio may limit modernization efforts.
- Import Dependence: Despite “Make in India” efforts, critical weapons systems are still imported.
- Delayed Modernization: The shortfall in fighter jet squadrons and naval assets could impact operational readiness.
- Slow R&D Progress: Budget cuts and project delays at DRDO are affecting domestic innovation.
While the ₹6.81 lakh crore defence budget underscores India’s commitment to military preparedness, rising pension costs, slow indigenous manufacturing, and strategic capability gaps remain key concerns.
The government’s efforts to boost local production, streamline procurement, and expand exports will be critical in ensuring that India achieves self-reliance in defence while maintaining a strong and modernized military force.
