Govt hikes defence budget by 15% to Rs 7.85 lakh crore

Finance Minister Nirmala Sitharaman allocated Rs 7.85 lakh crore to the defence sector in the Union Budget 2026-27, an increase of 15.19 per cent over Budgetary Estimates of FY 2025-26.

Break down of the total allocation: 

• 27.95 per cent of the defence budget allocation is for capital expenditure

• 20.17 per cent for revenue expenditure on sustenance and operational preparedness

• 26.40 per cent for revenue expenditure on pay and allowances

• 21.84 per cent for defence pensions

• 3.64 per cent for civil organisations.

Push for modernisation

• Over Rs 2.19 lakh crore have been allocated under the capital head to the defence forces, and out of this, Rs 1.85 lakh crore is earmarked for capital acquisition, which is approximately 24 per cent higher than the capital acquisition budget for FY 2025-26.

• The forthcoming capital acquisition projects will equip the Armed Forces with next-generation fighter aircraft, advanced weapons, ships and submarines, Unmanned Aerial Vehicles, drones, etc.

• The capital allocation to the Border Roads Organisation (BRO) has been increased to Rs 7,394 crore for FY 2026-27.

• The enhanced allocation to the BRO will help in modernising strategic projects like tunnels, bridges, airfields, etc.

• Allocation of Rs 975 crore for Optical Fibre Cable based network for defence services.

Boosting indigenous defence manufacturing

• The Budget gives a strong thrust to ‘Aatmanirbhar Bharat’ by promoting indigenous manufacturing and reducing import dependence. 

• Domestic defence industries, including private sector players, are key beneficiaries.

• Around 75 per cent of the capital acquisition budget is reserved for domestic defence industries in FY 2026-27.

• Basic custom duty on raw materials imported for manufacture of parts of aircraft to be used in maintenance, repair, or overhaul requirements by Units in the Defence sector to be exempted.

• The budgetary allocation to Defence Research and Development Organisation (DRDO) has been increased to Rs 29,100.25 crore in FY 2026-27. Out of this allocation, a major share of Rs 17,250.25 crore is allocated for capital expenditure.

Healthcare and pension support for veterans

• The Budget strengthens the government’s commitment to veterans’ welfare through higher allocations for healthcare and pensions, ensuring quality medical services and timely financial support for ex-servicemen and their families.

• About Rs 12,100 crore is allotted to the Ex-Servicemen Contributory Health Scheme (ECHS) in FY 2026–27, which is 45.49 per cent higher than Budget Estimates of FY 2025-26.

• ECHS supports Medical Treatment Related Expenditure (MTRE) for ex-servicemen and their dependents.

• Total allocation for defence pensions stands at over Rs 1.71 lakh crore, marking a 6.56 per cent increase over the FY 2025-26 Budget Estimates.

• The amount supports monthly pension disbursement to more than 34 lakh pensioners, disbursed through SPARSH and other authorised pension disbursing authorities.