Capex for modernisation of Armed Forces
Ministry of Defence has been allocated an all-time high of Rs.7.85 lakh crore in Union Budget 2026-27, an increase of 15.19% over the Budgetary Estimates (BE) of FY 2025-26, and 14.67% of the Central Government expenditure.
Considered highest among the Ministries, the allocation stands at 2% of the estimated GDP for the next Financial Year, the Ministry of Defence (MoD) said on 1 Feb.
In addition to the modernisation of the Armed Forces and financing their regular requirement, the significantly enhanced allocation will also cater for the financial requirements that have arisen due to the emergency procurement of arms and ammunition made subsequent to Operation Sindoor under both the categories viz. Capital and Revenue.
A large share of the defence budget to the tune of Rs.2.19 lakh crore has been allotted for capital expenditure vis-à-vis Rs.1.80 lakh crore which was allotted as BE of FY 2025-26. Through this enhanced provision, the Government has reaffirmed its resolve to transform the Armed Forces and their capabilities to the world’s highest standards with a strategic shift towards the goal of Aatmanirbhar Bharat.
Out of the total allocation made to the Ministry, a share of 27.95% is for capital expenditure, 20.17% for revenue expenditure on sustenance and operational preparedness, 26.40% for revenue expenditure on pay and allowances, 21.84% for Defence Pensions and 3.64% for civil organisations.
Modernisation of Armed Forces – a strategic objective, said the Ministry.
For FY 2026-27, budgetary allocation under capital head to the Defence Forces stands at Rs.219,306.47 lakh crore, which is 21.84% more than the Budget Estimates of FY 2025-26. Out of this, Rs.1.85 lakh crore is earmarked for Capital Acquisition, which is approximately 24% higher than the Capital Acquisition budget for FY 2025-26.
In the current geo-political scenario, quantum jump in the modernisation budget is a strategic imperative. During FY 2025-26, up to 3rd quarter i.e., till December 2025, MoD has concluded contracts worth Rs.2.10 lakh crore and has, so far, given Acceptance of Necessity approval for more than Rs.3.50 lakh crore.
The upcoming projects under capital acquisition will equip the Armed Forces with next generation fighter Aircraft, smart and lethal weapons, ships/submarines, Unmanned Aerial Vehicles, Drones, Specialist Vehicles among others.
Thrust on Aatmanirbharta
Interruption in global supply chains and prioritization of domestic requirements over foreign sellers has re-emphasised the need for import substitution and going for indigenisation not only for sustenance but for future modernisation. In line with this, MoD’s policy to earmark funds to boost domestic industries through budgetary policies has been further strengthened by earmarking Rs.1.39 lakh crore i.e., 75% of the Capital Acquisition budget for procurement through domestic industries during the FY 2026-27.
Through such earmarking of funds, domestic players have been reassured about their investment and their increasingly greater role in capability development of the Armed Forces. Enhanced allocation for Capital Acquisition, especially for domestic industries, will have long term positive impact on the national economy and will lead to development of many ancillary industries, creating job opportunities in the country.
Defence budget has made a provision of Rs.365,478.98 crore for spending under revenue heads. This allocation is 17.24% higher than the allocation for BE 2025-26. Out of this, Rs.158,296.98 crore has been allocated for operation and sustenance related expenditure and the remaining for salary and allowances.
The budgetary provision made in this regard for the upcoming FY will facilitate procurement of operationally important stores, spare parts etc. and will ensure maintenance of vital platforms in addition to catering for their day-to-day requirements.
Major Thrust on Border Area Development
The Government has reiterated its commitment to providing better infrastructure in border areas through higher allocation to the Border Roads Organisation (BRO). Accordingly, budgetary allocation to BRO under Capital for BE 2026-27 has been enhanced to Rs.7,394 crore from Rs.7,146.50 crore for FY 2025-26. The said allocation will cater to many strategically significant projects such as tunnels, bridges, airfields, etc. and will promote regional development and tourism, along with providing last mile connectivity in the border areas.
The Government is committed to providing best healthcare facilities to the veterans and their dependents through enhanced allocation to the Ex-Servicemen Contributory Health Scheme (ECHS). In the annual budget for FY 2026-27, an amount of Rs.12,100 crore has been allotted to ECHS which is 45.49% higher than the current year allocation at BE stage. The said allocation will fund the Medical Treatment Related Expenditure (MTRE) of veterans. The allocation to ECHS has been increased by more than 300% in the last five years vis-a-vis the allocation made at BE stage for FY 2021-22.
Fostering R&D in Defence
The budgetary allocation to Defence Research and Development Organisation (DRDO) has been increased to Rs.29,100.25 crore in FY 2026-27 from Rs.26,816.82 crore in FY 2025-26. Out of this allocation, a major share of Rs.17,250.25 crore is allocated for capital expenditure.
Increase in Defence Pension Budget
Total Budgetary allocation on account of Defence pensions stands at Rs.171,338.22 crore, which is 6.56% higher than the allocation made during 2025-26 at BE stage. It will be spent on the disbursement of monthly pension to more than 34 lakh pensioners through SPARSH and other pension disbursing authorities. Fiinews.com
