Budget 2026: Modernisation, Indigenisation In Defence Production

The strategic imperative of the defence budget gives prominence to:

• The need to enhance aerospace, air defence, and underwater capability;
• Accelerating indigenisation and reducing import dependence in critical platforms and subsystems;
• Enhancing capital expenditure and defence R&D spending (the single-most crucial indicator of the modernisation intent);
• Improving deterrence through credible maritime, air, missile, and network-centric capabilities.

While the defence component of the Union budget will, as in earlier years, set out the total allocation for the year, the budget's thrust will likely shift from short-term spending to a five- to ten-year strategic horizon, with a focus on building a self-reliant defence industrial base.

Defence Manufacturing Corridors

The budget will likely prioritise the private sector's growing role in the defence manufacturing corridors in Uttar Pradesh and Tamil Nadu. By aligning procurement with Indian vendors and providing capital support for MSMEs through specialised clusters, the government could send strong signals for its move towards "Atmanirbharta" (self-reliance).

Incentives, including special capex funds, seed grants, and tax benefits, which are designed to modernise domestic production and ensure that future weapons are manufactured domestically, are needed.

Indian Air Force Defence Infrastructure

The Indian Air Force's modernisation effort focuses on enhancing its aerospace capabilities. A glimpse of those capabilities was showcased in Operation Sindoor, where space capabilities were synergised with land and air weapon systems to achieve a severe degradation of enemy defence infrastructure and military assets. The budget is expected to increase resource allocations for indigenous fighters and unmanned systems. The push to develop next-generation platforms such as the Tejas Mk2 and the AMCA would also likely be reflected in the budget, as would the intent to procure complete systems (Rafale and/or Su-57). 

There is no gainsaying the fact that long-term strategic autonomy depends on sustained R&D investment. The development of indigenous engines and MRO/engine lines would be reflected in higher allocations to DRDO/ADA/engine programmes and in multi-year payments for aircraft spares and MRO funding. We could also see new grants to fund collaboration among DRDO, ISRO, and the private sector to enhance capabilities to address asymmetric and grey-zone threats. This would encompass dedicated space capabilities, UAVs, swarm drones, EW suites, and cyber defence.

Maritime Domain

The Maritime domain is becoming increasingly critical to India's growth story. Protecting its vast coastline and ensuring the safety and security of the SLOCs in the Indian Ocean are now vital to India's interests. Over the last decade, this shift has been evident in the acquisition of numerous naval vessels, including an aircraft carrier, submarines, frigates, and destroyers. This thrust will be maintained. Modernisation is capital-intensive, and fighters, helicopters, ships, and submarines require one-off, large outlays rather than recurring revenue spending. In this budget, too, the capital acquisition allocation is likely to increase by about 10 per cent from last year's level to fund maritime requirements, including the submarine programme, P-75I, Rafale-M on carriers, and new frigates. We could see project-level allocations for these, with multi-year capital commitments to shipyards and indigenous AIP/sonar programmes.

Operation Sindoor also made it evident that information dominance, unmanned systems, precision strikes, and air defence capabilities will define present and future conflicts. Another lesson highlighted was that networked forces offer disproportionate gains in combat effectiveness.

The budget could, therefore, include expanded production funding and capacity augmentation for missile systems, new or expanded funding windows for disruptive and asymmetric capabilities, such as UAVs and loitering munitions, and dedicated allocations for C4ISR modernisation and space-based enablers.

Allocation For Infrastructure Development

There will be the standard allocation for infrastructure development and enhancing logistics and sustainment capability. The last decade has seen tremendous growth in road and tunnel construction in the border areas, and this momentum is likely to continue. The budget is also expected to balance revenue and capital expenditure.

While salaries and pensions continue to consume a large share of the defence budget, it will seek to ring-fence capital outlay, signalling that modernisation, indigenisation, and deterrence capability are being prioritised over incremental revenue expansion. Budget 2026 is hence likely to be more than just an annual fiscal exercise. It could be an indicator of a complete doctrinal overhaul in India’s national security. 

(The writer is a retired officer of the Indian Army. Views are personal.)