In Budget 2026-27, Percentages Will Determine Trajectory Of Defence Expenditure

In the current fiscal, defence allocation is about 1.9% of GDP, just as it was in 2024-25. Since 2020-21, when it was 2.4%, the allocation has been coming down.

The Ministry of Defence (MoD) wants the share of defence expenditure in GDP to go up from 1.9% to 2.5%, Defence Secretary Rajesh Kumar Singh told a media platform in July. He reiterated the same in the last week of November. Speaking at the 98th Annual General Meeting of the Federation of Indian Chambers of Commerce & Industry (FICCI), he said that the country traditionally goes for a “10% higher defence allocation every year.” This year, it may be different. “We are in a particularly tough neighbourhood,” Singh said. “Will be asking closer to 20% higher allocation in the coming Budget,” he said at the Ficci event.

It needs to be mentioned here that the demand for higher budgetary allocation to defence precedes Operation Sindoor.

MoD had said in 2023 that the global “ideal” estimate for defence expenditure as a percentage of GDP was 3%. In December 2023, the Parliamentary Standing Committee on Defence said that if not the global parameter of 3%, the feasibility may be explored to fix a benchmark, which will help in forming the right trajectory for the defence expenditure for the country. 

Defence Expenditure 

Even as defence expenditure as a percentage of GDP has been going down, the allocation has been moving northwards in absolute numbers. Budget 2025-26 made a provision of ₹681,210.27 crore for the MoD. “This allocation is 9.53% more than the Budgetary Estimate of FY2024-25, and stands at 13.45% of the Union Budget, which is the highest among the Ministries,” an official statement said.

Out of this, ₹180,000 crore, or 26.43% of the total allocation, will be spent on capital outlay on defence services, the government said. In comparison, the UK and the EU spend over 30%, and the US, 37% of their military budget on capital expenditure.

It is a matter of concern that capital expenditure in 2025-26 is lower in terms of percentage of total defence allocation than in the last fiscal. Budget 2024-25 allocated ₹621,940.85 crore for the MoD, of which the budgetary allocation under capital head was ₹1.72 lakh crore. The government claimed that capital expenditure in 2024-25 was 20.33% higher than the actual expenditure of 2022-23 and 9.4% more than the revised allocation of 2023-24. But capex was 27.65% of the total defence budget allocation.

Worse, in 2023-24, capex was 29% of the total defence expenditure. 

Therefore, it is not only the total defence expenditure as a percentage of GDP that has been going down, but also the capital outlay of the total defence budget spending.

The need of the hour is the reversal of these trends.

Procurement Delays

There is also the issue of the long and complicated process of arms procurement. MoD had to return ₹12,500 crore allocated as part of the capital outlay under the interim budget of July 2024. According to Harsh V. Pant and Kartik Bommakanti of the Observer Research Foundation, “the armed services need but cannot spend all the money under the capital head within the stipulated fiscal year due to procurement delays in the MoD.”

They added, “Thus, the pace of acquisitions of weapons systems and platforms will need a stronger push from Prime Minister Modi and the defence minister, Rajnath Singh. Otherwise, the government faces the classic chicken-and-egg problem to the extent that there will be a mismatch between the funds allocated for capital procurement and the capacity of the MoD to complete the timely execution of contracts to meet the capital defence requirements of the services. It has and will also lead to inter-ministerial recriminations.”

Greater emphasis on capital outlay is not an option but a compulsion because now warfare is mainly beyond visual range (BVR); and no military can expect desirable results without technological prowess, which is predicated upon state-of-the-art arms and armaments, which, in turn, need both monetary and R&D inputs. So, the budgetary allocation to the Defence Research & Development Organisation (DRDO) rose 12.41% to ₹26,816.82 crore in 2025-26.

Revenue Expenditure

Revenue expenditure, taking care of unavoidable spending like pay, allowances, etc., will rise; it did this fiscal by 10.24% to ₹311,732.3. Restricting spending under the revenue head was the objective behind the Agnipath scheme.

The greatest challenge ahead for the Ministry of Finance is to make provisions for much higher defence budgetary allocation, and for the MoD is to ensure that the higher capital outlay is properly used within the prescribed time limit.

(The writer is a senior journalist, specialising in policy reporting and analysis. Views are personal.)