With the Union Budget 2026-27 round the corner, experts believe that the defence sector is likely to see an increased allocation in the wake of geopolitical challenges emerging in the recent past. Following India’s successful anti-terror campaign last year—Operation Sindoor—the government is likely to place special attention on the defence sector as it will stress enhanced capital expenditure.
Experts are also of the view that the government is likely to relax the conditions for Foreign Direct Investment (FDI) in the defence sector in the upcoming budget. The FDI limit is expected to be increased from the current 49 per cent to 74 per cent. Additionally, the government may also ease other conditions for foreign investment.
Increased Budget to be utilised for defence modernisation
Reports suggest that the increased budgetary allocation to the defence sector could be used to meet the needs of the armed forces, which include essential procurement and research and development. These additional funds can be utilised for the procurement of new weapon systems and ammunition, as well as for technology.
Last year, on May 7, the Indian Army conducted airstrikes on nine terrorist camps in Pakistan, destroying the existing terrorist hideouts. More than 100 terrorists were killed in this operation, and a large number of terrorists were also injured. The operation showed India’s preparedness, and thus the upcoming budget is likely to bolster that with more allocation to this sector.
20% Increase in Allocation Expected
According to experts, the government is expected to increase the allocation for defence by 20 per cent in this budget. India's defence budget for the current financial year stands at Rs 6.81 lakh crore. Last year, a provision of Rs 6,81,210.27 crore was made for the Ministry of Defence (MoD), which was 9.53 per cent higher than the budgetary estimate for the financial year 2024-25 and constituted 13.45 per cent of the central budget. It was notably the highest among all ministries.
The Ministry has designated the financial year 2025–26 as the “Year of Reforms,” reaffirming the government’s commitment to the modernisation of the armed forces while streamlining the defence procurement process to ensure optimal utilisation of allocated funds.
