India Hikes Defence Budget 10%, Backs Local Production

India has announced a 9.5% increase in its defence budget for the 2025–2026 fiscal year, bringing the total allocation to ₹6.81 trillion (approximately $78.7 billion). This decision underscores the nation’s commitment to bolstering its military capabilities amidst ongoing security challenges along its western and northern borders.

Budget Allocation Breakdown

Despite the significant budgetary increase, personnel expenses account for a substantial portion. Salaries and pensions account for nearly 70% of the total budget, leaving only 26.4% (around ₹1.8 trillion) for new acquisitions and modernisation efforts. Analysts Harsh V. Pant and Kartik Bommakanti from the Observer Research Foundation highlight this structural issue, noting that the emphasis on personnel costs continues to constrain funds available for capital acquisitions.

Focus on Modernization and Indigenous Production

The Ministry of Defence (MoD) has declared 2025–2026 a period of reform, emphasising the need to equip the Indian Armed Forces with state-of-the-art weapons and transform them into a technologically advanced, combat-ready force.

However, the capital acquisition budget has seen a modest growth of just 4.65% compared to the previous year. Upcoming major procurements include MQ-9B drones, carrier-borne fighters, and next-generation submarines and warships.

In line with the ‘Atmanirbhar Bharat’ (self-reliant India) initiative, the government is pushing for increased domestic defence production. Notably, ₹1.12 trillion is allocated for procurement from the domestic industry, which represents 75% of the overall modernisation budget. To further encourage private sector participation, 25% of this domestic share is earmarked for acquisition from private Indian industries.

Enhancing Defense Research and Development

The budget also includes a 12.4% increase in funding for defence research and development, totalling ₹268 billion. This boost aims to strengthen the Defence Research and Development Organisation’s (DRDO) efforts to develop new technologies through research and foster public-private partnerships.

Balancing Immediate Needs with Long-Term Goals

Antoine Levesques, a research fellow at the International Institute for Strategic Studies, points out the challenge India faces in balancing urgent defence procurement needs through foreign purchases with the long-term goal of enhancing its indigenous industrial defence ecosystem.

Progress in Domestic Defense Production and Exports

India’s emphasis on self-reliance in defence has yielded results. By the fiscal year 2023–2024, domestic defence production had risen to ₹1.27 trillion, marking a 174% increase compared to a decade earlier. The government anticipates this figure to reach ₹1.75 trillion in the current year and aims for ₹3 trillion by 2029. Additionally, defence exports have surged to ₹19.4 billion in FY2023–2024, a 32.5% increase from the previous year. The top export destinations include the United States, France, and Armenia. The MoD has set an ambitious defence export target of ₹500 billion by 2029.

Conclusion

While the increased defence budget reflects India’s dedication to strengthening its military capabilities and promoting indigenous production, the significant allocation towards personnel costs continues to limit the funds available for modernisation. Balancing immediate security needs with long-term self-reliance goals remains a critical challenge for India’s defence strategy.

References

1. Defense News – India Raises Defense Budget by Nearly 10%
2. Reuters – India’s Defense Budget Heavily Weighted Towards Manpower Costs
3. Chanakya Forum – India’s Defense Budget 2025-2026
4. Economic Times – India’s Defense Exports Surge