In a major strategic response to evolving security challenges and the need for high-tech modernization, Finance Minister Nirmala Sitharaman announced a significant hike in the Defence Budget to ₹25.94 lakh crore for FY2026-27 during the Union Budget on February 1, 2026.
This represents a massive structural jump compared to the ₹6.81 lakh crore allocated in the previous year (FY26), signaling a shift toward “Full-Scale Modernization” and a pivot toward indigenous deep-tech defense manufacturing.
1. The FY27 Allocation Breakdown
The total outlay of ₹25.94 lakh crore is distributed across personnel costs, operational readiness, and the all-important capital acquisitions for new weaponry.
| Segment | Allocation (Estimated) | Key Focus |
| Capital Outlay | ₹2.16 Lakh Crore | New fighter jets, submarines, and drones. |
| Revenue (Operational) | ₹3.74 Lakh Crore | Maintenance, fuel, and border deployment. |
| Salaries & Pensions | ₹4.35 Lakh Crore | Pay & allowances and OROP-3 provisions. |
| Civil/Misc. | ₹0.35 Lakh Crore | Border Roads (BRO) and MoD civil costs. |
Note: Total MoD allocation includes internal and extra-budgetary resources (IEBR) for PSUs.
2. Strategic Priorities: “Operation Sindoor” Lessons
The 2026 budget reflects the lessons learned from the recent geopolitical standoffs on the western and northern borders.
- Drone & Anti-Drone Tech: A dedicated ₹15,000 crore fund has been carved out within the capital budget for the mass induction of swarm drones and loitering munitions.
- Cyber & Space Command: For the first time, a specific sub-allocation of ₹8,500 crore has been made for the Defense Space Agency and Defense Cyber Agency to counter non-kinetic threats.
- Border Infrastructure: The Border Roads Organization (BRO) received a 30% hike in its capital head (to ~₹9,300 crore) to accelerate the construction of all-weather tunnels and strategic bridges in Ladakh and Arunachal Pradesh.
3. Boosting “Atmanirbharta” (Self-Reliance)
The government continues to tighten the “Make in India” screws to reduce reliance on foreign OEMs.
- 70% Domestic Mandate: The share of the modernization budget reserved for domestic procurement has been raised to 70% (up from 65%), ensuring that over ₹1.5 lakh crore flows directly into the Indian defense industry.
- Private Sector Share: Within the domestic pool, the government has mandated that 25% of projects be specifically awarded to private Indian companies and MSMEs.
- DRDO R&D Fund: The R&D budget saw a 12% increase, with a new “Deep-Tech Innovation Grant” of ₹5,000 crore to support startups working on stealth materials and quantum communications.
4. Major Acquisitions in the Pipeline
The FY27 budget provides the financial “runway” for several multi-billion dollar contracts expected to be signed this year:
- Fighter Jets: Advance payments for 97 additional Tejas Mk-1A jets and the 114 Multi-Role Fighter Aircraft (MRFA) project.
- Naval Fleet: Funding for the P-75I Submarine program and the second indigenous aircraft carrier (IAC-II).
- Helicopters: Procurement of 156 Prachand Light Combat Helicopters (LCH) for the Army and IAF.
Conclusion: A Decade of Defensive Scaling
The ₹25.94 lakh crore outlay for FY27 is more than just a numbers hike; it is a financial declaration of India’s intent to become a net exporter of security in the Indo-Pacific. While the STT hike and Fiscal Deficit targets dominated the midday headlines, the defense allocation ensures that India’s industrial “war footing” remains well-funded. For investors, the long-term visibility provided by this multi-year capex cycle makes defense PSUs and private manufacturers some of the most resilient plays for the 2026–2030 period.
