Budget 2026: Why India Must Rethink Defence Spending for Strategic Power

Budget 2026: Why defence spending is back in sharp focus — and how experts want the money spent

Introduction: More Than Just Numbers—A Strategic Imperative

With Union Budget 2026 just around the corner, one issue is dominating national security debates: defence spending. It’s not just about increasing the budget line—it’s about how India allocates, prioritizes, and executes that spending in an era of complex threats, technological disruption, and economic constraints [[1]].

Experts across think tanks, industry, and former military leadership are sounding a unified call: India must shift from reactive budgeting to strategic investment. The goal? To build a future-ready military powered by homegrown technology, resilient supply chains, and smart procurement—not just bigger numbers on a spreadsheet.

Table of Contents

Why Defence Spending Is in the Spotlight

India faces a perfect storm of security challenges:

  • Ongoing border tensions with China along the Line of Actual Control (LAC)
  • Persistent cross-border terrorism from Pakistan
  • Rapid militarization in the Indian Ocean Region by external powers
  • An accelerating global arms race driven by AI, drones, and cyber warfare

In this context, maintaining a static or marginally increased defence spending isn’t just risky—it’s unsustainable. Yet, simply raising the total outlay without reforming how funds are used could waste precious resources and delay critical modernization.

The Current State of India’s Defence Budget

For years, India has allocated roughly 2–2.5% of its GDP to defence—a figure often cited as modest compared to regional peers like China (~1.7% officially, but likely higher) and Pakistan (~4%) [[2]]. But the real issue lies in the budget’s composition.

Over 60% of India’s defence budget goes toward revenue expenditure—salaries, pensions, and maintenance—leaving less than 40% for capital outlay: new weapons, platforms, and R&D [[1]]. This imbalance starves modernization efforts.

For example, in Budget 2025, the capital outlay was ₹1.72 lakh crore—only about 36% of the total defence allocation. Experts argue this must rise to at least 50% to sustain credible deterrence [[1]].

How Experts Want Defence Spending Allocated

Leading defence analysts and former officials aren’t just asking for more money—they’re demanding smarter allocation. Their recommendations include:

  1. Prioritize Capital Expenditure: Shift the balance toward procurement and indigenous development, not just upkeep.
  2. Boost R&D Funding: Increase allocations to DRDO and private-sector innovation hubs working on next-gen tech like AI-enabled surveillance and hypersonic missiles.
  3. Streamline Procurement: Cut bureaucratic delays that stall projects for years—e.g., the decades-long saga of the Light Combat Aircraft (Tejas) upgrades.
  4. Empower MSMEs: Create dedicated funding windows for small and medium enterprises in the defence ecosystem [INTERNAL_LINK:defence-msmes-in-india].

As one retired general put it: “We don’t need more tanks—we need smarter systems that can win tomorrow’s wars.”

The ‘Make in India’ Mandate and Its Challenges

The government’s push for Make in India in defence has yielded wins—like the Pinaka rocket system and the Arjun tank—but systemic hurdles remain:

  • Lack of long-term order certainty for private firms
  • Over-reliance on public sector undertakings (DPSUs) with legacy inefficiencies
  • Insufficient testing infrastructure and certification bottlenecks

Budget 2026 is a chance to fix this. Experts suggest creating a “Defence Innovation Fund” seeded by the government but managed independently to fast-track startups and scale-ups. They also recommend tax incentives for companies that export Indian-made defence gear—turning self-reliance into a global business opportunity.

Geopolitical Realities Demand Smarter Investment

China’s military modernization is advancing at warp speed. From stealth fighters to aircraft carriers and space-based assets, Beijing is building a multi-domain force. Meanwhile, India still relies on imports for critical systems like jet engines and naval sonar [[3]].

This dependency is a strategic vulnerability. As the Ukraine war has shown, access to spare parts and ammunition during conflict can’t be outsourced. That’s why defence spending in Budget 2026 must be seen not as a cost—but as an investment in sovereignty.

Moreover, with India’s role in the Indo-Pacific growing, credible military power is essential to back its diplomatic stance. Allies like the U.S., France, and Japan are watching closely: they partner with nations that can defend shared interests.

Conclusion: A Call for Strategic Calibration

Budget 2026 presents a pivotal moment. India doesn’t need to match every adversary’s spending—but it must spend with precision, purpose, and foresight. The focus should shift from “how much” to “how well.”

By boosting capital expenditure, empowering domestic industry, and aligning procurement with emerging threats, India can turn its defence spending into a catalyst for both national security and economic growth. The time for incrementalism is over. Strategic calibration is now non-negotiable.

Sources

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