India has announced a record allocation for defence capital spending, signalling a renewed push towards military modernisation and domestic manufacturing amid rising geopolitical tensions.
The defence budget for FY2026–27 has been set at ₹7.84 trillion, accounting for around 15% of the Union Budget and marking a 15% year-on-year increase over the previous fiscal estimate. This translates to nearly 2% of India’s projected GDP for FY27, underscoring the government’s emphasis on defence preparedness.
A key highlight is the sharp rise in capital expenditure. Funds earmarked for capital spending—used for acquiring weapons, platforms and advanced systems—have increased by 21.8% to ₹2.19 trillion. Capital expenditure now constitutes 28% of total defence spending, reflecting an improvement in the quality of expenditure compared with previous years.
The Ministry of Defence (MoD) has also committed to sourcing 75% of its capital acquisition budget from domestic industries during FY2026–27, in line with the Defence Acquisition Procedure (DAP) 2020. Industry interactions suggest that budgetary constraints are unlikely to hinder acquisitions, with double-digit growth in defence capital expenditure expected in the coming years.
Adding momentum, the Defence Acquisition Council (DAC) has approved defence procurement proposals worth approximately ₹3.3 trillion so far in FY26—significantly higher than ₹2.2 trillion approved in FY25. These approvals include projects such as Landing Platform Docks, Mine Counter Measure Vessels, loitering munitions, Guided Pinaka rocket systems, drone detection systems and Astra Mk-II missiles.
The government is also working to reduce procedural timelines, raising expectations that major defence orders could be placed in FY27–28. Large platforms such as fighter aircraft, submarines, frigates, missile systems and advanced electronics are expected to anchor the order pipeline.
Analysts believe the scale of approvals and sustained policy support provide strong visibility for defence public sector undertakings and select private players, positioning India’s defence manufacturing ecosystem for sustained growth in the years ahead.
