Union Budget 2026-27: Defence Allocation Rises to Rs 7.8 Lakh Crore, Capital Outlay for Modernisation Soars

The Union Budget 2026-27 has earmarked Rs 7.8 lakh crore for the defence ministry, reflecting a 15 percent increase over last year, with a major focus on modernisation and strengthening India’s defence capabilities.

Of the total allocation, Rs 2.19 lakh crore has been set aside under the Capital Outlay for modernisation, marking a 21.84 percent jump from Rs 1.80 lakh crore in FY 2025-26. This fund will support key projects, including contracts for Rafale fighter jets, submarines, and unmanned aerial vehicles.

While the civil expenditure of the defence ministry has been slightly reduced by 0.45 percent from Rs 28,554.61 crore last year, allocations for Defence Services and Capital Outlay have increased significantly, amounting to Rs 3,65,478.98 crore and Rs 2,19,306.47 crore, respectively. The Defence Pensions budget also saw a rise, with Rs 1,71,338.22 crore earmarked for the year.

In a major boost to the defence manufacturing sector, Finance Minister Nirmala Sitharaman announced that the government proposes to exempt basic customs duty on raw materials imported for the manufacture of aircraft parts used in maintenance, repair, or overhaul by defence units.

Separately, in response to US tariffs, the Finance Minister proposed to reduce the tariff rate on all dutiable goods imported for personal use from 20 percent to 10 percent, providing relief to individual importers.

Experts say the enhanced defence budget and modernisation push signal India’s continued focus on strengthening its strategic capabilities, while measures such as customs duty exemptions are expected to boost domestic defence production.

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