Finance Minister Nirmala Sitharaman presented her eighth consecutive budget today in the Parliament. The government has announced major reforms, including a no-tax burden on up to Rs 12 lakh annual income, except special income. Along with reforms and boosts for startups and MSMEs, the Centre’s defence outlay has also witnessed a hike compared to the previous financial year.
This year, Rs 6,812,10.27 crore have been allotted for the Minister of Defence (MoD), which includes Rs 4.88 lakh crore for Revenue Expenditure, and Rs 1.92 lakh crore for Capital Expenditure. This year’s defence outlay will be 8% of the total budget. In the previous financial year, Rs 6,21,940 crore was allocated for the MoD.
This year the outlay has increased by 9% compared to last year’s. The allocation for the 2025-26 defence outlay is estimated at 1.91 per cent of the projected GDP in 2025-26.
Rupee Goes To (Budget 2025-26)
Photo Credit: Credit: indiabudget.gov.in
Capital Expenditure – Focus On R&D, Naval Fleet, Big Procurements
The Centre has allocated Rs 1.92 lakh crore for Capital Outlay, which includes Rs 1.80 lakh crore for Capital Outlay on Defence Services for procuring new weapon systems, aircraft, warships and Rs 12,387 crore for civil services, MoD.
“In the current geopolitical scenario where the world is witnessing a changing paradigm of modern warfare, Indian armed forces need to be equipped with state-of-the-art weapons and have to be transformed into a technologically advanced combat-ready force,” the ministry said referring to the capital outlay.
For Research and Development (R&D), Rs 14,923.82 crore has been allotted for Capital Expenditure. It is 8.2% of the ‘Capital Outlay on Defence Services’ and 2% of the total defence budget. The budget for R&D has witnessed a 12% jump compared to FY24-25 where Rs 13,208 crore were allocated, but the figure was revised to Rs 13,666.93 crore.
However, a small budget for Research and Development has been flagged by domain leaders who have called for more spending in the field to make India more self-reliant.
The Defence Research and Development Organisation (DRDO) chief, Samir V Kamat, has called for increased spending in R&D. In September last year, Mr Kamat said, “We are one of the highest engineer-producing nations in the world, but a lot of our engineers don’t have the skill to take up R&D work. We have to build real capacity in engineering colleges, where they get hands-on experience in using state-of-the-art equipment and solving research problems so that when they graduate, they can do cutting-edge work in research.”
At an event in January, Air Force chief, Air Chief Marshal AP Singh also emphasised R&D and how it “loses its relevance if it is not able to meet the timeline.”
“R&D funds are woefully short. We are just about at 5%, and it should be at 15% (of the defence budget). We have to make sure that these funds are increased and they are available to private players also…We need to increase the schemes to have more private players, and maybe have a competitive approach,” Air Chief Marshal Singh has said.
The government has allotted Rs 48,614.06 crore for aircraft and aero engines. India is yet to build a jet engine and Mr Kamat has said India should invest at least 15% of its defence budget in R&D. India is eyeing US-made General Electric’s F404 fighter jet engines for the LCA Tejas Mark 1A fighter jets, but the delivery of engines is two years behind the schedule.
Speaking at an event earlier in January this year, Mr Kamat said, “The only way India can develop a sixth-generation aero-engine, and other technologies required is by co-development with a foreign manufacturer. To realise that capability, he said the country will have to invest close to $4 billion to $5 billion, that’s Rs 40,000 crore to 50,000 crore,” he said.
A big chunk of the Capital Outlay will go toward expanding the Naval Fleet, procurement of platforms, and their development. Rs 24,930.95 crore has been allotted for the Naval fleet amid China’s growing expansion in the Indian Ocean Region and India’s close partnership with other QUAD members.
Revenue Expenditure
Of the Rs 4.88 lakh crore for revenue expenditure, Rs 16,295.35 crore have been allotted for the Ministry of Defence (Civil), this includes Establishment Expenditure of the Centre, Central Sector Schemes/Projects, Other Central Sector Expenditure covering housing, public works, canteen stores, etc.
Defence Services (Revenue) takes Rs 3.11 lakh crore, compared to Rs 2.87 lakh crore in the previous Financial Year. This estimate was later revised and increased to Rs 2.97 lakh crore in FY 2024-25.
The focus remains on the Agnipath Scheme too – Rs 9,414.22 crore has been allocated for the Army, followed by the Air Force at Rs 853 crore and Rs 772.29 crore for the Navy. When the figure is compared with last year’s revised estimates, the Army saw a 50% jump in the revenue expenditure for the scheme. The revised estimate for the Army for FY 2024-25 was 6,274.66 crore.
The trend was similar for the Air Force and Navy, with a 38% and 33% increase respectively. The expenditure for the Rashtriya Rifles – a specialised Counter-terrorism force operating in Jammu and Kashmir – has increased to Rs 11,290 crore from Rs 10,397 crore.
This year, Rs 1,60,795 crore have been allocated for defence pensions, with the Army – the largest armed force in India by number of personnel – getting Rs 1,41,751 crore for its ex-personnel. This is followed by the Air Force at 17,553.50 crore and Rs 9,463.80 crore for the Navy. The outlay for Defence Pensions is part of the total revenue expenditure, taking the total to Rs 4.88 lakh crore [Defence Pensions + Defence Services (Revenue) + MoD (Civil) which is pegged at Rs 16,295.35 crore]
2025 – ‘A Year Of Defence Reforms’
The Ministry of Defence has declared 2025 as the ‘year of reforms’. The Centre aims at “transforming the Armed Forces into a technologically advanced combat-ready force capable of multi-domain integrated operations.”
Focus on Research and Development, bolstering Jointness & Integration initiatives, and facilitating the establishment of Integrated Theatre Commands, are among the areas that MoD has identified for focused intervention in 2025.
Key Focus Areas:
- Position India as a credible exporter of defence products, fostering R&D and partnerships between Indian industries and foreign Original Equipment Manufacturers for knowledge sharing & resource integration
- Acquisition procedures need to be made simpler and time-sensitive to facilitate swifter and robust capability development.
- Facilitate technology transfer and knowledge sharing between the defence sector and civil industries, promoting public-private partnerships by improving ease of doing business.
- Focus on collaboration across various stakeholders in the defence ecosystem. Breaking silos. Effective civil-military coordination should aim to eliminate inefficiencies and optimise resources.
- Reforms should focus on new domains such as Cyber and Space, and emerging technologies like Artificial Intelligence, Machine Learning, Hypersonics and Robotics. Associated Tactics, Techniques and Procedures required to win future wars should also be developed.
