The Union Budget 2025-26 earmarked ₹6.81 lakh crore — or 13.4% of total Central government expenditure — for the Ministry of Defence (MoD). Of the MoD’s total budget, ₹4.92 lakh crore, or 72%, is meant for the Defence Services (primarily the Army, Navy, Air Force and the Defence Research and Development Organisation).

About ₹1.61 lakh crore — amounting to 24% of the MoD’s total outlays — is provisioned to meet the pensionary expenses of the defence services; and the balance ₹28,683 crore, or 4%, to cater for the ‘civil organisations’ of the MoD, which include, inter alia, the Border Roads Organisation and the Indian Coast Guard.

Coming in the backdrop of a volatile regional and global security environment, the MoD’s budget and its distribution among various heads, evokes several pertinent questions, including about its adequacy to meet the needs of the defence forces and its impact on indigenisation that the Modi government pursues through its flagship ‘Make in India’ initiative.

On the question of adequacy, the MoD’s budget falls short of expectations. Although the MoD’s budget has been hiked by a decent 9.53%, much of the hike will be neutralised by the prevailing inflation (about 5%) and a weakening domestic currency vis-à-vis the U.S. dollar.

Little freedom

To further compound the problems of high inflation and a depreciating rupee, the MoD budget has little freedom to improve the firepower of the defence forces. Historically the defence budget has been dominated by the manpower cost. The salary and pension in the MoD’s latest budget accounts for 53%, leaving the balance to thinly spread on a host of other critical items of expenditure which are vital for modernisation and operational preparedness of the armed forces.

The capital expenditure of the defence services, much of which is spent on capital acquisitions and is vital for defence modernisation, has been pegged at ₹1.8 lakh crore — an increase of 4.7%. Notably this marginal increase has come after over 7% reduction in the previous capital budget.

The under-utilisation of previous budget and marginal increase in the capital expenditure will slow down the modernisation and indigenisation process going forward. Nonetheless, the MoD plans to sign several mega contracts, including for long endurance drones, deck-based fighters and next-generation submarines in the coming fiscal year, while sticking to the same indigenisation plan as articulated in the previous budget. To promote Make in India in defence, the MoD has earmarked 75% of its new capital procurement budget of ₹1.49 crore for procurement from the domestic industry, with 25% the domestic share being reserved for the Indian private sector.

While a big share for the domestic industry is a welcome step, to put both the modernisation and indigenisation on a fast track, the MoD requires a much bigger kitty than it has got in the successive union budgets. As a percentage of the Gross Domestic Product (GDP), the MoD’s latest budget amounts to a just 1.9% — a share too low for a country that faces two nuclear rivals. The government urgently needs to step up its spending on defence to at least 2.5% of GDP in the near- to medium-term and to 3% thereafter for a credible defence.

(The author is Associate Professor at the Special Centre for National Security Studies, Jawaharlal Nehru University, New Delhi.)

Army tanks and other weapon systems being showcased during the 72nd Republic Day parade at Rajpath, in New Delhi. File
| Photo Credit: PTI

Union Finance Minister Nirmala Sitharaman allocated ₹6.22 lakh crore for the defence sector in 2024-25 which is almost the same as in the interim Budget presented in February. At approximately 12.90% of the total Budget, the fund earmarked for the defence sector is marginally higher than last year.

“The capital outlay of ₹1,72,000 Crore will further strengthen the capabilities of Armed forces. Earmarking of ₹1,05,518.43 crore for domestic capital procurement will provide further impetus to Atmanirbharta,” Defence Minister Rajnath Singh said on ‘X’. He said he was pleased that Border Roads Organisation had got a 30% increase in allocation over the last Budget. This allocation of ₹6,500 crore to BRO would further accelerate the border Infrastructure, he stated.

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The allocation of ₹6.22 lakh crore for the defence sector is 4.79% higher compared to the Budget Estimates (BE) of last year. Of this, a share of 27.66% goes to capital; 14.82% for revenue expenditure on sustenance and operational preparedness; 30.66% for pay and allowances; 22.70% for defence pensions, and 4.17% for civil organisations under MoD.

While maintaining the allocation made to the Ministry of Defence (MoD) during the interim Budget, the government has made an additional allocation of ₹400 crore on innovation in defence through the Acing Development of Innovative Technologies with iDEX (ADITI) scheme, the Ministry said. “Through this scheme, MoD is engaging with start-ups/MSMEs and innovators to develop Def-Tech solutions and supply the Indian military with innovative and indigenous technological solutions.”

A grant of up to 50% of Product Development Budget with enhanced limit of ₹25 crore per applicant will be awarded as per extant iDEX guidelines.

On the allocation to BRO, the Ministry said it will promote strategic infrastructure development in border areas, while boosting socio-economic development in that region. This will help fund projects such as Nyoma Airfield in Ladakh, at an altitude of 13,700 feet, permanent bridge connectivity to southernmost panchayat of India in the Andaman and Nicobar Islands, the 4.1 km strategically-important Shinku La tunnel in Himachal Pradesh, the Nechiphu tunnel in Arunachal Pradesh and several other similar projects, the Ministry said.

The allocation to the Indian Coast Guard (ICG) for FY 2024-25 is ₹7,651.80 crore, which is 6.31% higher than the previous year. “Out of this, ₹3,500 crore is to be incurred only on capital expenditure, adding teeth to the arsenal of ICG for addressing the emerging maritime challenges and providing humanitarian assistance to other nations,” the statement added.

Highlights:

Total Defence allocation: ₹621,940 crore

Revenue allocation: ₹2.83 lakh crore

Capital: ₹1.72 lakh crore

Pensions: ₹1.41 lakh crore

Civil: ₹25,963 crore