New Delhi: In a strategic move to fast-track modernization and indigenization, the Union Budget 2026–27 is expected to deliver a historic boost to India’s defence capabilities. Sources indicate that the government is poised to significantly raise the defence allocation, with the Ministry of Defence having already submitted a proposal that eyes a 20 to 25 percent increase in the overall outlay for the Fiscal Year 2027 (FY27).
If approved, this surge would mark one of the most substantial annual hikes in recent history, signaling a decisive shift toward aggressive capacity building and self-reliance (Atmanirbhar Bharat) in defence manufacturing.
A Historic Leap in Defence Spending
The projected 20–25% increase comes against the backdrop of the FY 2025-26 budget, which allocated a record ₹6.81 lakh crore to the defence sector. A 20% rise would potentially propel the total defence budget well beyond the ₹8 lakh crore mark, providing the armed forces with unprecedented fiscal maneuverability for capital acquisition and modernization.
Sources suggest that the government’s focus is not just on volume but on the efficiency of spending. The existing defence acquisition rules are slated for simplification, with a comprehensive overhaul of policies expected to remove bureaucratic bottlenecks that have historically slowed down critical procurement.
R&D Allocation to See Massive Jump
One of the most significant takeaways from the submitted proposal is the focus on Research and Development (R&D). Historically, India’s defence R&D spending has hovered around 5% of the total defence budget, a figure experts have long argued is insufficient for developing cutting-edge indigenous technology.
Under the new proposal, R&D spending is likely to witness a dramatic rise:
- Current Allocation (Approx): ₹27,000 crore (FY26 Estimate)
- Proposed Allocation: ₹35,000 to ₹40,000 crore
This jump is aimed at funding high-stakes projects in next-generation warfare, including stealth technology, artificial intelligence (AI), and advanced drone systems, while reducing dependence on foreign intellectual property.
Leveling the Playing Field: Private Sector vs. PSUs
Perhaps the most transformative aspect of the upcoming budget is the proposed policy shift regarding the private sector. Sources reveal that the government aims to create a true “level playing field,” allowing private defence majors to bid on equal footing with established Public Sector Undertakings (PSUs).
Currently, giants like Hindustan Aeronautics Limited (HAL), Bharat Electronics Limited (BEL), and Mazagon Dock Shipbuilders Limited (MDL) dominate large-scale contracts. The new rules would likely:
- Simplify bidding processes to encourage private participation.
- Offer financial backing to private companies on par with the support PSUs receive.
- End the preferential treatment often accorded to state-run entities in “nomination-based” orders.
This move aligns with the trend seen in FY25, where the private sector contributed a record 23% to India’s total defence production, marking a break from the PSU-monopolized past.
Strategic Implications for ‘Viksit Bharat’
The push for a higher budget and regulatory overhaul is directly linked to the vision of ‘Viksit Bharat 2047’. By empowering private players and significantly boosting R&D, the government aims to transform India from the world’s largest arms importer into a global defence manufacturing hub.
Industry experts believe that if these proposals are accepted in the Union Budget 2026–27, it could trigger a boom in the domestic defence industry, benefiting not just major conglomerates like Tata Advanced Systems and Larsen & Toubro, but also the growing ecosystem of defence startups and MSMEs.
Stay tuned to Meghudates.in for real-time updates on the Union Budget 2026–27 and in-depth analysis of India’s defence sector.
