The Union Budget 2026-27, presented by the Modi government, has made a serious endeavour to address the modernisation of the armed forces. The Rs 2.19 lakh crore defence budget allocation under capital head this time is 21.84 per cent more than the Rs 1.80 lakh crore allotted in 2025-26. This is a quantum jump from the norm of an average five per cent annual increase over the years, which barely catered to inflation and the depreciation of the rupee.
Overall, the defence budget has increased by 15.19 per cent from Rs 6.81 lakh crore allocated last year to Rs 7.85 lakh crore, which makes up 14.67 per cent of the central government expenditure and approximately 2 per cent of the projected GDP. Of the total allocation, 27.95 per cent has been earmarked for capital expenditure, 20.17 per cent for operational sustenance and preparedness, 26.40 per cent for pay and allowances, 21.84 per cent for defence pensions, and 3.64 per cent for civil organisations.
Modernisation — a strategic imperative
As per the Ministry of Defence, in the current geo-political scenario, a quantum jump in the modernisation budget is a strategic imperative. Out of the capital outlay, Rs 1.85 lakh crore is earmarked for capital acquisition, which is approximately 24 per cent higher than the allocation for FY 2025-26. Out of this allocation, in tune with the policy of Aatmanirbharta, 75 per cent or Rs 1.39 lakh crore is earmarked for procurement through domestic industries during the FY 2026-27.
Up to December 2025, the defence ministry has concluded contracts worth Rs 2.10 lakh crore and has, so far, given Acceptance of Necessity approval for more than Rs 3.50 lakh crore. The upcoming projects under capital acquisition will equip the armed forces with next-generation fighter aircraft, smart and lethal weapons, ships/submarines, unmanned aerial systems and specialist vehicles, etc.
The enhanced allocation will also help meet the additional financial needs arising from emergency procurement of arms and ammunition undertaken after Operation Sindoor, under both capital and revenue heads.
Probably for the only time in history, the MoD bid for a 20 per cent increase in capital budget has been fully met with an additional 1.84 per cent as a bonus. It is now for the ministry and the armed forces to fully utilise it as the issue of a Non-lapsable Defence Modernisation Fund remains suspended animation.
Reality check
The goal of Viksit Bharat 2047 will make India the third pole in the international arena. It would require transformed state-of-the-art Viksit armed forces that ensure and, if the need arises, enforce absolute strategic autonomy to safeguard its national interests. The MoD is conscious of this requirement and had emphasised it while announcing the 2025-26 defence budget last year.
The creation of Viksit armed forces requires a national security vision for 2047, a national security strategy reviewed every five years, and a national defence policy, with committed funding over two decades to transform the military. These are the fundamentals of national security and responsibility for their formalisation lies with the political government advised by the military. There is nothing in the public domain to indicate their existence.
However, despite a lack of formalised strategy and policy, in January 2025, Chief of Defence Staff General Anil Chauhan had said that Vision 2047 for the armed forces would be formalised by mid-2025 and will be released officially. He also said that as part of it, an Integrated Capability Development Plan (ICDP) would also be formalised. It is not in public domain whether Vision 2047 and ICDP have been formalised and approved by the government.
In view of the above, as per the existing functional approach to national security, the defence budget can merely cater to incremental modernisation and sustenance of the existing force. Due to inadequate budget, even incremental modernisation is years behind schedule. Acquiring 114 Rafael fighters, due to be inducted a decade ago, will now cost Rs 3.25 lakh crore ($40 billion), with the delivery of the first 18 expected to begin from 2030, if the deal is signed early 2027. A $8-10 billion submarine deal with Germany is yet to be finalised, and 31 Predator drones costing $3.5 billion have to be paid for. Development of Advanced Medium Combat Aircraft (AMCA) and two more aircraft carriers has to be funded. Dronisation of the military has to take place and autonomous systems development has to begin. Mechanised forces tank and infantry combat vehicle fleet has to be replaced with Future Ready Combat Vehicle costing Rs 57,000 crore and Future Infantry Combat Vehicle costing Rs 50,000 crore. Additional five S–400 regiments costing about $5 billion are being planned. For high-tech wars in the near future, precision-guided munitions arsenal costing thousands of crores has to be built. As a sample, each Brahmos missile costs Rs 25-34 crore and one unit of Akash missile costs Rs 2.5 crore. Each S-400 missile costs $300,000 to $2 million depending upon the type and range.
The defence budget of the current international high table of the US, China, and Russia is $839 billion, $ 313 billion (as per most analysts, actual expenditure is at least 30-50 per cent higher), and $166 billion, respectively.
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China’s rise to G2
Even President Trump acknowledged China’s rise to G2 status alongside the US. While China’s economic clout with a GDP of around $19.4 trillion is formidable, it is its military clout which is in a position to challenge the US and has propelled it to the G2 status.
Like VIksit Bharat 2047, China’s dream is of a “powerful and prosperous” nation that would acquire “great power status by 2049”. Like India, China too realised that as a great power, it requires a transformed People’s Liberation Army. It clearly defined its national security vision, strategy, and policy and began comprehensive military reforms for the transformation of the PLA in 2016.
Goals, with timelines spanning three decades, were clearly spelt out with specified goals for 2020, 2027, 2035, and 2049. For details, see my earlier article. The first two goals, aimed at being in a position to challenge the US, have already been achieved. The third goal, slated to be achieved by 2035, seeks parity with the US and thereafter consolidation would continue up to 2049.
China’s defence budget has surged from $196.54 billion to $313 billion from 2015 to 2025 while its GDP increased from $11.06 trillion to $19.4 trillion. The declared defence budget of China was approximately 2 per cent of its GDP. However, defence analysts have assessed that the actual defence spending is 30-50 per cent higher.
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The way forward
If India wants to sit at the high table in 2047, it requires radical reform in its approach to national security. National security, vision, strategy, and defence policy need to be formalised with clearly defined timelines. By 2030, India must establish an unmatchable military edge over Pakistan, by 2035 be in a position to challenge China, and by 2047 seek parity with it. To achieve this, a quantum jump is required in the defence budget. Our present budget of $86 billion is the same as that of China in 2010-11. We are 16 years behind in terms of budget allocation and a decade behind in beginning our transformation.
India’s defence budget must immediately surge to 4 per cent of the GDP for a decade and be kept at 3 per cent or more thereafter. At a constant growth rate of 7 per cent, the Indian economy will double in size in 10 years and will hit $8 trillion by 2035. By 2047, it will be approximately $19 trillion. At 8 per cent growth, it will become $9.5 trillion by 2035, and $23 trillion by 2047. A surge to 4 per cent of the GDP at the current growth rate would take our defence budget to $320-380 trillion in 2035, at par with what China’s declared budget is likely to be in 2026.
At 4 per cent of the GDP, our current defence budget would jump to $170 billion, more than Russia’s present budget. And if holistic military reforms are undertaken, by 2035, militarily, India will be in the same position as China is to the US today — a challenger that must be treated as an equal.
To sum up, the enhanced defence budget of Rs 7.85 lakh crore with Rs 2.19 lakh crore as capital outlay is good but not good enough for Viksit armed forces 2047.
Lt Gen H S Panag PVSM, AVSM (R) served in the Indian Army for 40 years. He was GOC in C Northern Command and Central Command. Post retirement, he was Member of Armed Forces Tribunal. Views are personal.
(Edited by Aamaan Alam Khan)