Defence outlay raised to Rs 7.84 lakh crore in Budget 2026-27, boost for aerospace sector

India on Sunday set aside Rs 7,84,678 crore as defence outlay for 2026-27 over the current fiscal's allocation of Rs 6.81 lakh crore, with a major increase in capital expenditure as the military focuses on modernisation in the face of security challenges from China and Pakistan.

The increase in the defence outlay, against the backdrop of the "historic success of Operation Sindoor," has further strengthened our resolve to make India's defence system even more robust, Defence Minister Rajnath Singh said.

The overall defence budget has seen a hike of 15 per cent over last year's outlay. Out of the total allocation, Rs 2,19,306 crore has been earmarked for capital expenditure to the armed forces, largely including purchasing new weapons, aircraft, warships, and other military hardware.

The capital outlay is over Rs 39,000 crore higher than the current fiscal's budgetary estimate of Rs 1.80 lakh crore. The revised capital outlay for 2025-26 has been estimated at Rs 1,86,454 crore.

Under capital expenditure, Rs 63,733 crore has been set aside for aircraft and aero engines, while Rs 25,023 crore is allocated for the naval fleet.

The revenue expenditure has been put at Rs 5,53,668 crore, which includes Rs 1,71,338 crore for pensions.

In her budget speech, Finance Minister Nirmala Sitharaman proposed exempting basic customs duty on components and parts required for the manufacture of civilian, training, and other aircraft. She also announced waiving basic customs duty on raw materials imported for the manufacture of parts of aircraft to be used in maintenance, repair, or overhaul requirements by units in the defence sector.

The two decisions are expected to help the defence aerospace industry.

Defence Minister Singh said the "most important" aspect of the budget is the modernisation of the three services. "I express my heartfelt gratitude to our Prime Minister Modi ji for allocating Rs 7.85 lakh crore for the defence sector," he said.

"Coming after the historic success of Operation Sindoor, this budget has further strengthened our resolve to make the country's defence system even more robust," he added.

Singh said a provision of Rs 2.19 lakh crore has been made for the overall capital expenditure of the armed forces. "The most important aspect of this Budget is the modernisation of our three services. For this, a provision of Rs 1.85 lakh crore has been made this year, which is approximately 24 per cent higher than the previous financial year," he said.

"As a result of this increase, our military capability will become even more powerful," Singh added.

The defence minister said the welfare of ex-servicemen and their families has also been given importance in this budget. "Under the Ex-Servicemen Contributory Health Scheme, a provision of Rs 12,100 crore has been made, which is an increase of approximately 45 per cent compared to the current year," he said.

"This budget strengthens the balance between security, development, and self-reliance," he noted.

The allocation for defence in the budget works out to around two per cent of the projected GDP for 2026-27. The defence ministry said the defence outlay focuses on modernisation, technological innovation, and streamlined procurement for optimal resource utilisation.