Sanjha Morcha

Defence Budget 2025-26: The Need To Enhance Allocation To 3 Per Cent of GDP For Modernisation

by Col Dr P K Vasudeva

Finance Minister Nirmala Sitharaman while presenting the Union Budget on 1st February 2025 has set aside over ₹6.81 lakh crore for the defence sector for FY2025-26, an increase of 9.53 per cent from the ₹6.2 lakh crore allocated last year. This includes upgrading of fighter jets, naval vessels, improving missile defence systems; strengthening cyber capabilities; focus on “Atmanirbhar Bharat” (Self-reliant India) and welfare of both active and retired armed forces personnel.

Previously, the capital budget clearly outlined allocations for each of the three services, with separate sub-heads for the army, navy, and air force. However, since the last Budget, these allocations have been consolidated into a single grouping, making it difficult to distinguish the funding designated for each service. The capital outlay for 2025–26 has been set at ₹1.8 lakh crore, compared to ₹1.72 lakh crore in the previous fiscal year. This funding is crucial for the modernisation of the armed forces and the procurement of advanced systems, equipment, and weaponry.

The capital expenditure, ₹48,614 crore has been set aside for aircraft and aero engines, while ₹24,391 crore has been allocated for the naval fleet and an amount of ₹63,099 crore has been set aside for other equipment.

A substantial chunk of the budget—₹3.11 lakh crore—has been allocated for revenue expenditure, up from ₹2.83 lakh crore in 2024–25. The increase highlights the government’s focus on maintaining operational readiness and sustaining ongoing activities. The rise in allocation reinforces India’s commitment to keeping its armed forces battle-worthy and capable of responding to emerging security threats.

Another key aspect of the budget is the larger contribution to defence pensions, which have risen from ₹1.41 lakh crore in 2024–25 to ₹1.6 lakh crore in 2025–26, marking a 13.5 per cent increase. The allocation would ensure financial security for retired defence personnel and their families, reinforcing the government’s commitment to their welfare. The increase in pension funding would account for the growing number of retirees.

In order to further improve the border Infrastructure and facilitate the movement of Armed Forces personnel through tough terrains, ₹7,146.50 crore has been allocated to Border Roads Organisation (BRO) under capital head which is 9.74 per cent higher than the BE of 2024-25.

The Ministry of Defence (Civil) has been allocated ₹28,682 crore for 2025–26, up from ₹25,963 crore in the previous year to shore up administrative and auxiliary functions essential for effective defence management. The funds are expected to be used for policy planning, research, and support systems that enhance the overall efficiency of the defence forces.

The government’s focus on capital expenditure aligns with its broader strategy to build indigenous defence capabilities under the Atmanirbhar Bharat initiative. The allocation is expected to support the acquisition of next-generation platforms such as fighter jets, submarines, and drones, as well as infrastructure development for the armed forces. It also shows that India is keeping an eagle’s eye on evolving geopolitical challenges and aims to maintain a strong strategic posture along its borders, including the Line of Control (LoC) and Line of Actual Control (LAC).

The MoD has designated 2025 as the “Year of Reforms”, announcing in December that the Defence Acquisition Procedure (DAP) 2020 is “expected to undergo a complete revamp” this year.

Coming in the backdrop of a volatile regional and global security environment, defence allocations and its distribution among various heads, evokes several pertinent questions, including its adequacy to meet the needs of the defence forces and its impact on ‘Atmanirbharta’. Neighbouring countries, particularly China, continue to advance their military capabilities, including enhancements in air power and naval fleets. The budget is a testament to the government’s strategic intent to strengthen military preparedness as India navigates an ongoing standoff with China while also addressing security concerns along its western border with Pakistan.

The government has set an ambitious target to more than treble the defence production to ₹3 lakh crore by FY29 and raise exports to ₹50,000 crore. India has been ramping up exports as well. Indian arms have found markets in east and southeast Asia over the last five years. Myanmar and Vietnam were the two major recipients of arms transfers from India. India is close to signing a ₹3,800 crore deal with Indonesia for indigenously developed supersonic BrahMos missiles. The country’s defence exports have grown over 10 fold in the last decade from ₹1,900 crore in 2014-15 to ₹21,000 crore in 2023-24.

The IAF needs much more funds in capital allocation as its present combat effectiveness is poor because it has a shortage of more than 114 combat aircrafts for its battle worthiness. Parliamentary standing committee on Defence informed that the IAF has only 31 fighter squadrons, against the sanctioned strength of 42 which is serious. The IAF is unhappy with the current pace of the Tejas light combat aircraft (TEJAS MK-1A) program because of the possible risks a delay in the induction of new fighter planes could pose to the air force’s combat effectiveness, and has flagged the hot-button issue to plane maker Hindustan Aeronautics Limited (HAL), calling for timely execution of the ₹48,000-crore contract for 83 jets.

The infantry also needs enhanced allocation of funds because there is a shortage of night vision and nights firing weapons resulting in heavy casualties in Jammu and Kashmir when the troops go on patrolling in the hazardous and rugged terrain to carry out anti-terror operations.

The defence spending as a share of GDP pertaining to United States is 3.2 per cent; India 1.9-2 per cent (following the increase) and China 1.5 per cent (real figures are much higher higher). There is a need for India to enhance its defence allocation to 2.5 – 3 per cent of the GDP for modernisation keeping in view the threat perception from China and Pakistan.

Col Dr P K Vasudeva is a Defence Analyst