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As Union finance minister Nirmala Sitharaman prepares to present the Union Budget for 2026–27 on February 1, defence expenditure has once again moved to the centre of policy discussions. Although it is always a matter of interest to the experts about how one of the world’s largest economies spends on its defence, the backdrop is very different from a few years ago. Geopolitical tensions have intensified, conflicts have become more technology-driven and India’s own security calculus has expanded beyond conventional threats to include cyber warfare, space and hybrid challenges. Against this setting, The Times of India Online spoke to a range of economists and policy experts to assess whether India needs a substantial hike in its defence budget and, just as importantly, how such spending should be structured.The broad consensus is clear – there is a strong case for higher defence spending. However, experts are equally emphatic that the answer does not lie in indiscriminate increases. Instead, they argue for a sustained, carefully calibrated rise in defence capital expenditure, anchored in domestic manufacturing, technological capability, and long-term strategic planning.

The macro picture: Rising numbers

At first glance, India’s defence budget has been on a steady upward trajectory. According to the official data, total defence expenditure has increased from about Rs 2.94 lakh crore in 2015–16 to Rs 6.81 lakh crore in 2025–26 (Budget Estimates). Defence capital expenditure, which funds modernisation and new acquisitions, has also grown in absolute terms—from Rs 83,614 crore in 2015–16 to Rs 1.92 lakh crore in 2025–26 (BE).Yet, some experts believe in viewing the defence budget against the size of the economy. Defence expenditure as a share of nominal GDP has declined over the past decade. In 2020–21, total defence spending stood at around 2.4% of GDP. By 2024–25 (RE) and 2025–26 (BE), this ratio had slipped to about 1.9%. Defence capital expenditure has remained largely flat at around 0.5–0.6% of GDP for most of this period. For many experts, this trend is a cause for concern. Dr DK Srivastava, chief policy advisor at EY India, said there is “a very strong case” for increasing India’s defence budget, particularly capital spending. He argued that total defence expenditure should be raised to at least 3% of nominal GDP and maintained at that level. “The share of defence capital expenditure in the government of India’s total expenditure needs to go up in a sustained manner,” he said.But another important point to note is that as GDP grows, even a stable or slightly lower percentage can still mean a larger absolute defence budget. India also ranks among the top 10 countries in terms of military expenditure. According to Stockholm International Peace Research Institute (SIPRI) data, India spent $86 billion on military in 2024 – the 5th highest in the world.

Security environment and the case for higher capex

India’s security environment is one of the primary drivers behind calls for higher defence spending, especially after Operation Sindoor. Yuvika Singhal, economist at QuantEco, said that given the challenges emanating from India’s neighbourhood, a higher defence capex outlay is a “natural corollary”. According to her, such spending should be channelled towards military modernisation and strengthening indigenous production under the Aatmanirbhar Bharat framework.This argument finds support in recent budget trends. In Union Budget 2025–26, the government allocated a record Rs 6.81 lakh crore to the ministry of defence, a 9.53% increase over the previous year. Of this, Rs 1.80 lakh crore was earmarked for capital outlay for the armed forces, with Rs 1.12 lakh crore reserved for procurement from domestic industries. The emphasis on indigenous sourcing reflects a broader strategic objective: reducing import dependence while building domestic industrial capacity.This push towards self-reliance has already begun to show tangible results. India’s indigenous defence production touched a record Rs 1,27,434 crore in FY 2023–24, marking a 174% jump from Rs 46,429 crore in 2014–15, driven by sustained policy support under the Atmanirbharta push, as per the official data.Madan Sabnavis, chief economist at Bank of Baroda, believes this direction will continue and intensify, in Budget 2026. “Given the developments last year, there is a strong case to focus a lot on defence,” he said, adding that capital expenditure for defence could see a higher increase compared to other infrastructure-heavy sectors such as roads or railways.

Global trends and fiscal realism

While the strategic rationale for higher defence spending is widely accepted, experts also caution against ignoring fiscal and execution realities. Ranen Banerjee, partner and government sector leader at PwC India, said defence spending has become a priority globally, with most countries ramping up allocations in response to geopolitical uncertainty.However, he stressed that budgetary allocations must be aligned with procurement and absorption capacity.“If it is over-budgeted and under-spent, it may lead to some other deserving sectors missing out on allocations,” Banerjee said. This view shows the importance of reforms alongside funding. The ministry of defence has repeatedly highlighted simplification of defence procurement procedures, greater use of multi-year contracts, and faster decision-making as critical enablers for effective utilisation of funds. Without such changes, experts warn, even large budgetary increases may not translate into real capability enhancement.Recent policy steps point in this direction, with the government simplifying export authorisation processes, rationalising standard operating procedures for defence exports, and rolling out a fully end-to-end digital portal to reduce time and paperwork for exporters. Open General Export Licences (OGEL) and digital authorisations have further eased routine exports.

Defence versus other capex priorities

Another layer of complexity comes from competing demands on government capital expenditure. Sujan Hajra, chief economist and executive director at Anand Rathi Group, pointed out that defence already accounts for a sizeable portion of India’s capex. In FY25, defence capex was around Rs 1.8 lakh crore, representing roughly 16% of total capital expenditure.Hajra expects that going forward, allocations to defence may rise at a relatively slower pace compared to sectors like roads and railways, which together command over 45% of capex. According to him, the government may seek to balance security imperatives with growth-enhancing infrastructure spending, particularly as it pushes towards its goal of becoming a developed nation by 2047.However, other experts argue that this need not be a zero-sum game. Rishi Shah, partner and economic advisory services leader at Grant Thornton Bharat, said that when designed properly, defence expenditure can reinforce economic growth rather than crowd it out. “The answer is not an indiscriminate increase in defence outlays, but a strategic reorientation of spending toward domestic manufacturing, R&D, innovation and technology absorption,” Shah said. Such an approach, he added, would “strengthen strategic autonomy and industrial capabilities, ensuring that security imperatives reinforce—rather than dilute—India’s long-term economic trajectory.”

Sustained increases, not one-off jumps

Another theme that occurred in expert responses is the need for predictability and continuity. Sachchidanand Shukla, group chief economist at Larsen & Toubro, said there is a case for “sustained rather than just one-off” hikes in defence capex. Large defence projects often span multiple years, and erratic funding patterns can lead to delays, cost overruns, and suboptimal outcomes.Data from the past support this argument. Defence capital expenditure growth has been uneven, with sharp spikes in certain years—such as a 20.6% rise in 2020–21—followed by more modest increases or near stagnation in others.Experts say a steady, multi-year commitment would enable better planning by both the armed forces and domestic industry.

Linking defence spending to Aatmanirbharta

Almost all experts emphasised the importance of tying higher defence spending to indigenous manufacturing. Rumki Majumdar, economist at Deloitte India, said that given rising geopolitical uncertainties, a calibrated increase in defence spending would be prudent, provided it is linked to domestic manufacturing and technology spillovers.This approach aligns with recent policy signals. The government has increasingly earmarked a large share of the defence modernisation budget for domestic procurement. As per data for 2025–26, 75% of the modernisation budget was reserved for procurement from domestic sources, with a significant portion specifically allocated to private sector participation.The private sector’s role in defence manufacturing has been steadily expanding. While Defence Public Sector Undertakings (DPSUs) still account for about 77% of total defence production, the private sector’s share rose from 21% in FY 2023–24 to 23% in FY 2024–25, reflecting its growing importance in India’s defence ecosystem.Experts say this shift could have long-term economic benefits. Defence manufacturing is capital-intensive, technology-driven, and has strong multiplier effects. Investments in areas such as aerospace, electronics, artificial intelligence, and robotics can spill over into civilian industries, boosting productivity and employment.

R&D, innovation and future warfare

Another area where experts see scope for deeper integration is defence research and development. The 2025–26 Budget allocated Rs26,816.82 crore to the Defence Research and Development Organisation (DRDO), a 12.4% increase over the previous year, with a large share earmarked for capital expenditure and collaborative projects with private players.Rishi Shah and others argue that future increases in defence budgets should prioritise R&D and innovation rather than just traditional platforms. Modern conflicts increasingly rely on cyber capabilities, space assets, unmanned systems, and data-driven warfare. Investing in these areas, experts say, will not only enhance security but also position India as a technology leader.India’s growing strength in indigenous platforms is also reflected in its export basket, which now includes products ranging from bulletproof jackets, patrol boats and helicopters to radars and lightweight torpedoes. While programmes like the Tejas fighter aircraft continue to mature, India’s current export strength lies in a wide array of proven, operational systems and components.

Defence exports: From marginal player to global supplier

India’s defence exports have emerged as a key pillar of the self-reliance story. Defence exports reached a record Rs 23,622 crore in FY 2024–25, registering a 12.04% increase over Rs 21,083 crore in FY 2023–24. Of this, private sector exports accounted for Rs 15,233 crore, while DPSUs contributed Rs 8,389 crore.India supplied defence equipment—ranging from ammunition and arms to complete systems and critical sub-systems—to around 80 countries in 2024–25.

Exports to nations such as the US, France and Armenia highlight growing global acceptance of Indian defence products. Notably, DPSU exports surged 42.85% year-on-year, reflecting their deeper integration into global supply chains.The government has set ambitious targets of achieving Rs 3 lakh crore in defence manufacturing and Rs 50,000 crore in defence exports by 2029, positioning defence exports not just as a commercial activity but also as a tool of strategic diplomacy and global engagement.

What to watch in Budget 2026

As Sitharaman presents her ninth consecutive budget, a record in recent decades, the defence allocation will be closely scrutinised. Experts say key signals to watch include the growth rate of defence capital expenditure relative to revenue spending, the share of domestic procurement, allocations for R&D and emerging technologies, and whether the government outlines a multi-year roadmap for defence spending.With global uncertainties unlikely to ease anytime soon, the challenge for policymakers is to balance security imperatives with fiscal prudence and growth priorities. The expert consensus suggests that India does need to spend more on defence, but how it spends may matter even more than how much it allocates.