Spotlight on Defence Budget 2026: Why It's Poised for a Major Boost Amid Rising Security Needs?

India's defence sector is gearing up for a potentially transformative phase as the country approaches the Union Budget 2026-27, to be presented by Finance Minister Nirmala Sitharaman on Sunday, February 1, 2026. Amid escalating geopolitical tensions, including recent South Asian challenges and the aftermath of Operation Sindoor (India's 2025 targeted strikes on terror bases in response to the Pahalgam terror attack), analysts and experts anticipate a significant boost in defence allocations to enhance military preparedness, modernisation, and self-reliance under the 'Make in India' and Atmanirbhar Bharat initiatives.

Facts & Figures

In the current fiscal (FY 2025-26), the Ministry of Defence received a record ₹6.81 lakh crore, reflecting a 9.53% increase over the previous year and marking the highest allocation among all ministries. This represented about 1.9% of GDP, continuing a downward trend in the GDP share from a peak of 2.4% in 2020-21. Capital expenditure stood at ₹1.80 lakh crore (26.43% of the total), though it lagged in proportion compared to prior years, highlighting ongoing concerns over modernisation funding versus revenue commitments like pensions.

Defence production hit a record ₹1.51 lakh crore in FY25, with exports reaching an all-time high of ₹23,622 crore (up 12.04% year-on-year). The government targets ₹3 lakh crore in production and ₹50,000 crore in exports by 2029, supported by faster approvals, expanded Positive Indigenisation Lists, defence industrial corridors, and relaxed rules to position India as a global Maintenance, Repair, and Overhaul (MRO) hub.

Market sentiment remains buoyant. The Nifty Defence Index has risen over 21% since the last Budget, with defence stocks gaining over ₹1.2 lakh crore in market capitalisation amid post-Operation Sindoor tensions. Recent Defence Acquisition Council approvals worth nearly ₹79,000 crore in late 2025 have further fueled optimism.

What are analysts saying?

Expectations for FY27 vary, but many point to a substantial hike. Analysts forecast 7-12% growth in line with recent trends, while more optimistic voices, including references to Defence Secretary's remarks, anticipate closer to 20% (or even 20-25% in some proposals) to push the GDP share toward 2.5%. Brokerages like Jefferies and others project defence capital expenditure rising over 10% (potentially 20-30% in aggressive scenarios), focusing on advanced electronics, aerospace, missiles, drones, radars, naval shipbuilding, and R&D. Experts emphasise higher allocations for indigenisation, export incentives, technology transfer, quicker procurement, and long-term order visibility.

However, some caution prevails. Analysts say that the upcoming Budget's emphasis will likely extend beyond absolute figures to reverse the declining GDP share, bolster capital investment for modernisation, and accelerate domestic manufacturing and exports. Sectors like defence electronics, aerospace, and companies such as HAL, BEL, and BDL stand to benefit most from policy tailwinds, though investors are advised to prioritise execution and alignment with indigenisation goals over short-term reactions.

Focus on robust defence infrastructure amid geopolitical challenges

India faces a tough neighbourhood. Persistent border standoffs with China, challenges from Pakistan, and recent events like Operation Sindoor have exposed vulnerabilities. Global instability, from ongoing conflicts to unpredictable alliances, means India can't rely solely on imports or old partners. Experts say this demands faster inventory replenishment, stronger air defence, drones, and multi-domain capabilities. A 20% hike isn't just wishful thinking, it's seen as essential for credible deterrence.

Defence Budget 2026 isn't just about numbers but it's about securing India's rise in a volatile world. A major boost would signal bold intent for a stronger, self-reliant, future-ready military. 

As India navigates a complex global security landscape, the defence sector remains a core long-term theme for strategic resilience and economic growth toward superpower status. The February 1 announcement will clarify whether the government delivers the bold push many anticipate.