DPG Policy Brief
India’s Defence Budget 2025-26
Date: February 12, 2025
India's defence budget for FY 2025-26 comes amid a complex security landscape characterised by both external and internal security challenges, as well as global disruptions. The budget allocation of Rs 681210 crore (USD 77.4 bn) marks a 9.5% increase from the previous year, with emphasis on modernising the armed forces and enhancing indigenous defence production. However, defence spending as a percentage of GDP remains at 1.9%, posing challenges to long-term capability development.
The budget allocates 46% to revenue expenditure, which includes pay and allowances and operational preparedness, 26% is directed towards the capital outlay for acquiring new equipment, while pensions account for 24%. Continuing the trend from last year, 75% of the modernisation budget is earmarked for domestic procurement, reflecting a strong push for self-reliance.
An analysis of actual spending vs. the budgetary estimates for the last year indicates that while there is overspending under the revenue head, the capital expenditure has not been fully utilised. To ensure that modernisation is not impacted, there is thus a need to review the entire range of processes involved in the procurement procedure, including correct planning, timely approvals, and reduction of delays in trials and deliveries.
The provision for defence R&D remains meagre, with the DRDO receiving only 3.94% of the total defence budget. This allocation is insufficient for significant advancements in high-tech areas. India must enhance private sector participation, streamline procurement timelines, and leverage commercial technology to bridge gaps in defence manufacturing.
The government continues to focus on improving the border infrastructure. The Border Roads Organisation has been provided Rs 7,146.50 crore, which is 9.74% higher than the allocation for 2024-25.
The author suggests that to meet modernisation goals, of the Indian military, funds under the capital head must be allocated based on a long-term capability development plan approved by the Ministry of Finance. Currently, there is a clear disconnect between the Services' plans for modernisation and the finances allocated each year.
The 2025-26 Defence Budget reflects the Indian government's attempt to balance modernisation, operational readiness, and self-reliance amid a difficult geopolitical environment. However, moving beyond incremental capability building will require both structural reforms and technological innovation.
To read this DPG Policy Brief Vol. X, Issue 6, please click " India’s Defence Budget 2025-26”.
The budget allocates 46% to revenue expenditure, which includes pay and allowances and operational preparedness, 26% is directed towards the capital outlay for acquiring new equipment, while pensions account for 24%. Continuing the trend from last year, 75% of the modernisation budget is earmarked for domestic procurement, reflecting a strong push for self-reliance.
An analysis of actual spending vs. the budgetary estimates for the last year indicates that while there is overspending under the revenue head, the capital expenditure has not been fully utilised. To ensure that modernisation is not impacted, there is thus a need to review the entire range of processes involved in the procurement procedure, including correct planning, timely approvals, and reduction of delays in trials and deliveries.
The provision for defence R&D remains meagre, with the DRDO receiving only 3.94% of the total defence budget. This allocation is insufficient for significant advancements in high-tech areas. India must enhance private sector participation, streamline procurement timelines, and leverage commercial technology to bridge gaps in defence manufacturing.
The government continues to focus on improving the border infrastructure. The Border Roads Organisation has been provided Rs 7,146.50 crore, which is 9.74% higher than the allocation for 2024-25.
The author suggests that to meet modernisation goals, of the Indian military, funds under the capital head must be allocated based on a long-term capability development plan approved by the Ministry of Finance. Currently, there is a clear disconnect between the Services' plans for modernisation and the finances allocated each year.
The 2025-26 Defence Budget reflects the Indian government's attempt to balance modernisation, operational readiness, and self-reliance amid a difficult geopolitical environment. However, moving beyond incremental capability building will require both structural reforms and technological innovation.
To read this DPG Policy Brief Vol. X, Issue 6, please click " India’s Defence Budget 2025-26”.
