However, the increase is moderate at 4.7 per cent when compared to the Budget estimate (BE) of ₹1.72 lakh crore in FY24-25, according to the Budget FY2025-26 documents. The Ministry of Defence, however, could spend only only ₹1.59 crore of the total amount allocated last fiscal, while the remaining amount was returned to the government coffers. This showed lack of proper defence planning by services like Army, Navy and Air Force and was flagged by Defence Secretary RK Singh recently.
The Budgetary allocation for the Ministry of Defence has been pegged at ₹6.8 lakh crore – up 9.53 per cent from the BE of FY24-25. The Defence Ministry has got the highest allocation this year as well.
Fund breakup
The capital outlay of ₹1.8 lakh core, according to the Ministry of Defence, would be utilised to equip armed forces with state-of-the-art weapons for transforming them into a technologically-advanced combat ready force. This is in tune with the current geopolitical scenario where the world is witnessing a changing paradigm of modern warfare.
Out of this, ₹1.48 lakh crore is planned to be spent on capital acquisition – also termed as armed forces’ modernisation budget – while the remaining ₹31,277.20 crore has been put aside for capital expenditure on research & development (R&D) and creation of infrastructural assets across the country, the MoD stated.
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For FY 2025-26, 75 per cent of the modernisation budget, or ₹1.11 lakh crore, has been earmarked for procurement through domestic sources. Twenty-five per cent of domestic share (₹27,886.21 crore) has been provisioned for procurement through domestic private industries, the MoD stated.
“This allocation of funds will further facilitate the MoD’s plan to venture in new domains such as cyber & space and emerging technologies such as artificial intelligence (AI), machine learning and robotics etc. Some major acquisitions planned in the next year such as Long Endurance Remotely Piloted Aircraft of High and Medium altitude, stage payment of Deck-based Aircraft, next generation submarines/ships/platforms will be funded out of this allocation,” the Ministry said in statement.
The capital investment in defence manufacturing sector, observed the Ministry, has a cascading and multiplier effect on the economy, which will boost the GDP and provide greater job opportunities to the youth.
Allocation for the revenue head of the armed forces stands at ₹3.11 lakh crore, or 45.76 per cent of the total allocation. Defence Pension has got a share of ₹1.6 lakh crore (23.6 per cent), and balance amount of ₹28,682 crore (4.21 per cent) is for civil organisations under the Ministry.
The Ministry said it has decided to observe 2025-26 as the ‘Year of Reforms’ which will further strengthen the resolve of the government for modernisation of armed forces and is aimed for simplification in the Defence Procurement Procedure to ensure optimum utilisation of the allocation.
Defence Minister Rajnath Singh congratulated his Cabinet colleague and Finance Minister Nirmala Sitharaman for presenting a Budget towards fulfilling the Prime Minister’s resolve of ‘Viksit Bharat’ by 2047.
“This budget will promote the development of youth, poor, farmers, women and all other sections of society. Recognising the contribution of the middle class, the Budget has brought an unprecedented gift,” he said.
Operational and sustenance budget
Given that the deployment along the Line of Actual Control has not eased despite thaw in India-China border talks, the increased revenue expenditure is for sustenance and operational preparedness, and to take care of pay and allowances of the armed forces personnel.
Accordingly, ₹3.11 lakh crore has been allocated for this purpose which is 10.24 per cent higher than Budgetary allocation of FY2024-25. Out of this, ₹1.14 lakh crore has been allocated on account of non-salary expenditure, which will facilitate procurement of ration, fuel, ordnance stores and maintenance/repair of equipment etc.
Enhanced allocation for DRDO
The Budgetary allocation to Defence Research and Development Organisation (DRDO) has been increased to ₹26,816.82 crore in FY 2025-26 from ₹23,855.61 crore in FY 2024-25 which is 12.41 per cent higher than the BE of 2024-25.
Out of this, a major share of ₹14,923.82 crore has been allocated for capital expenditure and to fund the R&D projects, the MoD noted.
This will financially strengthen the DRDO in developing new technologies with special focus on fundamental research and hand-holding of the private parties through Development-cum-Production Partner.
Lt Gen Kapil Agarwal said, “The Government has apparently recognised the need for higher allocation for capital head of defence Budget by an increase of 13 per cent in this portion of Defence Budget 2025. However, this increase still cannot bridge the multi- decadal neglect of modernisation of Forces, which requires mega push over several years.”