The Centre has allocated ₹7.8 lakh crore to the Defence Ministry for 2026–27, marking a 15% increase over the previous year. Of this, Rs 2.19 lakh crore has been set aside for modernisation of the armed forces under the Capital Outlay budget.
The capital outlay has seen a sharp rise of 21.84%, increasing from ₹1.80 lakh crore in FY25–26 to ₹2.19 lakh crore in FY26–27. This higher allocation comes as the Defence Ministry prepares for major projects, including contracts for Rafale fighter jets, submarines and unmanned aerial vehicles.
The Defence Services (Revenue) budget has been allocated Rs 3,65,478.98 crore, while Capital Outlay has received ₹2,19,306.47 crore, reflecting increases of 17.24% and 21.84%, respectively. The allocation for Defence Pensions has also gone up, with the Centre earmarking ₹1,71,338.22 crore.
However, the Defence Budget (Civil) has been slightly reduced by 0.45 per cent compared to last year’s allocation of ₹28,554.61 crore.
To support the defence manufacturing ecosystem, Union Finance Minister Nirmala Sitharaman announced a customs duty exemption, saying, “It is proposed to exempt basic customs duty on raw materials imported for the manufacture of parts of aircraft to be used in maintenance, repair or overall requirements by units in the defence sector.”