12 per cent hike in capital outlay for defence, aimed at boosting local industry

The Union Budget presented on February 1 has provided a 12 per cent hike in the capital outlay for the defence services for the 2025-26 fiscal, aimed at building up capability and boosting local industry. The entire defence budget, including revenue and pensions, has been pegged at Rs 6,80,209 crore, about an 9.5 per cent hike over last year’s Rs 6,21,940 crore.

Advertisement

A sum of Rs 1,79,896.30 crore has been allocated for the forthcoming financial year as compared to the revised estimates of Rs 1,59,310.46 crore for the 2024-25 fiscal, an increase of over Rs 20,000 crore. The capital outlay forms about 26 per cent of the defence allocation, which in turn accounts for 13.45 per cent of the Union Budget.

The actual expenditure on this account for the 2023-24 fiscal was Rs 1,54,163.24 crore, according to details listed in Budget documents placed in Parliament today.

“In the current geopolitical scenario where the world is witnessing a changing paradigm of modern warfare, the Indian Armed Forces need to be equipped with state-of-the-art weapons and have to be transformed into a technologically-advanced combat-ready force,” a statement issued later by the Ministry of Defence (MoD) read.

“This allocation will take care of major acquisitions planned in the ensuing financial year and bolster jointness and integration initiatives. This allocation of funds will further facilitate MoD’s plan to venture in new domains such as cyber and space and emerging technologies such as artificial intelligence, machine learning and robotics, etc,” the statement added.

Capital outlay is the amount earmarked for the acquisition of assets such as equipment or expenditure to make improvements to capital assets that materially increase their value or useful life. This is only part of the overall outlay for the defence sector and does not include other heads such as pay and allowances, establishments costs, transportation, running expenses, etc., which come under the revenue head.

Out of capital outlay, Rs 1,48,722.80 crore is planned to be spent on acquisitions, termed as modernisation budget of the Armed Forces, and remaining Rs 31,277.20 crore is for expenditure on research and development and creation of infrastructural assets across the country.

Further, to encourage the private sector in the defence sector, Rs 1,11,544.83 crore, that is 75 per cent of modernisation budget, has been earmarked for procurement through domestic sources.

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 and ships will be funded out of this allocation.

In July 2024, after the new government was formed, a total of Rs 1.72 lakh crore was earmarked for capital expenditure that includes procuring new weapons, aircraft, warships and other military hardware.

The government is laying emphasis on the development and production of indigenous defence equipment and building up the Indian industry towards this end. A large number of industrial entities across all market caps, including start-ups, are now actively engaged in the defence sector.

To improve border Infrastructure and facilitate the movement of armed forces in remote areas, Rs 7,146.50 crore has been allocated to the Border Roads Organisation (BRO) under capital head which is 9.74 per cent higher than the estimates of 2024-25.

The budgetary allocation to the Defence Research and Development Organisation has been increased to Rs 26,816.82 crore from Rs 23,855.61 crore, which is 12.41 per cent higher. Out of this, a major share of Rs 14,923.82 crore has been allocated for capital expenditure and to fund the research and development projects.

For the revenue head of the Three Services, Rs 3,11,732.30 crore has been proposed for 2025-26 against the revised estimates of Rs 2,97,222.35 crore for 2024-25, a hike of approximately five per cent. This includes Rs 2,07,520.00 crore for the Army, Rs 53,700.00 crore for the Air Force and Rs 38,149.80 crore for the Navy.

The outlay for defence pensions for 2025-26 is Rs 1,60,795 crore compared to Rs 157681 crore for 2024-25.