New Delhi: The Centre on Sunday announced India's largest-ever defence budget, allocating Rs 7,84,678 crore to the Ministry of Defence for FY 2026-27, marking a 15.3% increase from the Rs 6,81,210 crore earmarked last year. Finance Minister Nirmala Sitharaman, presenting her record ninth consecutive budget, delivered the allocation in the first full fiscal plan since Operation Sindoor, India's May 2025 military strikes against Pakistan-based terror infrastructure following the Pahalgam attack that killed 26 civilians.

The defence outlay represents the largest single ministry allocation in the Union Budget, underscoring the government's continued emphasis on military modernisation amid evolving security challenges on India's western and northern borders.

Capital Expenditure Sees Sharpest Rise

The budget's most notable shift is a 21.84% jump in capital expenditure, with Rs 2,19,306 crore allocated for defence capital outlay compared to Rs 1,80,000 crore in FY26. This marks the steepest single-year increase in defence capex in recent memory, with capital spending now accounting for roughly 28% of the total defence budget.

Under the capital allocation, Rs 63,733 crore has been set aside for aircraft and aero engines, while Rs 25,023 crore will go toward the naval fleet. Defence services revenue expenditure, covering salaries, allowances, maintenance, and operational preparedness, was raised by 17.24% to Rs 3,65,479 crore. Defence pensions received Rs 1,71,338 crore, a 6.53% increase.

Indigenisation and Aerospace Reforms

Sitharaman announced customs duty exemptions aimed at boosting India's defence aerospace sector. The budget proposes waiving basic customs duty on components for manufacturing civilian and training aircraft, as well as raw materials imported for maintenance, repair, and overhaul activities by defence units.

The allocations arrive as the Defence Ministry processes major procurement programmes, including contracts for Rafale Marine fighter jets, additional Scorpene submarines from Mazagon Dock Shipbuilders, and advanced unmanned aerial vehicles. India's defence production reached a record Rs 1.51 lakh crore in FY 2024-25, while exports touched Rs 23,622 crore, a 12% year-on-year increase.

Reacting to the budget, Uday Kotak, founder of Kotak Mahindra Bank, called it "a budget for the real economy" with a "welcome increase in defence spend".