Budget 2026 expectations for defence: Why capital outlay should be hiked for ‘Atmanirbharta’ - 4 points to focus on

Budget 2026 for defence: Finance Minister Nirmala Sitharaman’s Union Budget 2026 should look to prioritise growth-enhancing productive capital expenditure, with a special focus on the defence sector at a time when the global environment is marked with uncertainty, says FICCI in its pre-Budget memorandum.

According to the industry body, India needs to lay special emphasis on technology-driven defence innovation. “India’s external security environment today is marked by heightened uncertainty and rise in disputes and conflicts. India’s adversaries are investing heavily in advanced military technologies such as autonomous weapons, hypersonic systems, UAV swarms, and AI-enabled warfare, posing heightened risks. A strong, modern, and well-resourced defence architecture has thus become critical for safeguarding India’s territorial integrity and preserving strategic autonomy,” FICCI has said in its Budget 2026 wishlist.

Defence Budget 2026 - 4 Point Approach

FICCI has advocated for higher emphasis on ‘Atmanirbharta’ in defence, with modern techniques using artificial intelligence, and not just platform-driven enhancements.

“Future warfare will be defined by technology-driven, multi-domain and information-centric operations. Conflicts will increasingly span land, air, sea, cyber, space and electromagnetic spectrum domains. For India, preparing for such challenges requires a shift from platform-centric to networked, integrated, AI-enabled capabilities backed by robust indigenous defence innovation,” it says.

According to FICCI, increasing the defence budget should not just be about a budgetary choice but a strategic imperative. So what should the Union Budget 2026 for defence focus on? FICCI advocates a four-pronged approach:

• FICCI notes that in Budget 2025, the Ministry of Defence was allocated Rs 6,81,210.27 crore for FY 2025–26. This was a 9.53% rise over the Budget Estimates for FY 2024–25. The industry body suggests that while the government maintains the growth of approximately 10% in the overall budgetary support for the Ministry of Defence in the coming year, the share of capital outlay should be increased to 30% from around 26% earlier. “Additional capital outlay will help in modernisation of military infrastructure, particularly for investments in frontline assets, UAVs, counter UAV systems, electronic warfare systems and air defence systems in border areas,” it says.
• FICCI is of the view that the budgetary allocation for the Defence Research and Development Organisation (DRDO) needs to be stepped up. Last year the budget was increased by 12.4% to Rs 26,816.82 crore in FY 2025–26. “The overall allocation for DRDO should be increased by Rs 10,000 crore in the upcoming budget. This will financially strengthen the DRDO in developing new technologies with special focus on fundamental research for frontier technologies in collaboration with private parties through flagship scheme of DRDO i.e. Technology Development Fund and will assist the development of Deep Technology in the defence sector.”
• The industry body notes that under the Atmanirbhar Bharat initiative, the government has made notable progress in defence indigenisation through setting up of Defence Industrial Corridors in the states of Uttar Pradesh and Tamil Nadu. This momentum needs to be strengthened further, says FICCI, advocating for establishing an Eastern India Defence Industrial Corridor. “Synchronising with the ‘Purvodaya Scheme’ , it would rejuvenate the industrial clusters in Eastern India and shall spur job creation, stimulate R&D, and establish India as a global hub for defence exports, while securing national interests across all three borders,” FICCI says.
• Budget 2026 should also focus on giving an impetus to defence exports which have risen at a compound annual growth rate of 46% between 2016–17 and 2023–24. This has largely been driven by higher exports from private sector firms. The central government aims to achieve defence exports worth Rs 50,000 crore by 2028-29. FICCI suggests that the government considers setting up a Defence Export Promotion Council (DEPC) that can co-ordinate with armed services, their foreign directorates, DPSUs, private manufacturers, MEA, Indian embassies, and MoD and communicate with foreign governments and buyers.