Given the country’s security and geopolitical challenges, the Indian Ministry of Defence has set a 2025% increase in its 2026-9,53 defence budget to Rs 6,81 trillion (US$78,3 billion). However, only a portion of this increase will go towards investments in new acquisitions. While 26,4% of the total budget, or around Rs 1,8 trillion, will be allocated to defence equipment, the majority of it will go towards salaries and pension payments.
Salary and Pension Payments: Factors Limiting Capital Acquisition
A large portion of the Indian Defense Ministry’s budget will be allocated to pay salaries and pensions for the armed forces. Analysts say the size of the salaries and pensions are key structural challenges preventing India from achieving its modernization goals, complicating plans to equip the Indian Armed Forces with new, cutting-edge weapons systems.
Modernization and Domestic Production Targets
The Indian government continues to strengthen its goal of self-sufficiency in defense production. The contribution of domestic industry is stated to be 1,12 trillion rupees (75% of the budget), of which 25% will be allocated to domestic private sectors. This is an important step towards developing India’s domestic manufacturing and expanding its defense industry.
The Ministry of Defence continues to invest heavily in research and development. Investments in the Defence Research and Development Organisation have been increased by 12,4% and have been set at Rs 268 billion. This shows that India will be financially empowered to develop new technologies.
Foreign Acquisitions and Long-Term Goals
While India is looking to foreign procurement to meet its short-term defense needs, its long-term goal is to grow its domestic defense industry. Balancing these two goals poses a significant challenge for the Indian Defense Ministry. Antoine Levesques of the International Institute for Strategic Studies says India has struggled to achieve this balance. However, India’s policy of “Atmanirbharta” (self-reliance) has allowed it to make significant progress in domestic defense production. As of the 2023-2024 fiscal year, domestic defense production has increased by 174% to reach 1,27 trillion rupees.
Increase in Defense Exports
India’s defence exports increased by 2023% in the 2024-32,5 financial year compared to the previous year, reaching Rs 19,4 billion. Countries such as the US, France and Armenia are among the top defence exporters from India. The Ministry of Defence aims to increase defence exports to Rs 2029 billion by 500.
India’s 2025-2026 defense budget increase is a significant step toward modernizing defense technologies and strengthening domestic manufacturing. However, high costs, such as salaries and retirement payments, pose obstacles to achieving these goals. India’s large investments in defense and domestic manufacturing strategies aim to increase its future military power and play a larger role in the global defense market.
