First budget after Op Sindoor: India hikes defence budget by 15% to Rs 7.85 lakh crore, capital outlay by 22%

This jump in capital budget allocations directly points to the government’s plans to sign multiple big-ticket contracts in the upcoming financial year, including the 114 Rafale jets from French manufacturer Dassault Aviation for the Indian Air Force, which will involve advance payments of up to 10 per cent of the contract value at the outset.

India’s Defence Research and Development Organisation (DRDO) is also collaborating with French Defence Major Safran to co-develop an aero engine to power its indigenous Advanced Medium Combat Aircraft (AMCA), which is under development at present. State-owned Hindustan Aeronautics Limited and US defence major General Electric (GE) Aerospace signed a pact two years ago to produce fighter jet engines and are set to begin commercial negotiations soon.

Interestingly, the revised estimates for aircraft and aero-engines had jumped to Rs 0.72 lakh crore in 2025-26. Among other contracts, an Inter-Governmental Agreement (IGA) between India and France, inked in April last year for the procurement of 26 Rafale Aircraft (22 Single-Seater and four Twin-Seater) for the Indian Navy, could have led to the increase.

According to senior officials, India has undertaken numerous emergency procurements following Operation Sindoor last year, and the rise in capital allocations reflects this as well.

“It can be attributed to three factors primarily, a large number of milestone payments for contracts signed last financial year or earlier, the massive amount of emergency procurements undertaken in the ongoing fiscal and a thrust on new contracts which could be signed in the upcoming fiscal, many of which could be awaiting the CCS (cabinet committee on security) approval,” a senior official told The Indian Express.

Rashtriya Rifles has also seen a significant jump in capital allocations for 2026-27, to Rs 255 crore—up from Rs 150 crore in the previous financial year—ostensibly to strengthen them with more resources, additional weapons, and equipment following Op Sindoor.

Sustenance budget

According to a statement from the Ministry of Defence, during 2025-26, up to December 2025, it concluded contracts worth Rs 2.10 lakh crore and has, so far, given Acceptance of Necessity approval for more than Rs 3.50 lakh crore.

“The upcoming projects under capital acquisition will equip the Armed Forces with next-generation fighter Aircraft, smart and lethal weapons, ships/submarines, Unmanned Aerial Vehicles, Drones, Specialist Vehicles, etc.,” it said.

The government allocated Rs 1.39 lakh crore, ie, 75 per cent of the Capital Acquisition budget for procurement from domestic industries during FY 2026-27.

In 2025-26, the government allocated Rs 6.81 lakh crore to the defence budget, which was six per cent higher than the revised estimate for 2024-25.

With the government maintaining that Operation Sindoor is still ongoing and preparations underway in terms of stocking up the military with additional platforms as well as with fuel, ammunition, and procurement of critical spares and other capabilities to maintain the assets, Rs 3.6 lakh crore has been earmarked as the Indian military’s sustenance budget for 2026-27, up by 17 per cent from the previous fiscal.

The budget for defence pensions stands at Rs 1.7 lakh crore for the upcoming financial year, to be spent on disbursing monthly pensions to more than 34 lakh pensioners through SPARSH and other pension disbursing authorities. The outlay on research and development has been raised to Rs 0.17 lakh crore in 2026-2027, from Rs 0.14 lakh crore in the previous fiscal.

The budgetary allocation to Border Roads Organisation (BRO) under Capital for BE 2026-27 has been enhanced to Rs 7,394 crore from Rs 7,146.50 crore for FY 2025-26. “The said allocation will cater to many strategically significant projects such as tunnels, bridges, airfields, etc. and will promote regional development and tourism, along with providing last-mile connectivity in the border areas,” the statement from the Ministry of Defence noted.

The total defence budget is 14.67 per cent of the Central Government expenditure and is the highest among the ministries.