Union Budget 2025: Defence budget falls short of expectations

The Union Budget 2025-26 earmarked ₹6.81 lakh crore — or 13.4% of total Central government expenditure — for the Ministry of Defence (MoD). Of the MoD’s total budget, ₹4.92 lakh crore, or 72%, is meant for the Defence Services (primarily the Army, Navy, Air Force and the Defence Research and Development Organisation).

About ₹1.61 lakh crore — amounting to 24% of the MoD’s total outlays — is provisioned to meet the pensionary expenses of the defence services; and the balance ₹28,683 crore, or 4%, to cater for the ‘civil organisations’ of the MoD, which include, inter alia, the Border Roads Organisation and the Indian Coast Guard.

Coming in the backdrop of a volatile regional and global security environment, the MoD’s budget and its distribution among various heads, evokes several pertinent questions, including about its adequacy to meet the needs of the defence forces and its impact on indigenisation that the Modi government pursues through its flagship ‘Make in India’ initiative.

On the question of adequacy, the MoD’s budget falls short of expectations. Although the MoD’s budget has been hiked by a decent 9.53%, much of the hike will be neutralised by the prevailing inflation (about 5%) and a weakening domestic currency vis-à-vis the U.S. dollar.

Little freedom

To further compound the problems of high inflation and a depreciating rupee, the MoD budget has little freedom to improve the firepower of the defence forces. Historically the defence budget has been dominated by the manpower cost. The salary and pension in the MoD’s latest budget accounts for 53%, leaving the balance to thinly spread on a host of other critical items of expenditure which are vital for modernisation and operational preparedness of the armed forces.

The capital expenditure of the defence services, much of which is spent on capital acquisitions and is vital for defence modernisation, has been pegged at ₹1.8 lakh crore — an increase of 4.7%. Notably this marginal increase has come after over 7% reduction in the previous capital budget.

The under-utilisation of previous budget and marginal increase in the capital expenditure will slow down the modernisation and indigenisation process going forward. Nonetheless, the MoD plans to sign several mega contracts, including for long endurance drones, deck-based fighters and next-generation submarines in the coming fiscal year, while sticking to the same indigenisation plan as articulated in the previous budget. To promote Make in India in defence, the MoD has earmarked 75% of its new capital procurement budget of ₹1.49 crore for procurement from the domestic industry, with 25% the domestic share being reserved for the Indian private sector.

While a big share for the domestic industry is a welcome step, to put both the modernisation and indigenisation on a fast track, the MoD requires a much bigger kitty than it has got in the successive union budgets. As a percentage of the Gross Domestic Product (GDP), the MoD’s latest budget amounts to a just 1.9% — a share too low for a country that faces two nuclear rivals. The government urgently needs to step up its spending on defence to at least 2.5% of GDP in the near- to medium-term and to 3% thereafter for a credible defence.

(The author is Associate Professor at the Special Centre for National Security Studies, Jawaharlal Nehru University, New Delhi.)