Union Budget 2026: Analysing the Rs 7.85 Lakh Crore Defence Sector Allocation

The Union Budget 2026 has marked a decisive step in India’s national security strategy by allocating Rs 7.85 lakh crore to the Defence sector. This represents a significant increase from the Rs 6.81 lakh crore earmarked in the previous fiscal year, reflecting a compounded commitment to military readiness and personnel welfare. By making defence one of the largest components of government expenditure, the Centre is signalling that modernising the armed forces remains a top-tier priority amidst evolving geopolitical challenges.

The fiscal framework for FY27 provides a comprehensive umbrella for the Ministry of Defence, covering everything from capital outlays to civil establishments and pensions. A substantial portion of the budget is dedicated to defence services (revenue), which encompasses the essential costs of salaries, allowances, and operational preparedness. In the previous cycle, these operational costs accounted for Rs 3.12 lakh crore, ensuring that the human element of the military remains well-supported while maintaining a high state of day-to-day combat readiness.

A key highlight of this year’s budget is the strategic pivot toward high-tech procurement and domestic Aerospace development. With capital outlays of Rs 82,218 crore for "Other Equipment" and Rs 63,734 crore for "Aircraft and Aero Engines," the government is prioritising the modernisation of its fleet and technical assets. Furthermore, the Research and Development (R&D) sector received a boost of Rs 17,250 crore, a move designed to catalyse indigenous technological breakthroughs and lessen the nation’s historical Reliance on foreign military imports.

To bolster the domestic manufacturing ecosystem, the budget introduces critical customs duty reforms that favour self-reliance. Notably, the government has proposed a total exemption of basic customs duty on components for training aircraft and raw materials used by Defence Public Sector Units for Maintenance, Repair, and Overhaul (MRO) activities. These measures are intended to transform India into a regional hub for aircraft maintenance while lowering the cost of production for indigenous defence platforms.

Beyond the hardware of war, the 2026 Budget integrates "Ease of Living" and broader economic measures that intersect with the industrial sector. For instance, the reduction of tariffs on personal imports and the duty exemptions on life-saving cancer drugs provide a social safety net, while new policies for Special Economic Zones (SEZs) allow units to sell to the Domestic Tariff Area (DTA) at concessional rates. These holistic fiscal adjustments aim to ensure that while the nation’s borders are secure, its domestic industrial capacity and public health are equally reinforced.

Defence Stocks in Focus on Budget are: Hindustan Aeronautics Ltd, Bharat Electronics Ltd, Bharat Dynamics Ltd, Mazagon Dock Shipbuilders Ltd, Cochin Shipyard Ltd, Garden Reach Shipbuilders & Engineers Ltd, Data Patterns (India) Ltd, Paras Defence and Space Technologies Ltd, Solar Industries India Ltd and Astra Microwave Products Ltd.

Disclaimer: The article is for informational purposes only and not investment advice.