A significant expansion in funding for military modernisation has been built into the Union budget for FY2026/27, with capital allocations rising to Rs 2.19 lakh crore, marking a 21.84 per cent increase over the previous year and underscoring a sustained push to upgrade platforms, weapons and industrial capacity.The rise follows a capital outlay of Rs 1.8 lakh crore for the Defence Ministry in FY2025/26 and reflects a multi-year effort to shift spending towards long-term capability building rather than routine expenditure. The latest figures place capital spending at the centre of defence planning, amid evolving security challenges and an emphasis on technological edge across land, sea, air and space domains.
Of the total capital allocation for FY2026/27, Rs 63,733 crore has been earmarked for aircraft and aero engines, signalling continued focus on air power, fleet renewal and propulsion technologies. The allocation covers both fixed-wing and rotary platforms, upgrades to existing fleets, and support for engine development and manufacturing, areas that have faced delays and cost overruns in the past.
Budget documents indicate that capital outlay growth has outpaced overall defence expenditure increases, reinforcing a policy tilt towards modernisation and asset creation. Over successive budgets, planners have sought to correct historical imbalances where revenue spending on salaries, pensions and maintenance limited the scope for new acquisitions. The latest increase suggests that this correction is being institutionalised rather than treated as a one-off adjustment.
Officials familiar with the budgeting process have pointed to the need to accelerate procurement cycles and close operational gaps identified through internal capability reviews. These assessments have highlighted the urgency of replacing ageing platforms, improving surveillance and reconnaissance, and enhancing precision strike and air defence capabilities. The capital allocation is intended to provide predictability to procurement pipelines, allowing contracts to be structured with clearer timelines and financing certainty.
The emphasis on aircraft and aero engines also reflects lessons from earlier programmes where dependence on external suppliers created bottlenecks. By allocating a defined share of capital spending to these segments, planners aim to support domestic manufacturing lines, joint development projects and lifecycle support infrastructure. This approach aligns with broader industrial objectives to deepen local supply chains and reduce vulnerability to external shocks.
Beyond aviation, capital funds are expected to flow into naval shipbuilding, armoured vehicles, artillery systems, missiles, electronic warfare and network-centric capabilities. Maritime allocations remain critical as fleet expansion and submarine induction programmes progress in parallel, while land systems continue to see upgrades driven by evolving battlefield doctrines and the integration of unmanned platforms.
Analysts note that the scale of the increase carries execution risks if procurement processes are not streamlined. Historically, high capital allocations have not always translated into equivalent spending within the fiscal year due to delays in contract finalisation, technical evaluations and price negotiations. The effectiveness of the FY2026/27 allocation will therefore depend on administrative capacity and coordination between the services, acquisition bodies and industry partners.
Another challenge lies in balancing immediate readiness needs with long-term research and development. While large platforms account for a substantial share of capital spending, emerging technologies such as autonomous systems, cyber capabilities and space-based assets require sustained investment that may not yield quick visible outcomes. Budget planners have indicated that a portion of capital expenditure will support such programmes, though detailed break-ups are typically disclosed during implementation stages.
The increase also has implications for the defence industrial ecosystem. Higher and more predictable capital spending can improve order visibility for manufacturers, enabling investments in tooling, skills and quality systems. This is particularly relevant for small and medium enterprises integrated into larger production chains, which often face cash-flow pressures linked to irregular procurement cycles.