CHRISTCHURCH, New Zealand — India’s Ministry of Defense (MoD) announced a 9.53% rise in its 2025-2026 defense budget as the country grapples with multiple security challenges, headlined by Pakistan on its western border and tensions with China to the north.
India’s MoD is set to receive a record 6.81 trillion rupees, equating to US$78.3 billion. However, only 1.8 trillion rupees – or 26.4% of the budget – will be allocated to new acquisitions. That is because pensions account for 23.6% of the budget, while the armed forces receive 45.8% and 4.2% goes to other defense organizations.
“The primary structural problem of salaries and pensions squeezing fiscal space for capital acquisition remains,” analysts Harsh V. Pant and Kartik Bommakanti, of the Indian-based Observer Research Foundation, wrote in a report.
The MoD described 2025-2026 as a period of reforms.
“In the current geopolitical scenario where the world is witnessing a changing paradigm of modern warfare, the Indian Armed Forces need to be equipped with state-of-the-art weapons and have to be transformed into a technologically advanced combat-ready force,” reads a statement.
Although Delhi says modernization is a priority, funding for capital acquisitions has grown just 4.65% compared to last year. Upcoming big-ticket items include MQ-9B drones, carrier-borne fighters and next-generation submarines and warships.
The government continues to push the objective of self-reliance in defense production. Indeed, 1.12 trillion rupees is devoted to procurements from domestic industry, representing 75% of the overall modernization budget.
To encourage greater private-sector participation, the MoD noted 25% of this domestic share is “earmarked for acquisition from domestic private industries”.
Elsewhere, there is a 12.4% hike on defense research and development, reaching 268 billion rupees. The MoD noted, “This will financially strengthen the Defence Research and Development Organisation in developing new technologies” via research and building private-public partnerships.
Pant and Bommakanti remarked that “the pattern of allocation on armaments sends a clear signal that the domestic industrial complex is prioritized and will be encouraged.”
However, Antoine Levesques, research fellow at the International Institute for Strategic Studies, told Defense News that India faces a key challenge “in balancing the urgent requirements of its defense procurement through foreign purchases, versus fulfilling its longer-term goal of upscaling and upskilling its indigenous defense industrial ecosystem.”
India’s “Atmanirbharta” (self-reliance) defense policy is bearing fruit, according to official data. By FY2023-2024, domestic defense production had increased to 1.27 trillion rupees, up 174% compared to a decade earlier. This year, Delhi expects domestic production to reach 1.75 trillion, and even 3 trillion by 2029.
Simultaneously, Indian defense exports surged to 19.4 billion rupees in FY2023-2024, up 32.5% from a year earlier. The three top export destinations were the United States, France and Armenia.
According to the MoD statement, the defense-export goal by 2029 is 500 billion rupees.
Gordon Arthur is an Asia correspondent for Defense News. After a 20-year stint working in Hong Kong, he now resides in New Zealand. He has attended military exercises and defense exhibitions in about 20 countries around the Asia-Pacific region.
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