Can India convert defence spend into strategic power?

Authored by - Major Akash Mor (retd), strategic management consultant and Shikha Rajput, assistant professor, Shri Ram College of Commerce, University of Delhi.

The Union Budget for FY 2026–27 signals more than a rise in defence spending. With an allocation of ₹7.85 lakh crore, close to 2% of GDP and the largest among all ministries, defence has been repositioned from a recurring expenditure line to strategic capital for long term sovereignty and industrial strength.

Budget (PTI File)

The 15.19% increase over last year’s Budget Estimates reflects a structural recalibration rather than routine expansion. In the aftermath of Operation Sindoor, the message is unmistakeable: Preparedness cannot be episodic. It must be institutional, technology driven and future ready.

Of the total allocation, ₹2.19 lakh crore has been earmarked for capital expenditure, including ₹1.85 lakh crore for capital acquisition. Crucially, 75% of this acquisition budget, ₹1.39 lakh crore, has been reserved for domestic procurement. This is the pivot. The shift is not merely fiscal. It is strategic, aimed at aligning defence spending with industrial capacity and technological depth.

Yet scale alone will not guarantee transformation. The real question is whether India can convert allocation into autonomy. Budgetary outlays increase every year. The more consequential question is how effectively they are implemented, monitored and translated into durable capability.

The enhanced allocation to DRDO, ₹29,100 crore with over ₹17,000 crore under capital, is therefore timely. However, public research institutions cannot shoulder the transformation alone. Global experience offers a clear lesson. The US built a defence innovation ecosystem around DARPA by integrating government funding with private enterprise, academia and venture capital. Israel’s tightly networked defence clusters demonstrate similar synergy.

With the increased budgetary allocation to defence R&D, India has an opportunity to move beyond traditional transfer of technology models. Adopting an approach like Israel and the DARPA framework in the US, where critical technologies are first inducted and validated by the armed forces and then scaled by private industry, could significantly accelerate capability development and deepen the industrial base. Early induction creates operational feedback loops, reduces technological uncertainty and signals credible demand to domestic manufacturers.

India now needs a comparable networked model that ensures predictable multiyear procurement pipelines, mission driven innovation programmes in critical technologies and patient capital mechanisms to support deep tech manufacturing. Without structural reform and disciplined execution, higher outlays risk reinforcing legacy systems rather than accelerating next generation capabilities.

Recent supply chain disruptions have underscored a hard reality. In defence, dependence is vulnerability. Ring fencing 75% of capital acquisition for domestic industry is, therefore, not protectionist instinct. It is strategic insurance.

However, indigenisation must not be conflated with insulation. Domestic manufacturers must compete on global benchmarks of quality, reliability and lifecycle efficiency. Import substitution without technological depth merely replaces external dependence with internal fragility.

India’s private defence sector is no longer aspirational. Companies such as Parashar Future Defence Technologies illustrate a maturing industrial ecosystem where advanced manufacturing is taking root. The challenge ahead is scale and export competitiveness. India must not only equip its own forces but position itself as a credible defence manufacturing partner to likeminded nations. Strategic autonomy is reinforced when industrial depth aligns with economic ambition.

The budget allocates ₹3.65 lakh crore under revenue heads to maintain operational readiness, alongside enhanced support for veterans’ health care through ECHS and strengthened border infrastructure via the BRO. This reflects a calibrated approach that balances force preparedness with long term capability creation.

Sustainability, however, will demand sharper lifecycle management of assets, predictive maintenance systems and indigenous spare part ecosystems. Over time, operational spending must transition from reactive expenditure to technology enabled efficiency.

Defence manufacturing is not an isolated vertical. Advanced materials research, electronics fabrication, aerospace engineering, robotics and artificial intelligence generate cross sectoral spillovers. Historically, aerospace innovation catalysed the broader American technology ecosystem. India, with its expanding MSME base, engineering talent pool and digital infrastructure, has the potential to replicate and adapt that trajectory.

If managed strategically, defence R&D can anchor a wider industrial renaissance, positioning the sector as a catalyst for high value manufacturing and deep tech innovation.

The FY 2026–27 defence allocation is fiscally ambitious. The strategic objective now must be clarity of outcomes. Three priorities stand out: Technological depth rather than assembly driven indigenisation, institutional coordination over siloed procurement, and export competitiveness over inward complacency.

Operation Sindoor demonstrated operational resolve. This budget demonstrates fiscal resolve. The next phase must demonstrate innovation resolve.

If India can translate budgetary scale into research intensity, manufacturing capability and global market presence, this allocation will be remembered not merely as the largest in its history, but as the point at which defence spending became an engine of industrial and strategic transformation.

In the 21st century, security rests as much on design capability and industrial resilience as on deterrence. The budget has created the fiscal architecture. Its success will ultimately depend on execution.

This article is authored by Major Akash Mor (retd), strategic management consultant and Shikha Rajput, assistant professor, Shri Ram College of Commerce, University of Delhi.