India’s Ministry of Defence (MoD) plans to seek a 35% increase in its military modernisation budget for the financial year 2027–28 (FY28), potentially marking the sharpest annual rise in at least a decade if approved. Defence Secretary Rajesh Kumar Singh announced the proposed increase on October 9, 2026, as the government looks to accelerate weapons procurement, strengthen military readiness and expand India’s domestic defence manufacturing capabilities.
The proposed increase would follow a 24.4% rise in the modernisation capital acquisition budget for FY27, when the allocation reached ₹1.85 lakh crore. However, the 35% increase is a request rather than an approved allocation. Singh acknowledged that the Ministry of Finance might not grant the full amount, adding that the defence establishment would seek an increase closer to 25% if its larger request is not accepted.
Key takeaways
- The Ministry of Defence will seek a 35% increase in modernisation funding for FY28.
- Defence Secretary Rajesh Kumar Singh said the ministry would be hopeful of securing an increase closer to 25% if the full request is not granted.
- The FY27 modernisation capital acquisition budget stands at ₹1.85 lakh crore, up 24.4% from the FY26 Budget Estimate.
- A 35% increase on the FY27 allocation would imply approximately ₹2.50 lakh crore, while a 25% increase would imply about ₹2.31 lakh crore. These are illustrative calculations, not approved budget figures.
- The ministry signed capital acquisition contracts worth more than ₹2 lakh crore in each of FY25 and FY26.
- The proposed increase would support procurement of military equipment and could create opportunities for Indian defence manufacturers, subject to actual allocations and contract awards.
Why India Wants a Larger Defence Modernisation Budget
The proposed budget increase reflects the government’s focus on modernising the armed forces and addressing long-term equipment requirements across the Army, Navy and Air Force.
Modernisation funding is used to acquire military platforms and equipment, including fighter aircraft, naval vessels, tanks, missiles, ammunition, radar systems, electronic warfare equipment and unmanned aerial vehicles. These purchases are distinct from much of the routine expenditure needed to pay salaries, pensions and maintain existing forces.
The modernisation budget is particularly important because major defence acquisitions often involve lengthy procurement cycles, substantial upfront payments and multi-year delivery schedules. A larger allocation can help the ministry progress projects that have already received approval while providing room for additional contracts.
Speaking at the Society of Indian Defence Manufacturers’ annual session in New Delhi, Singh said the ministry had fully utilised its revised modernisation capital allocations in recent years. He also pointed to the increase in the current financial year’s allocation as a reason for seeking a larger budget in FY28.
The request comes as India seeks to maintain operational readiness while expanding domestic defence production. The government has also emphasised the need to reduce dependence on imported equipment in areas where Indian manufacturers can supply capable alternatives.
However, a larger budget alone does not guarantee faster modernisation. The actual pace of procurement depends on project approvals, contract negotiations, production capacity, testing, infrastructure readiness and the ability of manufacturers to deliver equipment on schedule.
FY28 Defence Modernisation Budget: Potential Numbers
The proposed 35% increase would represent a substantial rise from the current modernisation allocation. The following calculations illustrate the potential scale of the request.
| Budget item | Amount |
|---|---|
| FY26 modernisation capital acquisition Budget Estimate | ₹1,48,723 crore |
| FY27 modernisation capital acquisition allocation | ₹1,85,000 crore |
| FY27 year-on-year increase | Approximately 24.4% |
| Illustrative FY28 allocation with a 25% increase | ₹2,31,250 crore |
| Illustrative FY28 allocation with a 35% increase | ₹2,49,750 crore |
Source: Business Standard reporting and parliamentary defence-budget data. FY28 figures are calculations based on the ₹1.85 lakh crore FY27 allocation; they are not official government estimates.
If the ministry receives the full 35% increase, the modernisation budget could approach ₹2.50 lakh crore. Even a 25% increase would lift it to approximately ₹2.31 lakh crore.
These amounts refer specifically to the modernisation capital acquisition component, not the entire defence budget. India’s total defence allocation for FY27 is approximately ₹7.85 lakh crore, covering a much wider range of expenditure.
The distinction is important when comparing the proposed increase with the overall defence budget. A 35% rise in the acquisition allocation would not mean that total defence spending would automatically increase by the same percentage.
The final FY28 allocation will be determined through the Union Budget process. The Ministry of Defence must make its case for additional funding, and the Ministry of Finance will assess the request alongside competing demands on government expenditure.
India’s Defence Budget Has Already Increased Sharply
The proposed FY28 increase follows a substantial expansion in the current year’s capital spending.
In the FY27 Union Budget, the capital outlay on defence services rose to approximately ₹2.19 lakh crore, compared with the FY26 Budget Estimate of ₹1.80 lakh crore. Within that capital outlay, ₹1.85 lakh crore was earmarked for capital acquisition, the principal modernisation component.
The overall Ministry of Defence allocation for FY27 was approximately ₹7.85 lakh crore, up 15.19% from the previous year’s Budget Estimate, according to the government’s budget summary.
| Financial year | Modernisation capital acquisition allocation | Annual change |
|---|---|---|
| FY25 | ₹1,40,691 crore | Approximately 6.3% |
| FY26 | ₹1,48,723 crore | Approximately 5.7% |
| FY27 | ₹1,85,000 crore | Approximately 24.4% |
| FY28 | Not yet announced | MoD seeking a 35% increase |
Figures are Budget Estimates for the modernisation capital acquisition component; the FY28 figure remains unannounced.
The jump in FY27 was considerably larger than the increases seen in the preceding two Budget Estimates. The ministry is now seeking another significant increase, arguing that a higher allocation would allow it to continue modernising the armed forces and maintain the pace of equipment procurement.
The proposed FY28 increase would also come against a broader fiscal backdrop. The government must balance defence requirements against infrastructure spending, social-sector programmes, interest payments and other public expenditure.
For that reason, the final amount could differ from the defence ministry’s request even if the government agrees with the underlying need for additional military investment.
Capital Acquisition Contracts Have Crossed ₹2 Lakh Crore
Singh said the ministry signed capital acquisition contracts worth more than ₹2 lakh crore in both FY25 and FY26, while fully utilising the modernisation capital budget in those years.
He also said the pace of contract signing had roughly doubled. The value of annual contracts had previously been in the range of ₹80,000 crore to ₹1 lakh crore, according to his remarks, before rising to more than ₹2 lakh crore annually.
This increase matters because budget allocations and signed contracts measure different stages of defence procurement.
An allocation gives the government authority to spend up to a specified amount under the relevant budget head. A contract establishes an agreement to purchase equipment or services, subject to its terms. Actual expenditure and delivery may occur over several years.
The growing value of contracts indicates that the ministry has been moving more acquisition programmes into the contracting stage. A higher FY28 allocation could provide additional capacity to sign contracts and make scheduled payments under existing procurement programmes.
Nevertheless, the relationship between allocations and contracts is not automatic. Large acquisitions require technical evaluations, price negotiations, clearances and production planning. Delays at any of these stages can affect when money is spent and when the armed forces receive equipment.
Which Defence Equipment Could Benefit?
The proposed budget increase could support acquisitions across all three services, although the ministry has not announced a specific list of equipment that would receive additional funding under the FY28 request.
Indian Air Force
The Air Force requires modern aircraft, engines, air-defence systems, radar equipment, missiles and supporting infrastructure. These programmes can involve large capital commitments and extended delivery schedules.
Aircraft and aero-engine procurement received a substantial allocation increase in FY27. Additional funding in FY28 could provide more room for approved aviation projects and other capability requirements, depending on the government’s final priorities.
The Air Force’s modernisation needs also extend beyond purchasing new aircraft. Upgrades, spare parts, training systems, maintenance infrastructure and weapons integration can affect the operational availability of existing fleets.
Indian Navy
Naval modernisation includes warships, submarines, naval aircraft, marine engines, surveillance systems and maritime weapons.
Many naval programmes are developed over several years, making predictable funding important for shipyards and suppliers. A higher acquisition allocation could help support approved projects and the associated payment schedules.
India’s maritime requirements also include monitoring activity across the Indian Ocean and protecting sea lanes. The precise allocation between new platforms, upgrades and other capabilities will depend on the services’ priorities and the procurement decisions approved by the government.
Indian Army
The Army’s acquisition requirements include artillery systems, armoured vehicles, missiles, ammunition, communications equipment, surveillance systems and electronic warfare capabilities.
Modernisation also requires equipment suited to different operational environments, from high-altitude terrain to desert and plains regions. Procurement decisions must account for reliability, maintainability, training and the availability of ammunition and spare parts.
A higher budget could help advance these requirements, but no individual programme should be assumed to have secured additional FY28 funding until the government announces its allocations and procurement decisions.
What the Proposed Increase Means for Indian Defence Manufacturers
A larger modernisation budget could create opportunities for domestic defence manufacturers if the additional money translates into new orders, faster procurement and higher production volumes.
India has been encouraging domestic production through procurement preferences, industrial partnerships and programmes designed to strengthen local manufacturing. These initiatives aim to develop capabilities in areas such as aircraft, ships, artillery, electronics, missiles, drones and defence components.
Potential beneficiaries could include public-sector defence manufacturers, private-sector engineering companies, electronics suppliers, shipbuilders and smaller component makers. However, the effect would vary by programme. A budget increase does not guarantee that a particular company will receive a contract or that an existing order will be delivered earlier.
For manufacturers, the timing of procurement decisions can be as important as the headline allocation. Companies may need to invest in production facilities, skilled workers, testing systems and supplier networks before they can meet larger orders.
The ability to deliver equipment at the required quality and pace will therefore be an important factor in converting higher defence spending into industrial growth.
Domestic procurement can also reduce reliance on imports in selected categories, but the outcome depends on the availability of competitive Indian products and the technical requirements of the armed forces. India may continue to import some specialised equipment and components even as domestic production expands.
Defence Spending and India’s Share of GDP
Singh also argued that India should address the relatively low share of economic output devoted to defence compared with the country’s population and security requirements.
The FY27 allocation put defence expenditure at approximately 1.99% of gross domestic product, compared with about 1.91% in the FY26 Budget Estimate, according to the figures cited in the report.
The broader question is how much of the government’s spending should go towards military capability and how that expenditure should be distributed between personnel, maintenance, infrastructure, research and equipment acquisition.
A higher modernisation allocation could increase the resources available for new equipment without requiring an equivalent increase in every other component of the defence budget. But the final effect on defence spending as a share of GDP will depend on the overall budget, economic growth and the allocation across expenditure categories.
The Parliamentary Standing Committee on Defence has previously highlighted the importance of adequate capital spending. Independent budget analysis by PRS Legislative Research has also noted that capital expenditure has represented a relatively limited share of total defence spending over the past decade, with salaries and pensions accounting for a substantial portion of the budget.
The policy challenge is not only to increase spending, but also to ensure that procurement delivers the capabilities required by the armed forces at reasonable cost and within realistic timelines.
What Could Limit the FY28 Increase?
The defence ministry’s proposed 35% rise is ambitious, and several factors could influence the final allocation.
First, the government must manage competing fiscal priorities. The Ministry of Finance will consider the defence request alongside other expenditure needs and the government’s overall fiscal position.
Second, large procurement programmes require a pipeline of projects that are ready for approval and contracting. Funding that exceeds the immediate capacity to execute projects may not translate quickly into additional equipment deliveries.
Third, manufacturers must be able to expand output. Complex platforms such as aircraft, ships and advanced missile systems often depend on long supply chains and specialised production facilities.
Finally, defence spending must be assessed alongside long-term operating costs. New equipment requires maintenance, trained personnel, ammunition, upgrades and infrastructure. Procurement decisions therefore have financial implications well beyond the year in which a contract is signed.
These constraints help explain why Singh said the ministry was not certain of receiving the full 35% increase and would hope for an allocation closer to 25% if necessary.
The Bigger Picture
The proposed FY28 increase signals that the Ministry of Defence wants to sustain the faster pace of military modernisation seen in FY27. The focus is on ensuring that the Army, Navy and Air Force can acquire equipment while supporting India’s broader objective of strengthening domestic defence production.
The ultimate outcome will depend on more than the headline percentage. The government’s final allocation, the number and value of contracts signed, the share of orders placed with Indian manufacturers and the timely delivery of equipment will determine how much additional capability the spending creates.
Looking Ahead
The next major milestone will be the preparation and presentation of the Union Budget for FY28. Investors, defence manufacturers and military planners will watch whether the government approves the full 35% request, opts for a smaller increase or prioritises selected procurement programmes. Until the budget is announced, the ₹2.31 lakh crore and ₹2.50 lakh crore scenarios should be treated only as calculations based on possible growth rates.
For India’s defence industry, the proposed increase could create a larger pipeline of procurement opportunities, but individual companies will need to secure orders and demonstrate their ability to deliver. For the armed forces, the key measure will be whether additional funding accelerates the acquisition of operationally useful equipment while improving readiness, reliability and long-term self-reliance.
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