Union Budget 2026–27: Record Defence Outlay with Strong Push for Indigenisation
Kartavya Desk Staff
Source: TH
Subject: Security/ Economy
Context: In the Union Budget 2026–27, Finance Minister Nirmala Sitharaman announced a record ₹7.85 lakh crore allocation for defence, the highest ever.
About Union Budget 2026–27: Record Defence Outlay with Strong Push for Indigenisation:
What it is?
• The defence allocation for 2026–27 represents a strategic fiscal push to modernise the armed forces, meet post-operation requirements, and accelerate Aatmanirbhar Bharat in defence manufacturing.
Parameter | Union Budget 2026–27
Total defence outlay | ₹7.85 lakh crore (↑ 15.19% YoY), ~2% of GDP
Share in Union expenditure | 14.67% (highest among all Ministries)
Capital expenditure | ₹2.19 lakh crore (↑ ~22%)
Capital acquisitions | ₹1.85 lakh crore (↑ ~24%)
Indigenisation focus | ₹1.39 lakh crore (75% of capital acquisition) for domestic procurement
Key Defence Announcements: Budget 2026-27:
- 1.Manufacturing and Tech Indigenization
• Aviation Parts: The government proposed to exempt basic customs duty on components and engines required for the manufacture of civilian and training aircraft.
• MRO Support: Basic customs duty is exempted on raw materials imported for the manufacture of aircraft parts to be used in Maintenance, Repair, or Overhaul (MRO) requirements by Public Sector Units in the Defence sector.
• Capital Goods: A new scheme for the Enhancement of Construction and Infrastructure Equipment (CIE) was introduced, which includes support for tunnel-boring equipment essential for building high-altitude strategic roads and infrastructure.
- 1.Strategic Technology & Materials
• Nuclear Projects: Customs duty exemptions for imports required for Nuclear Power Projects have been extended until 2035 and expanded to cover all nuclear plants, which has strategic implications for energy security.
• Critical Minerals: To boost high-tech defense manufacturing, basic customs duty is exempted for capital goods required for processing critical minerals in India.
• Rare Earth Magnets: Dedicated Rare Earth Corridors will be established in Odisha, Kerala, Andhra Pradesh, and Tamil Nadu to promote mining and processing, which are vital for advanced defense electronics.
- 1.Welfare and Pensions
• Disability Pension: A specific tax exemption is provided for disability pensions granted to members of the Armed Forces and paramilitary personnel.
• Inclusion: This exemption covers both the service element and the disability element for those invalided out of service due to disability attributable to or aggravated by military service.