Union Budget 2026: Is R&D funding for defence likely to rise in upcoming Budget?

As India looks ahead to the Union Budget 2026–27, defence is emerging as a sector where ambition, urgency and opportunity converge. Amid rising geopolitical tensions and an evolving security landscape, the upcoming Budget is expected to play a defining role in shaping India’s long-term defence capabilities through higher capital spending, deeper reforms and a sharper focus on innovation and self-reliance.

Jaikaran Chandock, Director at Balu Forge Industries Ltd said, "India’s defence ecosystem has undergone a decisive shift over the past decade, from import dependence to an emerging global manufacturing and export hub. As we enter the next phase, Budget 2026 needs to initiate a deeper structural transformation. A meaningful increase in defence allocation is essential given the evolving geopolitical scenario and India’s ambition to achieve Rs.50,000 crore in defence exports by 2030. The focus needs to remain on boosting self-reliance in defence manufacturing. There should more budgetary provision to encouraging procurement of indigenously-made equipments. Incentivising private investment needs to be prioritised to unlock growth. Budget allocation in defence R&D needs to increase to boost innovation in defence manufacturing. With consistent policy support, technology-led innovation, and broad-based manufacturing capability, India has the opportunity to establish itself as a globally competitive defence manufacturing and export hub."

While foreign direct investment in defence was opened in 2001 and further liberalised in 2020, the next phase demands active government facilitation of co-development, joint research and innovation with global defence majors.

Relaxing indigenous content norms especially for technologies brought in through transfer-of-technology agreements could accelerate capability-building without diluting self-reliance.

The forthcoming revision of the Defence Acquisition Procedure (DAP) presents a timely reform opportunity. Streamlining procurement timelines, introducing phased localisation, incentivising MSMEs, recognising raw material constraints, and offering export-linked indigenous content credits could significantly strengthen India’s defence manufacturing ecosystem.

Although India ranks among the world’s top five defence spenders, its absolute expenditure remains far below that of the US, China and Russia. Yet progress is visible. Defence manufacturing has more than tripled over the past decade from ₹0.46 lakh crore in 2014–15 to ₹1.50 lakh crore in 2024–25 reflecting sustained policy support. The government now targets defence production of ₹3 lakh crore and exports of ₹0.5 lakh crore by 2029, underlining its global ambitions.

Capital expenditure will be central to this journey. While the overall defence budget rose by around 10 per cent in Budget 2025–26, capital outlay grew by only about 5 per cent. Recognising this gap, the Defence Secretary has indicated that defence spending could rise by 20 per cent in Budget 2026–27. The contrast with global peers is stark US funding for just two defence projects exceeds India’s entire capital allocation.

Finally, capital spending must be matched by a decisive push on defence R&D. India’s current R&D allocation remains modest by global standards. To emerge as a technology leader, at least 10 per cent of the defence budget should be earmarked for R&D, alongside a substantial rise in capital expenditure, empowering industry-led innovation at scale.