Union Budget 2026: Why defence could be the main focus this time?

As Finance Minister Nirmala Sitharaman prepares to present the Union Budget for FY 2026–27 on Sunday, February 1, market participants expect the government to place strong emphasis on priority sectors that can drive long-term growth and strategic resilience. Among them, the defence sector is emerging as a key area of focus.

Experts point to the Centre’s recent move to form a dedicated committee to strengthen allied defence capabilities as a signal of sustained policy intent. According to Pranay Aggarwal, Director and CEO of Stoxkart, Budget support could accelerate the sector’s growth if it prioritises indigenisation and exports.

“Expanding the Positive Indigenisation Lists, strengthening defence industrial corridors with fiscal incentives and infrastructure, simplifying licensing and export procedures, and increasing allocations for R&D and technology transfer can significantly boost the sector,” Aggarwal said. He added that targeted export incentives and credit support would be crucial to scaling defence exports over the long term.

In the Union Budget 2025–26, the government allocated ₹6.81 lakh crore ($81 billion) to the Ministry of Defence, marking a 9.5% increase from the previous year. With rising geopolitical tensions—from conflicts in the Middle East to global strategic realignments—experts believe defence spending could rise further in the upcoming Budget.

Market participants are now anticipating a 20% increase in defence allocations. “We are in a particularly tough neighbourhood and will be seeking closer to a 20% higher allocation,” Mahesh M Ojha, VP (Research & Business Development) at Kantilal Chaganlal Securities, said, referring to Defence Secretary Rajesh Kumar Singh’s remarks last November on moving beyond incremental 10% annual increases.

Ravi Singh, Chief Research Officer at Master Capital Services, expects the Budget to reinforce support for indigenisation through higher capital expenditure, stronger preference for domestic procurement, and policies that encourage exports. “Measures that speed up procurement timelines or provide long-term order visibility would be especially helpful,” Singh noted. He also highlighted the importance of export financing support and government-backed deals to help Indian firms compete globally.

Within the sector, defence electronics and aerospace are expected to benefit the most, given the growing reliance on advanced electronics, sensors, radars, missiles, aircraft, and engine programmes. Aggarwal believes companies with strong execution capabilities and policy tailwinds—particularly in aerospace, defence electronics, and naval shipbuilding—are best positioned for long-term growth.

Singh added that select players such as HAL, BEL, and BDL could see stronger growth as outsourcing rises and exports gather momentum, cautioning investors to focus on execution and alignment with the government’s indigenisation roadmap rather than short-term Budget reactions.