Source: PIB
Context:
In the Union Budget 2026–27, Nirmala Sitharaman announced a record defence allocation of ₹7.85 lakh crore, the highest ever for India.
The Budget signals a decisive shift towards modernisation, post-operation preparedness, and accelerated indigenisation under Aatmanirbhar Bharat in defence manufacturing, amid a challenging security environment.
What Is the Defence Push in Budget 2026–27?
The defence allocation represents a strategic fiscal intervention aimed at:
- Modernising the Armed Forces
- Strengthening domestic defence manufacturing
- Reducing import dependence
- Supporting strategic infrastructure and energy security
- Enhancing welfare of armed forces personnel
Key Defence Budget Parameters (2026–27)
| Parameter | 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%) |
| Domestic Procurement | ₹1.39 lakh crore (≈ 75% of capital acquisitions) |
I. Manufacturing & Technology Indigenisation
1. Aviation Manufacturing & MRO Ecosystem
Customs Duty Exemptions
- Basic Customs Duty (BCD) exempted on:
- Components and engines for civilian and training aircraft
- Raw materials for aircraft parts used in Maintenance, Repair and Overhaul (MRO) by Defence PSUs
2. Capital Goods & Strategic Infrastructure
CIE Manufacturing Scheme
- New scheme for Enhancement of Construction and Infrastructure Equipment (CIE)
- Includes support for tunnel-boring machines and high-end equipment
II. Strategic Technology, Energy & Materials Security
1. Nuclear Power Projects (Extended to 2035)
Budget Provision
- Customs duty exemptions for imports required for nuclear power projects extended till 2035
- Expanded to cover all nuclear plants
2. Critical Minerals for Defence Manufacturing
- Basic customs duty exempted on capital goods required for processing critical minerals
- Supports domestic manufacturing of:
- Electronics
- Missiles
- Aerospace systems
- EV-linked defence logistics
3. Rare Earth Corridors
Announcement
- Establishment of Rare Earth Corridors in:
- Odisha
- Kerala
- Andhra Pradesh
- Tamil Nadu
Defence Relevance
- Rare earth magnets are essential for:
- Radars
- Precision-guided munitions
- Drones
- Advanced communication systems
III. Welfare & Social Security for Armed Forces
Disability Pension Tax Exemption
Key Provision
- Full income tax exemption for:
- Service element
- Disability element
- Applicable to Armed Forces and paramilitary personnel invalided out due to disability attributable to or aggravated by service
