India's military modernisation: Strong but uneven

Beneath the defence budget's headline numbers lie cuts, windfalls and diverging fortunes

4 min read

Updated On: Jul 10 2026 | 7:22 AM IST

An Indian Air Force Chinook helicopter during the rehearsal for the exercise 'Vayu Shakti 2026', at the Air Force firing range at Pokhran, Rajasthan. Photo: Reuters

Operation Sindoor, in May last year, was an expression of military capabilities built over at least a decade — aircraft, precision munitions, unmanned aerial vehicles, and submarines, brought to bear against Pakistan. Those capabilities are a function of how India has modernised its armed forces, for which a specific carve-out — the modernisation or capital procurement budget — exists within the Union Budget’s defence allocation.

Just over a month after the operation was paused, Defence Secretary Rajesh Kumar Singh told Business Standard that having exhausted the military modernisation budget for the first time in five years in FY25, the Ministry of Defence (MoD) would — if it could sustain that utilisation — be confident approaching the finance ministry to justify a larger share of gross domestic product (GDP) for defence.

A day after Union Budget 2026 reversed the declining trend in defence’s share of GDP — bringing it to nearly 2 per cent — Singh said he was confident of full utilisation in FY26 as well.

Army modernisation funding has seen sizeable additions and cuts

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His pre-Budget projection also materialised: at Rs 1.85 trillion, the FY27 modernisation allocation is about 24 per cent above the FY26 budget estimate (BE). Future defence budget growth and military modernisation are tied closely to allocations under this head and their utilisation.

An analysis of data covering FY20 to FY26 shows the army’s modernisation budget to have been the most volatile. In four of seven years — FY21, FY22, FY23 and FY24 — the final allocation diverged from the BE by more than 20 per cent: the sharpest being a cut of 33.72 per cent in FY22, the largest downward revision across all three services, and an addition of 22.55 per cent in FY23. FY25 saw the largest upward revision at 27.52 per cent, but BE figures have lacked a clear upward trajectory, distinguishing the army from the other two forces.

Air force modernisation budget has seen upward revisions in five of seven years

The Indian Air Force (IAF) commands the highest cumulative final modernisation allocation at slightly over ₹3.62 trillion — about 15 per cent more than the navy’s almost ₹3.15 trillion and nearly double the army’s almost ₹1.86 trillion. Its BE has risen from ₹36,409.89 crore in FY20 to ₹59,646.83 crore in FY26, with upward revisions in five of seven years, the largest an exceptional 33.79 per cent in FY21. The two downward revisions — 4.03 per cent in FY23 and 12.10 per cent in FY25 — are modest relative to the army’s cuts, making the IAF’s allocations the most stable and consistently upward-trending of the three.

Navy has gained most from upward budget revisions

The navy tells the most striking story. Its BE has nearly tripled from ₹21,117 crore in FY20 to ₹62,975.97 crore in FY26. Upward revisions of 44.43 per cent in FY21 and 40.11 per cent in FY22 are the largest of any service in any year. The high FY26 BE of ₹62,975.97 crore indicates the navy’s primacy in current modernisation priorities.

Army’s modernisation spending is broadly stable

Naval and IAF priorities have grown significantly relative to the army over this period. Across FY20 to FY24, the navy is the strongest utiliser by both annual peak performance and cumulative measure — utilisation meaning actual modernisation expenditure as a share of the final known allocation.

Air force overspending streak is coming to an end

Its five-year cumulative of 103.08 per cent is the highest of the three, and its FY21 figure of 112.86 per cent the single highest in the dataset. The army is the most consistent, ranging between 96.48 per cent and 100.25 per cent, with a cumulative of 99.07 per cent.

Navy spending rebounds above allocations after recent dip

The IAF is the most variable — its cumulative of 98.96 per cent is pulled down entirely by FY23, when utilisation collapsed to 84.19 per cent, the single worst figure across all the three services.

Navy records highest utilisation of modernisation allocations (%)

While the navy and army have consistently demonstrated the ability to fully absorb their allocations, the IAF has done so in four of five years.

Spending on indigenous procurement

The track record broadly bodes well for future utilisation, and will need to be sustained if India is to move toward its medium-term goal of spending 2.5 per cent of GDP on defence — up from 1.9 per cent when Singh first set that target — an imperative that has sharpened amid growing geopolitical uncertainty and the security challenges on its borders.

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Written By :

Bhaswar Kumar

Bhaswar Kumar has over seven years of experience in journalism. He has written on India Inc, corporate governance, government policy, and economic data. Currently, he covers defence, security and geopolitics, focusing on defence procurement policies, defence and aerospace majors, and developments in India’s neighbourhood.