Union Budget 2025: Unchanged defence allocation, focus on reforms likely

India's defence budget as a share of GDP and the national budget has declined steadily year after year, reaching its lowest point since the 1960s, even as strategic challenges persist

The allocation for the Ministry of Defence (MoD) in the upcoming Union Budget for the financial year 2025-26 (FY26) is unlikely to see any major shift and is expected to remain between 1.9 and 2 per cent of the gross domestic product (GDP). While the MoD and the government have not made any official statement, this expectation is based on recent comments by Defence Secretary Rajesh Kumar Singh, who dismissed concerns about resource constraints and noted that even this share of GDP allocated to defence has been difficult to fully utilise.

 

However, recent statements from the MoD, such as its announcement to observe 2025 as the ‘Year of Reforms’, along with remarks from the service chiefs, indicate that the government aims to ensure the focus on military modernisation and enhancing ‘Aatmanirbharta’ (self-reliance) in defence remains uncompromised, despite allocations being unlikely to increase in line with expectations expressed in some quarters. For example, in a November column, journalist Shekhar Gupta advocated gradually increasing defence spending to 2.5 per cent of GDP over the next four years to deter Chinese and Pakistani adventurism.

 

India’s shrinking defence budget

 

This underscores the continued decline of India’s defence budget as a share of GDP and the national budget — a trend that has persisted year after year, reaching its lowest point since perhaps 1960. As noted in Gupta’s November column, when the first Narendra Modi-led government took office, it pledged to significantly increase defence spending. In the initial years of the National Democratic Alliance-I (NDA-I), this promise was upheld, with defence expenditure rising as a proportion of both the national budget and GDP. In 2013, defence accounted for around 16 per cent of the national budget. By 2016-17, two years into the Modi administration, this figure had risen to 18 per cent, marking a substantial increase amid a growing budget. However, as Shekhar Gupta’s column pointed out, spending began to decline in subsequent years and now stands at just 13 per cent of the national budget and 1.9 per cent of GDP.

 

Challenges in defence spending utilisation 

Nonetheless, higher allocations as a proportion of GDP or the national budget may remain unlikely. Speaking at the 21st Subroto Mukerjee Seminar last week, Defence Secretary Singh highlighted India’s progress towards a $4 trillion economy and projected future growth. Against this backdrop, he dismissed concerns over resource constraints, stating that “there’s adequate money available for what we want to do” and emphasised the need for pragmatic prioritisation of solutions. He also noted that despite allocating only 1.9 per cent of GDP to defence, even this share is challenging to fully utilise due to the limited domestic absorptive capacity.

 

In July, the MoD received an allocation of approximately Rs 6.22 trillion (around $75 billion)—the highest among all ministries—in the Union Budget for FY25, with a specific emphasis on addressing ‘critical capability gaps’ through ‘big-ticket acquisitions’ during the current and subsequent financial years.

 

Modernisation funds and domestic focus 

The FY25 defence allocation was 0.31 per cent lower than the Revised Estimates for FY24 but 4.79 per cent higher than the FY24 Budget Estimates. In absolute terms, the capital allocation for the armed forces in FY25 stood at Rs 1.72 trillion—20.33 per cent higher than the actual expenditure in FY23 and 9.40 per cent more than the Revised Estimates for FY24.

 

However, only 27.66 per cent of the FY25 defence budget was allocated to capital outlay, which funds military modernisation, while 14.82 per cent was allocated to revenue expenditure for sustenance and operational preparedness, 30.66 per cent for pay and allowances, 22.70 per cent for defence pensions, and 4.17 per cent for civil organisations under the MoD. Additionally, the MoD earmarked 75 per cent of the modernisation budget—amounting to Rs 1.05 trillion—for procurement through domestic industries in FY25. 

 

MoD 2025 'Year of Reforms' focus areas 

·JOINTNESS & INTEGRATION: Establish integrated theatre commands and enhance inter-service cooperation

·TECHNOLOGICAL FOCUS: Develop cyber, space, AI, hypersonics, robotics

·DEFENCE PRODUCTION: Simplify acquisition, promote R&D and exports

·VETERAN WELFARE: Optimise measures, leverage expertise

·CULTURAL CONFIDENCE: Foster pride, adopt global best practices