The 2026–27 Union Budget promises ₹7.84 trillion ($85.5 billion) for defense – up 15% from last year, representing 14.7% of total government spending, pegged at 2.01% of GDP. At the same time, ₹2.2 million has been earmarked specifically for defense modernization – an increase of 22% over the past year.
So the intention through numbers is laudable – it’s also a good trigger to speed up the ongoing national security transformation. However, the design and effectiveness of the subsequent reforms are decisive – for cost-effective and accurate implementation in the field of national security. Therein lies the real challenge.
Highlights of the Union Budget 2026
But first, two facts need to be highlighted in relation to the challenges that India’s economic state and defense will have to consciously face.
One, our arch-rival/adversary, the Chinese Communist Party/People’s Liberation Army (PLA), officially spends $231 billion annually on defense; The American Enterprise Institute and leading US senators estimate that China’s defense spending is more realistically in the region of $700 billion a year; A December 2024 US Department of Defense report on military and security developments in the People’s Republic of China and the PLA puts the figure at $450 billion. While actual spending is around $500 billion, the defense component of the Sino-Indian power differential is $415 billion year-on-year. This is a reality that we must urgently deal with as the strategic-military backlog with China is dangerously widening.
Second, the current situation in Europe also provides important lessons. The $22 trillion Europe, while boasting of being an economic superpower, prioritized social spending, neglected defense and was overregulated. The subsequent loss of strategic balance has accelerated a significant decline in Europe’s share of global GDP over the past few decades. Even more ironically, US President Donald Trump has now pushed Europe to spend 5% of its GDP on defence. Amid fears of a possible Russian strike (only a $2.5 trillion economy, by the way) on NATO by 2028, Europe is today forced to rearm at a feverish pace.
Union Budget 2026-27 Papers
While the conclusions from the above are obvious, subsequent reforms could be governed by the formula of two (basic steps) plus five (priority, combat initiatives) plus two (enabling initiatives).
Course correction
We must initiate two sets of fundamental reforms through an immediate course correction. One of the things that matters most in national security is combat delivery, war-winning lethality, and achievable results—not Byzantine processes. The vocabulary and grammar of operational philosophy in defense procurement therefore deserve urgent change. Revenues and capital allocations may be a good accounting measure, but they are not an accurate measure of the delivery of technology and combat capabilities to soldiers, sailors and airmen in fleets and formations so that they do not have to “fight with what we have”, as General VP Malik lamented in Kargil, but fight with “what we need to win the 1st century”. ‘Vishwa Bandhu’. Second, there is a need to optimize the results of generous allocations – the bloat, overruns and institutional laziness that characterize some of our defense processes need surgical eradication.
How do we strengthen deterrence? Perhaps by prioritizing and funding five combat initiatives. Above all, building basic capacities in AI and the emerging technology storm – robotics, military autonomy, quantum, 3D printing, cybernetics, space, sensing and more. in close sync with broader national technology missions. Two, on the back of these technologies, especially AI drones, are creating lethal borders along the Line of Control and the Line of Actual Control, as is being done so deliberately in Ukraine. Third, moving from mere territorial defense to comprehensive homeland security—through massive upgrades to the air defenses of our cities, towns, and critical infrastructure, and by strengthening unmanned missiles as a tool of superior long-range precision and deterrence. Fourth, we must make a decisive turn to the seas – create a robust A2AD (anti-access area denial) framework in the Indian Ocean region and at the same time modernize our shipbuilding capacities by an order of magnitude. Fifth, we must look to the institution of the Defense Intelligence Agency, the future theater command, and military diplomacy to significantly enhance our hemispheric influence on our periphery.
At the same time, two comprehensive optimization measures of the Ministry of Defense are a necessary imperative. First, the structure of an integrated financial advisor needs at least a structural and cultural metamorphosis: processes and procedures were designed for a monopsony market (one buyer, monopoly sellers, no competition, limited choices); they must be unwritten and reformulated for a technology/innovation driven market. Second, innovation must take precedence over regulation. For too long, our defense bureaucracy has been status quoist, and it doesn’t like to change. We have no choice now but to predict the future and disrupt the past. Innovation, risk taking and failing fast must become central to our operational ethos. L-1 processes must be thrown out the window, H-1 (to include flexible hiring methodologies to attract high quality talent) must become the new norm.
Recently, geopolitics has turned mostly towards national security, making it practically synonymous with economic prosperity. We in India are enjoying a happy peace dividend, albeit one that may not be endless. We must make the most of our good fortune to strengthen our strategic-military position, constantly reform and transform to prevent conflict and ensure India’s rise.
The writer is a former Army Commander and currently a member of the UPSC.
Published – 01 Feb 2026 20:05 IST