Defence Ministry Utilises Entire Rs 1.86 Lakh Crore Capital Budget in FY 2025-2026

For a second consecutive year, the Ministry of Defence (MoD) has achieved full utilisation of its capital outlay of Rs 1.86 lakh crore for Defence Services in the Financial Year 2025-2026 at the Revised Estimates stage.

This was the result of coordinated efforts by the MoD (Finance), the Acquisition Wing, the Defence Services, and the Defence Accounts Department.

In a press statement, the Ministry of Defence stated that the overall Defence Budget utilisation, including MoD (Civil) and Pension heads, stood at 99.62 percent against the final allocation.

The original capital appropriation for the year was Rs 1.80 lakh crore. However, after Operation Sindoor in May last year, the Ministry of Finance augmented this by Rs 6,000 crore in view of the strong pace of expenditure recorded in the first two quarters and the heightened requirements of the armed forces for modernisation and other purposes.

A significant portion of the capital expenditure has gone towards the acquisition of aircraft and aero engines, followed by land systems, electronic warfare equipment, armaments, shipbuilding, aviation stores, and projectiles.

Beyond equipping the armed forces, the expenditure is expected to drive infrastructural development in border areas and contribute to broader economic growth through its multiplier effect on capital formation and employment generation.

In terms of procurement momentum, MoD accorded Acceptance of Necessity (AoN) for 109 proposals worth Rs 6.81 lakh crore in FY 2025-2026—a sharp jump from 56 proposals valued at Rs 1.76 lakh crore in the previous fiscal. Capital procurement contracts for 503 proposals amounting to Rs 2.28 lakh crore were also signed during the year.

Looking ahead, the Ministry of Defence has been allocated Rs 2.19 lakh crore under the capital head at the Budget Estimate stage for FY 2026-2027, reflecting a 22 percent hike over the current year and signalling the government’s continued commitment to modernising and strengthening the country’s Armed Forces.

Major contracts signed in FY 2025-2026

The Financial Year 2025-2026 saw the Ministry of Defence sign a series of landmark procurement contracts, significantly bolstering the modernisation drive of the Armed Forces. In one of the biggest deals of the year, MoD signed a contract with Hindustan Aeronautics Limited (HAL) on September 25, 2025 for 97 Light Combat Aircraft (LCA) Mk1A—comprising 68 fighters and 29 twin-seaters. The aircraft will carry over 64 percent indigenous content and integrate advanced systems, including the UTTAM AESA Radar and Swayam Raksha Kavach.

HAL separately entered into an agreement with General Electric (GE), USA, for 113 F404 engines to power the programme.

On the naval aviation front, India and France signed an Inter-Governmental Agreement in April 2025 for 26 Rafale-M aircraft for the Indian Navy, with provisions for Transfer of Technology, indigenous weapons integration, and setting up of production and maintenance facilities in India. MoD also signed contracts with HAL for 156 Light Combat Helicopters (LCH) Prachand—66 for the Indian Air Force and 90 for the Indian Army—valued at Rs 62,700 crore, with an indigenous content target of over 65 percent.

Additionally, the year also witnessed contracts with Bharat Electronics Limited for radar and fire control system upgrades, Bharat Dynamics Limited for Medium-Range Surface-to-Air Missiles for the Navy, Armoured Vehicle Nigam Limited for Tank-72 Bridge Laying Tanks and the Nag Missile System, and ammunition contracts with Economic Explosive Limited and Munitions India Limited for PINAKA rocket system munitions.

Just before the close of the previous financial year, MoD also signed contracts worth Rs 858 crore for the procurement of the Tunguska Air Defence Missile System with Russian firm Rosoboronexport, along with inspection of the US P8I Long-Range Maritime Reconnaissance Aircraft, with Boeing India Defence Private Ltd.