The Ministry of Defence frames policies on defence and security-related matters, and ensures its implementation by the defence services (Army, Navy, and Air Force). In addition, it is responsible for production establishments such as defence public sector undertakings, research and development organisations, and ancillary services that assist the defence services, such as the Armed Forces Medical Services. This note analyses budgetary allocation and expenditure trends of the Ministry. The note also discusses certain issues such as the falling expenditure on defence as percentage of GDP, high share of pension, continued reliance on imports to meet defence equipment needs, and delays in indigenous development of defence equipment.
Overview of finances
The Budget of the Ministry of Defence includes the allocation towards the three defence services along with the expenditure on research and development and border roads. In 2025-26, the Ministry has been allocated Rs 6,81,210 crore. This includes expenditure on salaries of the armed forces and civilians, pension, modernisation of armed forces, production establishments, maintenance, and research and development organisations. The allocation towards the Ministry is the largest across all ministries and accounts for 13% of the total expenditure of the central government.
India’s defence expenditure declines both as a share of Centre’s budget and GDP
The central government allocates the largest share of its budget to the Ministry of Defence. However, the share of the central budget spent on defence has decreased over the years. In 2014-15, the Centre spent 17% of its total budget on defence which reduced to 13% as per the budget estimates of 2025-26. Between 2013-14 and 2025-26, compared to an annual increase of 9% in defence spending, total central government expenditure increased at an annual rate of 10%.
The Standing Committee on Defence (2023) had observed that most of India’s defence purchases are transacted in dollars.[1] It recommended that the depreciation of rupee against the dollar and the inflation rate should be considered while allocating funds for the defence services.1 Between January 1, 2024 and January 27, 2025, the Indian rupee has depreciated by almost 4% against the US dollar.