Union Budget 2026: Accelerating the ‘Reform Express’ in defence and national security Premium

The Union Budget 2026-27 boosts India's defence funding, emphasizing urgent reforms for effective national security and modernization.

The Union Budget 2026-27 pledges ₹7.84 lakh crore ($85.5 billion) for defence – up 15% over the last year, amounting to 14.7% of total government expenditure, pegged at 2.01% of the GDP. Concurrently, ₹2.2 lakh crore has been earmarked specifically for defence modernisation – a hike of 22% over the last year.

So, the intent through numbers is laudable – it is also a good trigger to accelerate the ongoing national security makeover. What is critical, however, is the design and efficacy of follow-up reforms – for cost-effective and precise delivery in national security. Therein lies the true challenge.

Union Budget 2026 highlights

But first, two facts need to be underlined in the context of the challenges that India’s economic statecraft and defence will need to consciously grapple with.

One, our most consequential competitor/adversary, the Communist Party of China/People’s Liberation Army (PLA), officially, spends $231 billion on defence annually; the American Enterprise Institute and prominent American senators estimate that Chinese defence expenditure is more realistically in the region of $700 billion annually; the December 2024 Report of the U.S. Department of Defense, on Military and Security Developments in the People’s Republic of China and the PLA, pegs the figure at $450 billion. Even if the actual expenditure is around $500 billion, the defence component of the Sino-Indian power differential, year on year, is a whopping $415 billion. This is a reality with which we need to engage with urgently because the strategic-military lag with China is growing dangerously.

Two, the plight of Europe today also carries an important lesson. A $22-trillion Europe, while boasting that it was an economic superpower, prioritised social spending, neglected defence, and over-regulated. The consequential loss of strategic balance precipitated a significant contraction in the share of Europe’s contribution to global GDP over the last couple of decades. Even more ironically, U.S. President Donald Trump has now arm-twisted Europe to commit 5% of its GDP to defence. Amid fears of a possible Russian strike (a mere $2.5-trillion economy by the way) on NATO by 2028, Europe today is being coerced to re-arm at a feverish pace.