In the upcoming Budget 2026, allocations in terms of sectors are a focus area. Analysts are expecting greater thrust towards growth and capex driven sectors and believe that the FM may not resort to too many populist measures or large tax giveaways. Defence is one sector that is expected to see continued focus.
Most industry observers pointed out that they are expecting to see increase in capital expenditure (capex) in non-traditional or sunrise sectors, especially defence and allied sectors in a direct thrust towards ‘Make in India’
Current Scenario and challenges
One of the key challenge for the defence sector in India is the import dependence on critical tech and procurement and execution timeline. The bulk of the defence sector manufacturers are across the public sector and private sector integration is still limited.
The other key area of concern is the skill gap in many advanced manufacturing process like digital and cyber areas within the digital space. India’s tech capability in defence, especially in AI is also an area that is increasingly getting into focus.
What the Industry Leaders Expect
Key analysts across the defence industry have outlined the focus areas and the allocation expected. The average consensus is for about 8-10% jump in allocation for defence sector.
Defence sector Budget wishlist: Expert expectations
Here is a look at what top analysts are accounting for the defence sector in the upcoming Budget
Motilal Oswal says defence to lead FY27 capex push as Centre eyes 15% rise in spending
Motilal Oswal expects defence capital expenditure to rise by around 15% over FY26 levels, supported by one-time emergency procurement in the current year and strong approvals by the Defence Acquisition Council (DAC).
The government is also expected to step up support for defence-linked manufacturing, start-ups, drones and allied technologies as part of its long-term strategic push.
“We estimate the Centre’s capex at Rs 12.4 trillion in FY27, up 10.3% year-on-year and equivalent to 3.1% of GDP, driven largely by a 15% increase in defence expenditure over the estimated Rs 1.8 trillion spending in FY26,” Motilal Oswal said in its report.
The brokerage noted that FY26 also saw a one-time emergency defence procurement of Rs 40,000 crore. It added that the DAC recently approved capital acquisition proposals worth Rs 79,000 crore during its winter session, taking total defence approvals in FY26 so far to around Rs 3.3 trillion—nearly double the FY26 budgeted defence capital outlay of Rs 1.8 trillion.
Kotak expects defence spending seen rising up to 20% in FY27
Axis Direct said government capital expenditure remains the primary growth engine, with the Union Budget 2026–27 expected to allocate Rs 12–13 trillion towards capex, implying a 10–15% year-on-year(YoY) increase. Key focus areas are likely to include roads, railways, logistics infrastructure, defence and indigenisation of equipment.
Kotak also expects capex growth at 9% with a focus on defense spending, which is seen rising 20%.
Nuvama sees 8% YoY rise in defence capex
Nuvama expects defence capex to grow by around 8% YoY, with higher allocations towards R&D, UAVs/drones, anti-drone systems and allied technologies. Incremental budgetary support is likely in the backdrop of Operation Sindoor, while several large programmes in the pipeline—such as QRSAM, P-75I and Pinaka—are expected to move towards execution, with spending skewed towards the Air Force and Navy.
Nuvama said, “likely hike in the FY27 defence budget would be structurally positive for the sector, accelerating the transition towards execution-led earnings.”