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

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.

Union Budget 2026-27 documents

While the inferences from the above are obvious, the ensuing reforms could be driven by a two (rudimentary steps) plus five (priority, combat initiatives) plus two (enabling initiatives) formula.

Course correction

By way of immediate course correction, we need to initiate two sets of rudimentary reforms. One, what matters foremost in national security is combat delivery, war-winning lethality, and deliverable outcomes – not byzantine processes. The vocabulary and grammar of the operating philosophy in defence procurement, therefore, merits urgent change. Revenue and capital allocations may be a good accounting metric but they are not an accurate measure of the delivery of technologies and combat capacities to the soldiers, sailors, and airmen in the fleets and formations in order that they do not have to ‘fight with what we have’, a la Gen. V.P. Malik’s lament in Kargil, but fight with ‘what we need to win’, in accord with the fortitude of a 21st-century ‘Vishwa Bandhu’. Two, there is a need, therefore, to optimise outcomes from the generous allocations – the bloat, time overruns, and institutional sloth that characterise some of our defence processes need surgical eradication.

How do we strengthen deterrence? Perhaps by prioritising and funding five combat initiatives. First and foremost, the building of base capacities in AI and the emerging storm of technologies – robotics, military autonomy, quantum, 3D printing, cyber, space, sensing, et al. in close synchrony with the wider national technology missions. Two, on the back of these technologies, particularly AI-enabled dronery, create lethal frontiers along the Line of Control and Line of Actual Control, as has been so purposefully done in Ukraine. Three, transit majorly from mere territorial defence to comprehensive homeland security – by way of massive upgrades in the air defence of our towns, cities, and critical infrastructure and the raising of a drone-missile force as an instrument of cutting-edge, long-range precision and deterrence. Four, we need to make a decisive turn to the seas – create a robust A2AD (anti-access area denial) framework in the Indian Ocean Region while upgrading our shipbuilding capacities by an order of magnitude. Five, we need to give a fillip to the institution of Defence Intelligence Agency, the prospective theatre commands, and military diplomacy to significantly strengthen our hemispheric influence in our periphery.

Concurrently, two pan Ministry of Defence optimisation measures are an enabling imperative. One, the Integrated Financial Advisor structure needs a structural and cultural metamorphosis to say the least: the processes and procedures were designed for a monopsony market (one buyer, monopoly sellers, no competition, limited choices); they need to be unwritten and reframed for a technology/innovation-driven market. Two, innovation must be prioritised over regulation. For far too long, our defence bureaucracies have been status quoist and loathe to change. We have no option now except to anticipate the future and disrupt the past. Innovation, risk taking, and failing fast must become central to our functional ethos. L-1 processes must be thrown out of the window, H-1 (to include flexible recruitment methodologies to attract high-grade talent) must become the new norm.

In recent times, geopolitics has swivelled majorly towards national security, making it virtually synonymous with economic prosperity. We in India are enjoying a lucky peace dividend, albeit one that may not be interminable. We must make the most of our good fortune to beef up our strategic-military posture, continually reform, and transform to deter conflict and secure India’s rise.

The writer is a former Army Commander and currently a member of the UPSC.

Published – February 01, 2026 08:05 pm IST