As India approaches the Union Budget for 2026, defence expenditure once again features prominently in public debate. The discussion, however, remains narrowly focused on headline allocations, whether spending should rise, how India compares with other major powers, or whether defence crowds out social-sector priorities. While legitimate, these questions miss a more consequential issue: how effectively defence spending is converted into usable military capability.

In 2025–26, India allocated approximately ₹6.81 lakh crore to defence, accounting for 13.45 per cent of total Union government expenditure and roughly 1.9 per cent of GDP. While this reflects a substantial fiscal commitment, the strategic value of defence spending is determined less by its size than by the institutions, incentives, and industrial systems through which it is deployed. On this front, India’s defence budgeting framework continues to exhibit structural weaknesses that limit its ability to deliver sustained capability.

These constraints matter more than ever in a deteriorating security environment. Defence planning has long been shaped by the prospect of a two-front contingency involving Pakistan and China, a scenario that increasingly risks converging into a coordinated challenge, as illustrated by the experience of Operation SINDOOR. Along the Line of Actual Control, China’s sustained infrastructure build-up, rapid mobilisation capability, and integration of surveillance, precision firepower, and logistics have altered the operational balance. At sea, India’s responsibilities across the Indian Ocean Region have expanded amid intensifying Indo-Pacific competition. Meeting these challenges requires not merely higher spending, but predictable capital investment, timely induction and technological depth, and outcomes that India’s current budgeting and procurement systems struggle to ensure.

In nominal terms, defence spending has risen steadily over the past five years. In real terms, however, growth has been modest, with allocations remaining below 2 per cent of GDP for much of the past decade. More importantly, the composition of expenditure remains skewed. Capital outlay, which funds modernisation and new........

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