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India’s defence shift: Rising capex, falling imports

March 11, 2026 5 min read Internal Security Economics GS3
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What Happened

  • India's defence expenditure data for recent years reveals a sustained structural shift: capital expenditure (capex) — spending on new equipment, platforms, and infrastructure — has been rising as a share of the defence budget, while the share of imports in defence procurement is declining.
  • The Union Budget 2026-27 allocated approximately ₹7.85 lakh crore to defence overall, with capital outlay at ₹2.19 lakh crore — a year-on-year increase of about 21.8%.
  • Within the capital acquisition budget, approximately 75% is now earmarked for domestic procurement under the Indian-IDDM (Indigenously Designed, Developed and Manufactured) category.
  • Five Positive Indigenisation Lists (PILs) have been notified by the Ministry of Defence, covering over 5,500 items barred from import after specified cut-off dates; more than 3,000 of these had been indigenised by early 2025.
  • India's defence exports have also grown sharply, from ₹686 crore in FY 2013-14 to over ₹21,083 crore in FY 2023-24, reflecting the maturing of domestic defence manufacturing capability.

Static Topic Bridges

Atmanirbhar Bharat in Defence: Policy Architecture

The Atmanirbhar Bharat (self-reliant India) framework in defence rests on three interlocking pillars: procurement preference for indigenous products, investment facilitation, and export promotion. The Defence Acquisition Procedure (DAP) 2020 replaced the earlier Defence Procurement Procedure (DPP) 2016 and formalised the indigenisation priority through categorisation of procurement as "Indian-IDDM," "Indian," "Indian with FDI," and "Global with domestic content" — in decreasing order of preference. The Positive Indigenisation List (PIL) mechanism makes indigenisation binding: once a weapon system or component is listed, it cannot be procured from foreign sources after the notified cut-off date. The iDEX (Innovations for Defence Excellence) scheme supports start-ups and MSMEs in developing defence technologies with grants of up to ₹10 crore (iDEX Prime: up to ₹25 crore).

  • Five PILs have been notified (2020 onwards): covering missiles, artillery, light combat aircraft sub-systems, helicopters, radars, warships, and thousands of components.
  • The 5th PIL (2024) covers 346 items for Defence Public Sector Undertakings (DPSUs) specifically.
  • The SRIJAN portal (2020) lists defence items offered by DPSUs and Service HQs for indigenisation by private sector.
  • FDI limit in defence raised to 74% under automatic route, and 100% through government approval route (compared to 26% pre-2014).

Connection to this news: The rising capex and falling import share are direct quantitative evidence that the Atmanirbhar Bharat policy architecture is producing measurable outcomes — the PIL mechanism in particular has created a structural demand for domestic manufacturers.

Capital vs. Revenue Expenditure in Defence Budgeting

Defence budgets are divided into Revenue Expenditure (salaries, maintenance, fuel, stores — recurrent items) and Capital Expenditure (new acquisitions, construction, modernisation). India has historically allocated a disproportionately high share to revenue expenditure — particularly due to a large standing army — leaving insufficient capital for modernisation. The share of capital expenditure in India's total defence budget was below 25% as recently as a decade ago; the current shift toward 27-30% capital share represents a structural improvement but still falls short of the targets recommended by successive Defence Review Committees. The Parliamentary Standing Committee on Defence has repeatedly flagged the "committed liabilities" problem — a large portion of annual capex is pre-committed to ongoing contracts, leaving limited room for new acquisitions.

  • India's total defence budget as a % of GDP has been declining (from ~3% in the 1960s to ~2% in recent years) even as absolute spending has risen.
  • The 15th Finance Commission's Defence Modernisation Fund proposal (₹2.38 lakh crore over 5 years) was intended to address the committed liabilities problem but was not fully implemented.
  • Revenue-to-Capital ratio improvement is a key metric for defence modernisation readiness.
  • Pension payments (now under a separate head post-OROP — One Rank One Pension) add pressure to the revenue budget.

Connection to this news: The rising capex trend represents a deliberate policy correction of the historically skewed Revenue:Capital ratio — the data showing rising capex alongside falling imports suggests both modernisation and localisation are progressing together.

Defence Industrial Base: DPSUs, OFBs, and Private Sector Emergence

India's defence industrial base has undergone significant restructuring since 2020. The Ordnance Factory Board (OFB) was corporatised in 2021 into seven Defence Public Sector Undertakings (DPSUs): Munitions India Ltd, Armoured Vehicles Nigam Ltd, Advanced Weapons and Equipment India Ltd, Troop Comforts Ltd, Yantra India Ltd, India Optel Ltd, and Gliders India Ltd. This corporatisation was designed to introduce commercial discipline, accountability, and the ability to raise capital and form joint ventures. The existing defence PSUs — HAL, BEL, BEML, BDL, MDL, GRSE, GSL, MIDHANI, BHEL (for select defence) — constitute the core of the domestic manufacturing ecosystem, now being supplemented by a growing private sector presence.

  • HAL (Hindustan Aeronautics Limited) is a Navratna CPSE and India's primary aircraft manufacturer; it produces the Tejas LCA, ALH (Advanced Light Helicopter), and is manufacturing the Sukhoi-30 MKI under licence.
  • BEL (Bharat Electronics Limited) is India's primary electronics and radar defence manufacturer.
  • Private sector companies like Tata Advanced Systems, L&T Defence, Mahindra Defence, and ADANI Defence are increasingly winning domestic contracts.
  • India's defence export target is ₹50,000 crore (approximately $6 billion) by 2029.

Connection to this news: The declining import share in defence procurement is a function of this expanding domestic industrial base — the capex-indigenisation correlation observed in the data is driven by the combined output of DPSUs, newly corporatised OFBs, and the emerging private defence sector.

Key Facts & Data

  • Defence Budget 2026-27: approximately ₹7.85 lakh crore total; capital outlay ₹2.19 lakh crore (21.8% YoY growth).
  • 75% of the capital acquisition budget is reserved for domestic procurement (Indian-IDDM and Indian categories).
  • Five Positive Indigenisation Lists notified since 2020: over 5,500 items, 3,000+ indigenised by early 2025.
  • Defence exports: ₹686 crore (FY14) → ₹21,083 crore (FY24) — a ~30x increase in a decade.
  • iDEX grants: up to ₹10 crore per start-up; iDEX Prime: up to ₹25 crore.
  • FDI in defence: 74% automatic route, 100% government approval route.
  • Ordnance Factory Board corporatised into 7 DPSUs in October 2021.
  • Defence export target: ₹50,000 crore by FY 2028-29.
  • India's defence budget as % of GDP: approximately 2% (2025-26), down from ~3% in the 1960s.