Reduction in pension bill through Agnipath plan hike, costly arms imports help govt cut defence revenue expenses

NEW DELHI: In the outlay for defence in Budget 2026, Modi govt has proposed to control military expenditure by restructuring revenue spending — as it has used the increased Agnipath scheme allocation to lower the pension bill — and relying on domestic procurements to cut bills of costly imported weapons.

Despite a record high defence budget of Rs 7.8 lakh crore in 2026-27, which is a steep hike of 15% over last year’s allocation of Rs 6.8 lakh crore, the govt's strategy relies on capping overall revenue expenditure to ensure fiscal discipline.

Under the Aatmanirbhar Bharat initiative, around 75% of the capital acquisition budget is reserved for domestic defence industries in FY 2026-27 as Rs 1.39 lakh crore have been allocated for procurement from domestic defence industries in order to modernise the armed forces through indigenous technology and innovations. The “Buy Indian-IDDM” policy aims to expedite domestic procurement but requires stringent adherence to delivery timelines. In the Budget, measures have been taken to support domestic production, investment and job creation.

The Agnipath scheme, introduced by the Union govt in June 2022, was designed to address the unsustainable growth of the defence pension bill—projected to be a major burden—by hiring soldiers on a four-year contract, with only 25% retained, thereby reducing the number of personnel eligible for lifetime pensions.

Therefore, the budgetary outlay for the Agnipath scheme saw a significant jump this time, rising by 56% to Rs 15,173 crore. This supports the increased recruitment of Agniveers, with reports suggesting recruitment is expected to rise to 1.1 lakh this year to address shortfalls in combat-ready soldiers. Despite the push for long-term savings through Agnipath, the total allocation for defence pensions for FY 2026–27 actually rose to over Rs 1.71 lakh crore, a 6.5% increase over the 2025-26 budget estimates, to cover existing obligations. Specifically, the Indian Army's pension bill increased from Rs 141,751 crore in FY26 to Rs 151,631 crore in FY27.

With a strong push for indigenous defence manufacturing, focused investments in research and infrastructure, and continued priority for the welfare of veterans, the Budget for defence sector promises a more secure and resilient India, aligned with the long-term vision of Viksit Bharat by 2047.

Jaikaran Chandock, director, Balu Forge Industries, said, “The allocation of Rs 5.95 lakh crore to the defence sector for defence research, land systems and equipment further strengthens the manufacturing outlook, particularly for precision engineering and high-value domestic production.