Defence sector Budget 2025 expectations: Focus on self-reliance to hike in allocation; here’s what experts predict

In the upcoming Union Budget 2025, the announcements on allocation for the Ministry of Defence will be keenly watched by all as self-reliance in defence production has been a key focus area of the government. As Finance Minister Nirmala Sitharaman is set to present the Union Budget in Parliament on February 1, experts predict focus on policy reforms, a moderate rise in allocation and push for modernisation for the defence sector.

Experts believe that the allocation for the defence sector is likely to remain between 1.9% and 2% of the GDP in FY 2025-26, as the challenges persist with utilisation of funds allocated in the previous Budgets.

The government in the previous Budget announced a more than 4% increase in allocation to the defence sector at nearly ₹6.22 lakh crore.

Out of the total FY2024-25 allocation, a share of 27.66% was for capital expenditure and 14.82% for revenue expenditure on sustenance and operational preparedness.

The defence sector accounted for around 12.9% of the total Budgetary Estimate for FY 2024-25, which was in line with previous years. The government had allocated ₹1.72 lakh crore for defence modernisation, up by 9.4% over the revised estimates for FY 2023-24.

Modernisation of the forces, boosting domestic capacity through local procurement (75%) and increased border infrastructure for strategic requirements was the central theme of the previous Budget.

Key expectation for defence sector

Modernisation of defence forces and a boost to local manufacturing to achieve self-reliance may remain in focus for the sector in Budget 2025. The government may also stress on more private participation and public-private partnerships in the defence sector to achieve its strategic goals.

Top defence ministry officials have also highlighted adequate financial resources for defence forces to deter threats mainly from China and Pakistan, according to media reports.

According to reports, the government is expected to increase the capital expenditure to around ₹1.9 lakh crore in Budget 2025 for the defence sector. The Budget outlay may also see focus on modernisation of military vehicles, procurements for Indian Air Force and upgradation of Indian Navy fleet.

The government has been highlighting its priority on self-reliance in defence manufacturing and reducing imports. The Finance Minister’s announcements on boosting indigenous productions under the government’s ‘Aatmanirbhar Bharat’ initiative will also be keenly watched by experts.

Performance of defence stocks ahead of Budget 2025

Most defence sector stocks have declined in January so far due to FPI selling and weak market environment. Here is a performance of top 10 defence stocks, in terms of market capitalisation, ahead of the Union Budget 2025.