In early September, the 56th GST Council meeting passed almost unnoticed outside the financial pages. Another set of tax tweaks, most thought. But for those of us who’ve spent a lifetime in uniform, 3 September 2025 will mark something quite different. For the first time, a fiscal reform has been written with national security front and centre. When these new rates come into force on 22 September, the Army — indeed all three Services — will feel the change not in ledgers but in the field.
Why? Because GST 2.0 isn’t just a book-keeping adjustment. It’s a combat readiness multiplier.
The Numbers That Matter
India’s defence budget for FY 2025–26 stands at Rs 6.81 lakh crore — roughly $77–79 billion. On paper that’s a 9.5 per cent increase. But dig into the allocations and you see the squeeze. Only Rs 1.80 lakh crore (26 per cent) is earmarked for capital expenditure, the part that buys the tanks, aircraft, drones, and missiles we need for tomorrow’s wars. Nearly half — Rs 3.11 lakh crore — goes to revenue expenditure, much of it salaries and pensions.
Until now, GST and customs quietly skimmed off as much as 12 per cent of the Army’s procurement budget — about Rs 7,000–8,000 crore every year. It was a silent tax on readiness. With GST 2.0, that leakage ends. And when you look across the entire defence establishment — Army, Navy, Air Force, and other MoD procurement — analysts estimate savings of Rs 15,000–25,000 crore annually, or around Rs 60,000 crore over five years. That’s 10–18 per cent more purchasing power without a rupee more in allocation. In military planning terms, that’s decisive.
Capital Budget: More Firepower for the Army
What does that mean in practice? The list of items now GST-free or slotted into the 5 per cent slab reads like an Army wish-list. UAVs and drones. C-130 and C-295 aircraft. Tanks, armoured vehicles, artillery spares. Software-defined radios. Missiles and rockets. Simulators and ejection seats. Even underwater platforms.
Every one of these costs less from this month. Freed funds allow bigger orders: tanks, artillery, assault rifles, bulletproof jackets. And room for the new — AI-enabled sensors, electronic warfare devices, anti-drone systems, cyber and space assets.
Take drones. A commercial UAV priced at Rs 10 lakh used to attract Rs 1.8 lakh in GST. Now it’s Rs 50,000. A saving of Rs 1.3 lakh per unit.
Scale that to military platforms: drones costing between Rs 50 lakh and Rs 5 crore will now be cheaper by Rs 6.5–65 lakh each. With more than 5,000 drones projected for induction by 2030, savings alone could cross Rs 10,000 crore. That isn’t pocket change. It’s a fleet.
Operational Readiness on Borders
The dividends will be visible where it matters most — along our contested frontiers. On the western border, cheaper armoured vehicles, artillery, and surveillance systems mean faster response capability. On the northern front, more UAVs, night-vision devices, and high-altitude gear will close gaps in surveillance over the Line of Actual Control.
This is not a theory. In his April and July reviews, Army Chief General Upendra Dwivedi emphasised maintaining the “highest operational preparedness.” CDS General Anil Chauhan, during his May visits to Northern and Western Commands, stressed how new road and logistics upgrades by the Border Roads Organisation would only pay off if matched by modern kit. With GST relief, that kit can arrive sooner and in greater numbers. By some projections, readiness metrics — ammunition reserves, equipment uptime — could rise 15–20 per cent by 2027.
That’s not an abstract figure; it’s a battalion better equipped, a brigade kept sharper, a corps less hollowed out.
Revenue Procurement: Endurance and Sustainability
It’s not just big-ticket buys. The revenue side of the budget, Rs 3.11 lakh crore, suddenly stretches further. Spares, ammunition, batteries (now zero GST), radios, rations, field gear — all come cheaper. That means longer endurance in sustained operations. Units along the LoC or LAC will be able to stock 30–40 per cent more reserves.
Think of something as mundane as a drone battery. They cost Rs 80,000–1.2 lakh. Zero GST saves Rs 14,000–30,000 each. Multiply that by thousands, and suddenly the Army can afford deeper stockpiles. In high-altitude sectors where resupply is uncertain, that could spell the difference between eyes in the sky and a blind spot.
Strategic Dividend Beyond the Battlefield
The reforms also ripple beyond the frontline. Seventy-five per cent of the modernisation budget is already earmarked for domestic procurement. GST relief means HAL, BEL, BDL, Tata, L&T, Mahindra, Adani, and scores of MSMEs and iDEX/TDF start-ups now compete with lower input costs.
Exports tell the story. From a modest Rs 686 crore in 2013–14, India’s defence exports hit Rs 23,622 crore in FY 2024–25 — a 34-fold increase. The target is Rs 50,000 crore by 2029. With GST relief, systems like BrahMos and Pinaka become even more competitive in Southeast Asia and the Middle East.
R&D too stands to gain. HAL spends 9.3 per cent of its revenue on R&D, BDL 6.1, but most private players manage only 1–2 per cent. Better margins should allow investment in AI, sensors, hypersonics, and cyber-defence. These aren’t luxuries. They’re the arsenals of future wars.
And let’s not miss the larger signal. Depending on calculation base, the government is absorbing between Rs 48,000 crore (economy-wide GST impact) and Rs 1.1 lakh crore (defence-specific estimates) in revenue loss to prioritise national security. In an era when every ministry fights for allocations, that clarity matters.
From Rupees to Readiness
In the end, GST 2.0 is not about decimals in Delhi. It’s about deterrence in Drass, vigilance in Ladakh, resilience in Rajouri. It converts fiscal prudence into tactical and strategic firepower.
The Army gains more teeth in its capital budget. More stamina in its revenue spend. Industry gains competitiveness, export traction, and an innovation push. Soldiers and veterans — through lower GST on consumer goods and stronger cantonment economies — see a morale dividend. After all, salaries and pensions totalling nearly Rs 1.47 lakh crore annually now stretch further.
We’ve often said every rupee saved is a rupee earned. In national security, every rupee saved in taxes is a rupee invested in sovereignty. This reform proves it. GST 2.0 is more than tax housekeeping. It’s a strategic masterstroke.
Maj Gen. RPS Bhadauria (Retd) is the Additional Director General of the Centre for Land Warfare Studies (CLAWS), New Delhi, and was formerly the Director of the Centre for Strategic Studies & Simulation (CS3) at USI of India, having served in the Indian Army for 36 years.
