This article is from a two-part series analysing the budget numbers and their sectoral allocations for FY 25-26.
Beyond mainstream news headlines, a closer look at the budgetary numbers offers critical insights. India’s defence budget has more than doubled in the last decade alone, surpassing Rs 6.8 lakh crore in the recently announced budget.
Yet, despite this staggering figure, the armed forces remain far from satisfied. Purchased weapons arrive late, critical modernisation projects have dragged on for years, and nearly a quarter of the budget is swallowed by pensions. Even with record-high spending, the military still lacks the firepower it desperately seeks.
All this comes at a cost of critical sectors like education and healthcare which continues to be sidelined.
Schools across the country remain underfunded, with many lacking even basic infrastructure. The crisis is so severe that the suicide rate among students has now surpassed that of farmers, a grim reflection of the pressure and neglect in the education sector. Healthcare paints an equally dire picture where India is short by a staggering 2.4 million hospital beds, leaving millions without access to proper medical treatment.
While India races to strengthen its borders, it seems to be overlooking its most valuable asset which is its people.
India’s education crisis: A system in need of urgent reform
Education has long been touted as the foundation of India’s future, yet budgetary allocations and systemic inefficiencies tell a different story. Public expenditure on education remains around 2.9% of GDP (2024), far below the 6% target recommended by the Kothari commission. While funding has increased since 2015-16, the sector continues to grapple with severe infrastructure and manpower shortages
One of the most pressing concerns is the acute shortage of qualified teachers. Over 1.2 million teachers vacancies exist nationwide, leading to overcrowded classrooms with student-teacher ratios exceeding 50:1 in many government schools. Worse, nearly 40% of government-appointed teachers lack proper qualifications, severely impacting learning outcomes. In rural areas, these issues are compounded by poor infrastructure, outdated curricula, and the digital divide which seriously hampers quality of education for millions.
Also read: Despite the ‘Investing in People’ Rhetoric, Budget 2025 Does Little for the Social Sector
The cracks in the system manifest in tragic ways. India has one of the highest youth suicide rates in the world, with one student taking their own life every 42 minutes in 2020. The numbers paint a grim picture – 11,396 student suicides were recorded that year, most attributed to academic pressure, parental expectations, and anxiety. Yet, mental health support in schools remains largely absent.
While government with the recent budget did try to boost initiatives such as Atal Tinkering Labs and digital connectivity programmes, these attempt to modernise education and their impact is limited when the fundamental issue of lack of investment, inadequate teacher training, and mental health neglect continues to remain unaddressed.
The disparity in budget allocation does make one thing clear, how education simply isn’t a priority for this government. Year after year, defence spending sees steady increase, while education remains on the back burner. The graph below reflects this stark reality:
Source: Budget 2025-26
Additionally, when we examine India’s defence budget closely, we see how it has witnessed a staggering 152% increase over the past decade, rising from Rs 2.46 lakh crore in 2015-16 to Rs 6.8 lakh crore in 2025-26. This sharp escalation reflects India’s evolving security concerns, modernisation efforts, and the financial strain of a massive standing army.
A closer breakdown of the numbers, however, highlights the structural challenges within this surge. In 2020-21, out of Rs 3.37 lakh crore allocated for defence, nearly Rs 1.34 lakh crore (29%) was earmarked for pensions. This means that a significant chunk of the budget is not directly contributing to modernisation, procurement, or infrastructure.
Healthcare hasn’t been left too unaffected from this trend. When looked at first glance, India’s healthcare budget appears to be improving and although it’s partially true the allocation has increased from Rs 33,152 crore in 2015-16 to Rs 95,957 crore in 2025-26, showing a more than 100% jump but dig deeper, and the picture is far less reassuring.
Despite this increase, India’s hospital bed availability remains critically low, with just 1.4 beds per 1,000 people, far below the WHO recommendation of 3.5 per 1,000. Worse, government hospitals have an even more alarming ratio – only 0.79 beds per 1,000, meaning the country is short by 2.4 million beds. The doctor-to-patient ratio stands at 1:1,511, again failing to meet the WHO-recommended 1:1,000.
The rural-urban divide further exposes the cracks in the system; 70% of Indians live in rural areas, yet only 40% of hospital beds are available to them. Nurse-to-patient ratios stand at 1:670, a glaring shortfall from the recommended 1:300. Public hospitals are overwhelmed, underfunded, and stretched beyond their limits, while private hospitals, though better equipped, remain out of reach for millions due to high costs.
The graph bellow tells us a troubling story, not only is the healthcare sector underfunded, but the government doesn’t even fully utilise what it allocates. As seen in the graph, actual expenditure often falls short of budget estimates, highlighting deep structural gaps within the system. Whether due to bureaucratic inefficiencies, delays in project execution, or lack of long-term planning, the unspent funds reflect a widening disconnect between policy and implementation. Allocating money on paper means little if it fails to translate into real improvements. This consistent underutilisation raises a serious question.
Source : CDPP
Perhaps the most devastating statistic is this: 62.6% of India’s total healthcare expenditure is paid out-of-pocket by individuals, making it one of the highest in the world. Medical bills are a leading cause of poverty in India, yet the government has done little to reduce this burden.
While the defence budget enjoys a steady rise, with Rs 1.80 lakh crore allocated for capital outlay alone in 2025-26, healthcare remains chronically underfunded. Modernisation in the military is deemed necessary, but what about the modernisation of hospitals? Where is the urgency in building new medical infrastructure?
The key to a stronger and prosperous India
If we truly want to escape the traps that loom over our future, from the middle-income trap to the risk of premature deindustrialisation or even from jobless growth to what economist Arvind Subramanian calls the danger of becoming a “stalling economy” we must recognise that national power isn’t just measured in defence budgets and GDP figures. It is measured in the capabilities of its people.
Also read: Health Budget: How Closer Scrutiny of Major Announcements Reveals Half-Baked Truths
With a young population, we have a fleeting window to reap the benefits of a demographic dividend, but without robust investments in education and healthcare, that advantage could easily turn into a demographic disaster. A McKinsey report warns that India risks “growing old before it grows rich,” as inadequate human capital investments could stall economic progress before the country fully develops.
No nation has ever achieved sustained prosperity without first ensuring that its people are healthy, skilled, and empowered. We can continue funnelling resources into military expansion while neglecting the very foundation that sustains national strength, or we can recognise that a truly secure India is one where every child has access to quality education, where no family fears medical bankruptcy, and where human potential, not just military power, defines our progress.
Anania Singhal also contributed to this article’s research.
Deepanshu Mohan is a Professor of Economics, Dean, IDEAS, and Director, Centre for New Economics Studies. He is a Visiting Professor at London School of Economics and an Academic Visiting Fellow to AMES, University of Oxford.
Ankur Singh is a Research Assistant with Centre for New Economics Studies (CNES) and a team member of its InfoSphere initiative.