This position may be considered necessary from the point of view of balancing other financial pressures and other priorities, but in this case a commitment like revenue expenditure further limits the scope for flexibility in spending. Therefore, striking a balance between immediate operational needs and long-term strategic change remains a major challenge for Indian strategic policymakers.
Defense budget ₹7.85 lakh crore, special emphasis on modernization
Increase in indigenous production, defense exports from self-reliant India
Capital expenditure increased, it is important to ensure effective spending
Harsh V. Pant. The increase in defense expenditure in the General Budget is a sign of continuity amid global and regional strategic turmoil. The budget allocates ₹7.85 lakh crore for the Defense Ministry, up from ₹6.81 lakh crore last year. Of this, ₹2.19 lakh crore is for the modernization of the armed forces. Of this, ₹63,733 crore has been earmarked for aircraft and aero-engines and ₹25,023 crore for the Navy. The remaining ₹5.54 lakh crore is for revenue expenditure. There is a provision of ₹1.71 lakh crore for pension.
It is clear that the government has attempted to pursue its long-term objectives of defense self-reliance. The decision to exempt components and spares required for the manufacture of civil, training and other aircraft from basic customs duty and to waive duty on raw materials used in aircraft maintenance, repair and turnaround indicates that efforts are being made to coordinate fiscal policy with industrial strategy. These measures are to strengthen domestic aerospace manufacturing and reduce import dependence. This is especially true in the premium category of the defense supply chain.
India's defense budget has been on a steady rise, driven by cognizance of the country's complex security landscape. A scenario that ranges from tensions on the north-western borders to growing competition in the Indo-Pacific region. Therefore, modernization of old military equipment has no longer become an option but a necessity. We should not confuse the increasing allocation with technical issues like rising cost of new technologies. We just have to focus on ensuring that whatever is allocated is also spent effectively. The quality of expenditure is certainly an important point in this.
It is a good sign in this direction that in the last few years, the share of capital expenditure i.e. expenditure on new technologies and modernization in the defense budget has increased. Defense capital expenditure is expected to grow at an annual rate of about 9.1 percent between fiscal years 2020 and 2025, almost doubling compared to the previous decade. In this sequence, the share of revenue expenditure on salaries, pensions and maintenance has decreased. It is clear that a well-planned step like increasing capital expenditure will play an important role in shaping future military capabilities. This type of change has become strategically necessary. If India is to enhance conventional strategic capabilities, it will have to invest in advanced aircraft, submarines, drones and network-centric warfare capabilities.
It is good that capital expenditure has increased, but it is still lower than expected. It must be remembered that financial constraints, competing development priorities and the structural burden of revenue expenditure limit the pace of military modernisation. It cannot be ignored that the role of technology is becoming decisive. Therefore we have to intensify our efforts. Especially considering a country like China, which is spending hugely more than India in next generation platforms, cyber capabilities, space assets and AI enabled systems. Over time, Indian strategic policymakers have also begun to prioritize cyber, electronic warfare, space and drone technologies, but budgetary allocations for these areas remain low compared to investments in conventional platforms. Continued growth in defense research and development will be critical if India is to close this gap.
In recent years, the Self-reliant India initiative has also changed the structure of defense spending. Over the past few years, more than 70 per cent of capital procurement has been earmarked for indigenous sources, indicating a strong focus on developing domestic manufacturing capacity and reducing dependence on imports. This strategy has also yielded good results. There has been a record increase in defense production. Defense exports have also increased rapidly to reach the level of about ₹23,500 crore. Its diversity is also reflected in its exports to about 90 countries. It is clear that such development enhances India's strategic partnerships and also expands its geopolitical stature.
This also recognizes the role of the private sector in defense production. Despite this, self-reliance has its limits. Foreign dependence continues, especially in the case of high-end and advanced technologies and weapons. To bridge this gap, not only policy but also intention will have to be shown. This will require sustained investment in research and development, an enabling ecosystem, and greater efficiency in procurement and budget execution. Despite continuous growth, our defense expenditure as a proportion of GDP is still stuck at 2.2 percent.
This position may be considered necessary from the point of view of balancing other financial pressures and other priorities, but in this case a commitment like revenue expenditure further limits the scope for flexibility in spending. Therefore, striking a balance between immediate operational needs and long-term strategic change remains a major challenge for Indian strategic policymakers. On this criterion, the defense budget also reflects traditional contradictions, linked to ambitions and financial limitations. The future direction is clear with increased allocation to the defense sector, but if it is not implemented properly, the pace of increase in capabilities may be affected.
(The author is a strategic analyst)
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