India matches West in defence spend by GDP, but lags on investment

In FY24 and FY25, capex accounted for only 24.9 percent of India’s total defence outlay. In contrast, the US allocated 37 percent of its military budget to capex.

Ishaan Gera

July 10, 2025 / 16:07 IST

India needs to up its defence capex

India may be keeping pace with advanced economies like the UK and the European Union in terms of defence expenditure as a percentage of GDP, but it continues to lag behind in capital investment in defence, according to a Moneycontrol analysis.

While India spends around 1.8–2 percent of its GDP on defence — similar to levels seen in the UK and EU — its defence capex (capital expenditure) remains significantly lower. In FY24 and FY25, capex accounted for only 24.9 percent of India’s total defence outlay, compared with a third in the UK and 31 percent in the EU. In contrast, the United States allocated 37 percent of its military budget to capital expenditure.

The difference becomes more evident when measured against GDP. In FY25, India’s defence capex stood at 0.49 percent of GDP — higher than the EU’s 0.4 percent, but lower than the UK's 0.6 percent, and significantly below the US’ 1 percent. Moreover, while the US steadily increased its capex between FY17 and FY25 — from 0.92 to 1.04 percent of GDP — India’s declined from 0.56 to 0.49 percent over the same period.

Capex has consistently made up just a quarter of India’s defence budget over the past eight years, indicating little structural change. This needs to change as India prepares to increase its share of defence spending.

“We will seek to increase the share of defence expenditure in GDP from 1.9 to 2.5 percent," Defence Secretary RK Singh told CNBC-TV18, Moneycontrol’s sister concern, on July 7.