How to contextualise India’s defence budget

Many constructive changes have taken place in India’s defence budget.

India’s defence expenditure debates are seasonal and limited to budget times. Most debates veer around one theme – India’s defence expenditure is (apparently) less and policy-makers should allocate at least 3 per cent of GDP as defence budget to counter the two-front threat.

An obsession with a fixed portion of GDP as defence budget dilutes the progressive aspects of budget on a year-to-year basis. It also reflects a generic knowledge gap about the resource constraints environment, public expenditure priorities and Ministry of Finance’s consequential resource allocation system.

India’s defence spending is reasonable and transparent

In comparative terms, India’s defence budget is better than many countries.

Many national defence budgets are shrouded in mystery and remain under-pitched for wider international consumption. This is more so in authoritarian and dictatorial regimes. For instance, China’s actual defence budget is widely believed to be much more than the official figures.

India’s defence budget, however, stands tall above these mundane controversies and is quite transparent according to international standards. Using transparency as a benchmark, the Transparency International, an NGO, places India’s defence budget in ‘moderate’ category. Similarly, the Stockholm International Peace Research Institute (SIPRI), in its Fact Sheet on ‘Trends in World Military Expenditure, 2023 (published in April 2024)’, positioned India’s defence budget at $83.6 billion against the official figure of $71 billion in 2023-24. SIPRI figures also include expenditure on paramilitary forces. In 2023-24, the budgetary allocations for Central Armed Police Forces (CAPFs) were Rs 94,741 crores (almost $11 billion). Therefore, the error margin is negligible.

The same methodological difference also leads to slight difference between SIPRI’s projection of India’s defence budget at 2.4 per cent of its GDP vis-à-vis its official figures (of less than 2 per cent).

While there is no empirical framework for the defence budget as portion of the GDP in academic literature or public policy practices, India does comparatively better even here. Only 11 countries in SIPRI list spend more proportion of national GDP on defence and most of these are again authoritarian countries or countries at war. Democratic countries like the US spend more money (3.4 per cent) to maintain their superpower status and consequential military responsibilities. The global average is 2.4 per cent of GDP.

‘Guns versus butter’ trade-off

India had defence budget allocations of more than 3 per cent in the sixties after the Sino – Indian War and in late eighties. Raising it again to the same level, as demanded by the Departmentally Related Standing Committee (DRSC) of Parliament on Defence in its several reports, will constrain developmental expenditure. The fact that defence budget as portion of GDP is rising in many European countries due to war conditions and insecurities stemming from Russia – Ukraine War should not become an alibi for raising the same in India since the country enjoys unprecedented ‘peace dividend’ moments.

Further, in the World Bank’s GDP ranking table in 2024, India figures at fifth position with GDP size of $3.41 trillion. Concurrently, India is also ranked fourth in the SIPRI list of top countries with highest military expenditure. Actually, India was the third largest spender but Russia has overtaken India by huge margins due to its ongoing war with Ukraine. At some stage in future, Russia will again go down below India since it cannot sustain a higher level of defence expenditure with a GDP base that is around 50 per cent less than that of India. All these facts prove beyond doubt that India’s defence budget is comparable to global standards.

Some facts about the defence budget

In recent times, many constructive changes have taken place in India’s defence budget. First, the defence budget has become part of the generic CAPEX momentum within the public finance domain. However, liberal budgetary allocations notwithstanding, India is still way behind the ideational target of 60:40 distribution of capital to revenue share in defence expenditure. In fact, the proportion is reverse in the Indian context and it will take serious efforts to turn the table upside down.

Second, recent budgetary allocations have been very sensitive towards encouraging the domestic military industrial complex (MIC). For example, 75 per cent of capital procurement budget is now reserved for procurements from domestic MIC. Read together with series of negative lists of prohibited items for imports, this singular initiative should reduce India’s defence imports in the long-term, even if the country remains the largest importer of arms and ammunitions at present.

Third, big-ticket procurements in defence sector have a long gestation period from initiation to delivery. Budgetary allotments are made in such a manner that there is sufficient money for all capital procurements every year. Budgetary lapses are not taking place. These initiatives should dispel a misperception amongst some defence analysts. Some of them advocated a non-lapsable capital allocation for defence modernisation. Mercifully, that was not implemented despite recommendation by the 15th Finance Commission.

Structural issues in defence spending

India’s defence budget does have concern areas. The galloping revenue expenditure is eating out the vital resources that could have been gainfully utilised in capital procurements. The situation is alarming for the Indian Army that is compelled to spend more than 80 per cent of total budgetary allocation on revenue expenditure.

Elements like defence pension and Ex Servicemen Contributory Health Scheme (ECHS) are growing very fast and may become unsustainable in future. Indian armed forces are also the second largest in world and there is decent space to cut the extra flab and save the precious penny. Most importantly, internal resource management within the armed forces are yet to be explored.

Unfortunately, there is little space for a healthy and holistic debate on India’s defence budget. Most scholars and defence analysts remain victims of ‘the more, the better’ syndrome. Those who advocate a better synchronisation of India’s defence budget with the national development priorities remain at the margins of such discourse. It is time to understand and debate all pertinent issues for consequential policy improvements and global positioning of India’s defence budget.