In the post-pandemic period, India’s defense spending as a share of GDP has shown a downward trend. Defense expenditure, which consistently accounted for 2.3% of GDP until 2020-21, declined to 2.1% between 2021-22 and 2024-25. Alarmingly, in 2024-25, it fell below 2% for the first time in over a decade, with total spending at Rs 6.2 lakh crore. This reduction raises critical concerns regarding regional security dynamics and India’s strategic ambitions, especially in the face of emerging threats.
Simultaneously, the government has set ambitious goals for the defense sector, targeting an increase in defense production to Rs 3 lakh crore by FY29 and boosting exports to Rs 50,000 crore. While India was the fourth-largest military spender globally in 2023, its expenditures remain significantly lower than those of the US and China. Reducing spending relative to GDP might reflect fiscal constraints or shifting priorities. Still, the growth in defense exports indicates a strategic pivot toward self-reliance and an assertive global market presence.
Comparison with Last Year’s Allocations
Despite a nominal increase in absolute defense spending compared to the previous fiscal year, defense’s share of GDP has declined. This indicates that while defense budgets have grown in absolute terms, they have not kept pace with the overall economic expansion. The focus has shifted toward enhancing defense production capabilities and exports, which aligns with the “Make in India” initiative and the goal of reducing import dependency.
For FY 2025-26, Rs 1,11,544.83 crore—75% of the modernization budget—has been earmarked for procurement through domestic sources. The allocation for procurement through domestic private industries is Rs 27,886.21 crore. Last year’s budget allocated Rs 6.22 lakh crore to defense, marking a 4.79% increase from 2023-24. Much of this funding supports modernizing the armed forces, strengthening border infrastructure, and fostering indigenous defense manufacturing, with programs like iDEX (Innovations for Defense Excellence) driving innovation.
Although India’s defense ministry commands the highest budget among Union ministries, it lags behind the top global spenders. According to the Stockholm International Peace Research Institute (SIPRI), India was the fourth-largest military spender in 2024, after the United States, China, and Russia. Experts argue that while recent developments are positive, sustained increases in budgetary allocations are crucial to counter evolving regional threats and ensure long-term military preparedness.
Key Defense Allocations
Capital Outlay. The capital outlay for modernization, R&D, and infrastructure has increased to Rs 1.8 lakh crore, representing a 4.65% increase.
Revenue Expenditure. The expenditure for salaries, operations, and logistics increased to Rs 3.11 lakh crore (up 10.24%).
Pensions. Rs 1.61 lakh crore (up 13.87%) covering pensioners and One Rank One Pension (OROP) revisions.
Defense Research and Development Organization (DRDO). The DRDO has allocated an additional Rs 26,816.82 crore, representing a 12.41% increase, for advanced AI, robotics, and space warfare research.
The initiative is called iDEX (Defence Innovation). The amount of Rs 449.62 crore represents a threefold increase in just two years.
Border Infrastructure. Rs 7,146.50 crore (up 9.74%) for Border Roads Organisation (BRO) projects in Ladakh, Arunachal Pradesh, Jammu and Kashmir, and Rajasthan.
SWOT Analysis
Strengths
Growing Defense Exports. The surge from Rs 1,900 crore in 2014-15 to Rs 21,000 crore in 2023-24 reflects successful market diversification.
Indigenous Development. There have been notable deals such as the Rs 3,800 crore agreement with Indonesia for BrahMos missiles.
Ambitious Production Targets. Aiming for Rs 3 lakh crore in defense production by FY29.
Strategic Global Partnerships. Enhanced defense cooperation with East and Southeast Asian countries.
Weaknesses
Declining GDP Share. Falling below 2% may constrain military modernization and readiness.
Reliance on Imports. Despite growth in indigenous capabilities, India remains a top arms importer.
Bureaucratic Delays. Red tape hampers procurement, affecting timely acquisitions.
Limited R&D Investment. Insufficient funding stifles innovation and technological growth.
Opportunities
Expanding Export Markets. Growing demand in Southeast Asia and Africa.
Private Sector Participation. Liberalization encourages private-sector innovation.
Technological Advancements. There is a potential for leadership in the fields of AI, cybersecurity, and unmanned systems.
Strategic Alliances. There are opportunities for technology transfers and joint ventures.
Threats
Geopolitical Tensions. Border conflicts with neighbors necessitate robust defense readiness.
Global Economic Uncertainty. Economic slowdowns could impact defense budgets.
Technological Lag. China, in particular, has made rapid advancements in technology.
Regulatory Challenges. Export controls and sanctions limit growth potential.
Emerging Regional Threats. The construction of Chinese roads in Nepal up to the border of the Siliguri Corridor poses a significant strategic threat, potentially compromising the narrow corridor critical for India’s connectivity to its northeastern states. The potential for a third front emerging from Bangladesh adds complexity to India’s security calculus. At the same time, porous borders with Nepal and Myanmar exacerbate risks related to smuggling, infiltration, and insurgency support.
Increasing the Strength of the Indian Army and Indian Air Force
Given the escalating threats along India’s land borders, it is imperative to enhance the strength and operational readiness of the Indian Army and the Indian Air Force. With China building up infrastructure in Nepal, tensions along the Line of Actual Control (LAC), and changing security dynamics with Bangladesh and Myanmar, the strategic environment calls for a comprehensive approach to increasing the number of troops.
Key Areas of Focus
Force Expansion. Increase the number of active personnel in the Indian Army and Indian Air Force to ensure adequate troop deployment across sensitive border regions.
Modernization of Equipment. Accelerate procuring advanced weapon systems, aircraft, and surveillance technologies to maintain a qualitative edge over potential adversaries.
Infrastructure Development. Invest in robust border infrastructure, including airstrips, logistics hubs, and rapid deployment facilities, particularly in high-altitude and remote areas.
Training and Capacity Building. Enhance training programs focusing on modern warfare techniques, cyber capabilities, and joint operations.
Budgetary Support
A substantial increase in defense budget allocations is crucial to support these initiatives. This includes:
Capital Allocation: An additional Rs 50,000 crore was earmarked for modernization projects, advanced weapon systems, and infrastructure development.
Operational Budget. The budget includes increased funding for operational readiness, which includes logistics, maintenance, and troop welfare.
Research and Development. The budget for DRDO and other research bodies should be enhanced to foster indigenous innovation in defense technologies.
Conclusion
India’s defense sector exhibits promising growth in exports and indigenous production. However, the declining GDP share allocated to defense spending could undermine military modernization and readiness. New threats, like China building infrastructure in Nepal near the Siliguri Corridor, possible third-front threats from Bangladesh, and porous borders with Nepal and Myanmar, show how important it is to make long-term investments in defense.
The marginal increase in defense spending appears insufficient to meet these evolving security challenges. There is a pressing need to correlate the defense budget as a percentage of GDP with the magnitude of existing and potential threats.
Considering the dynamic security environment, India’s defense budget should be recalibrated to reflect these realities, ensuring adequate resources to safeguard national security. Balancing fiscal prudence with strategic imperatives will be essential as India navigates its defense and security priorities in an increasingly volatile global environment.