Explore India’s Interim Defense Budget 2024-‘25

Presenting the Interim Budget 2024-’25 on 1 February, the finance minister announced an allocation of INR 6,21,541 crore (approx. US$75 billion) for the Ministry of Defense (MoD). Representing 1.9 percent of Gross Domestic Product (GDP) and 13 percent of Central Government Expenditure (CGE), MoD’s new budget is an increase of 4.7 percent over the previous outlays. This brief examines the MoD’s latest budget and contextualizes it in the current regional and global security environment. It offers an overview of the MoD’s allocations over the last several years; and examines the drivers of growth in the latest allocations and the impact on defence modernisation and self-reliance. The author examines the nuances of GDP-to-defense ratio in view of ongoing debates, and not just in India, on how much a country should spend on national defense.

 

Attribution: Explore India’s Interim Defense Budget 2024-‘25

Laxman Kumar Behera, “Examining India’s Interim Defense Budget 2024-‘25,” ORF Issue Brief No. 693, February 2024, Observer Research Foundation.

Introduction

On 1 February, Finance Minister Nirmala Sitharaman presented the interim budget for FY2024-‘25.[1] Of the total allocations of INR47,65,768 crore (approx. US$574 billion[a]), she earmarked INR6,21,541 crore (US$74.8 billion) to the Ministry of Defense (MoD). Representing an increase of 4.7 percent over the previous allocations,[2] the MoD’s interim budget—which amounts to 13 percent of the Central Government Expenditure (CGE)—constitutes the highest allocation among all the ministries. To be sure, the interim allocations of the MoD, like those made by the finance minister for other ministries and departments, may still undergo a change in the full budget of the ensuing financial year—scheduled to be presented in July 2024 after the general elections. Nonetheless, it provides an overview of the general direction of the spending priorities for the defense establishment.

This brief examines the MoD’s latest allocations. It outlines an overview of the MoD’s overall expenditures over the last several years; and examines the drivers of growth in the latest allocations and the impact on military modernization and Atmanirbharata (self-reliance) in defense. It also discusses the nuances of gross domestic product (GDP)-to-defense ratio in view of current debates on appropriate national defense spending.

The Geopolitical Environment and India’s Defense Economy

The interim budget comes in the midst of a fast-deteriorating global security environment, marked by wars in Europe and the Middle East, and geopolitical competition among the global powers. The trade and technology war between the United States (US) and China, which began during the Trump administration, has intensified under the Presidency of Joe Biden, causing what many describe as emerging patterns of deglobalization, friendshoring, and onshoring, and leading to global supply chain disruptions. The economic rivalry between the two powers has taken a turn for the worse as both display their military might in the South China Sea—a gateway for Indian and global trade and commerce. China’s military assertiveness in the Taiwan Strait before and after the 13 January Taiwanese presidential elections, and the US’s determination to thwart any Chinse military misadventure has fueled fears of a war that can easily pull in many countries in the region and beyond.

In India’s neighborhood, the ongoing border crisis with China is a stark reminder of the challenges that India’s northern Neighbour poses to the country’s security. With over 50,000 Indian troops deployed to counter China’s belligerent actions at the border, India’s China posture will likely remain security-driven for the foreseeable future. The China threat, which has historically been land-centric, is increasingly transcending to the maritime, cyber, and space domains. China’s massive naval expansion, in particular, supported by its sprawling shipbuilding industry and buoyed by a massive expansion in military spending, has enabled the Chinese navy to emerge as the biggest in the world.[3]

Though the current focus of the Chinese Communist Party (CCP) remains on what it calls the “reunification” of Taiwan, its increasing forays into the Indian Ocean—considered by many as India’s backyard—has put the Indian navy in a difficult situation. Considering that the navy is the smallest service among the Indian armed forces and has the least share in the defence budget, it would remain hard-pressed to match China’s naval capability. It has to perforce seek and strengthen partnerships with like-minded navies to contain Chinese influence, particularly west of Malacca Strait. India’s enthusiastic adoption of the Quad, its tacit support to the AUKUS trilateral strategic military-technology alliance, and New Delhi’s enhanced naval cooperation with navies of friendly countries (including the US, the UK, France, Vietnam, and the Philippines) will remain a defense and security priority for India.

Meanwhile, China’s all-weather friend, Pakistan, continues to pose a threat, though its virulence has diminished in recent times as Pakistan finds itself confronting a severe economic and security crisis. India, however, has to remain vigilant of Pakistan’s deepening strategic and military relations with China. Their growing naval ties, as evident from Pakistan’s imminent induction of several Chinese ships and submarines and their joint naval exercises in the Indian Ocean, is of particular concern for India.[4]

Beyond India’s immediate neighborhood, the ongoing Israel-Hamas war has rekindled the volatility of the region which is vital for India’s energy security and is home to a large Indian diaspora who send home large amounts of remittances every year. The attack by the Iran-backed Houthis since November last year on shipping in the Red Sea—which handles about 30 percent of global container trade and about US$200 billion worth of annual Indian trade[5]—has caused immense disruption to world trade flows. The military response by the US and UK on Houthi targets in Yemen, Syria and Iraq is threatening a breakout of an all-out regional war. The Indian Navy has responded to the evolving threats in the Red Sea and the adjacent piracy-infested waters by deploying a dozen warships and other platforms to protect its maritime interests.[6] The longer the crisis continues, the greater will be the adverse impact on India’s trade and energy security, besides frittering away the precious naval resources from building core capability to counter the Chinese navy in the Indian Ocean.

The prolonged Russia-Ukraine war carries implications for India’s economic and military security. The war has caused a steep spike in global fuel, food and fertilizer prices, in turn resulting in economic consequences for India. On the security front, Russia’s preoccupation with the war has hindered its ability to supply military equipment and spares to the Indian military, adversely affecting India’s defense modernization. Moreover, the preoccupation of the defense industry of the West, particularly the US, in providing war supplies to Ukraine (and also Israel) has restricted its ability to supply equipment to India in a timeframe that suits the country’s armed forces.

If the Russia-Ukraine and Israel-Hamas wars are a reminder of the importance of self-reliance in a country’s defense preparedness, it has also brought home a vital lesson that the country cannot afford to put all its eggs in one basket and that it must diversify its sources of military equipment and technology. Though Russia is the single largest supplier of military equipment to India, the diversification of India’s sources of arms and ammunition has been a key tenet of the defense procurement policy of the Modi government. Over the last few years, India has successfully diversified its sources of defense equipment and spares to include countries such as France, Israel, the US, South Korea, and the UK.

The ongoing geopolitical churnings have thrown up new challenges for India’s security establishment even as they have highlighted the importance of self-reliance in defense production and minimizing dependence on external sources for military hardware and software. The finance minister’s announcement that the government will not raise defense spending in 2024-‘25 at a time when security challenges are mounting is bound to disappoint many in the military and strategic community. It is, however, reflective of the government’s tight fiscal situation and the need to spend money judiciously on key priorities such as healthcare, education, and infrastructure.

Overview of Defense Budgetary Trends

India’s defense budget has undergone several significant changes over the years, reflecting both external security threats and domestic economic considerations. From a low of 2.27 percent of GDP in FY2016-‘17, the defense budget increased to 2.74 percent in FY2019-‘20—a level not seen since the Kargil conflict in 1999.[7] This increase was largely driven by the government’s focus on military modernization, particularly the implementation of the ambitious “Make in India” initiative in the defense sector. However, the defense budget witnessed a slight decrease in FY2020-‘21, amounting to 2.15 percent of GDP, due to the economic slowdown induced by the COVID-19 pandemic.[8] In FY2021-‘22, the defense budget saw a marginal increase to 2.27 percent of GDP, reflecting the government’s commitment to maintaining a credible defense posture amidst growing security challenges in the region.[9]

Factors Driving Growth in Defense Allocations

The growth in defense allocations in the interim budget for FY2024-‘25 can be attributed to several factors:

1. Security Challenges: The deteriorating security environment in the region, including the ongoing border standoff with China and the volatile situation in Afghanistan, has necessitated increased spending on defense to enhance India’s military capabilities and preparedness.
2. Military Modernization: The government’s focus on military modernization, particularly in the areas of air power, naval capabilities, and cyber and space warfare, has led to higher allocations for capital acquisitions and technology upgrades.
3. Atma nirbhar Bharat: The government’s emphasis on self-reliance in defense production, as outlined in the Defense Acquisition Procedure (DAP) 2020 and the Defense Production and Export Promotion Policy (DPEPP) 2020, has led to increased funding for indigenous research and development (R&D) projects and support for domestic defense industries.
4. Geopolitical Considerations: India’s evolving geopolitical dynamics, including its strategic partnerships with like-minded countries such as the United States, Japan, Australia, and France, have necessitated investments in defense capabilities to maintain regional stability and counter common security threats.

Impact on Defence Modernisation and Self-Reliance

The increased allocations for defence in the interim budget are expected to have a significant impact on India’s defence modernisation efforts and self-reliance objectives:

1. Enhanced Procurement: The higher allocations for capital acquisitions will enable the armed forces to procure advanced weapon systems, platforms, and equipment to enhance their operational capabilities and maintain a technological edge over potential adversaries.
2. Investment in Indigenous R&D: Increased funding for indigenous R&D projects and support for domestic defence industries will facilitate the development of cutting-edge technologies and indigenous manufacturing capabilities, thereby reducing dependence on foreign suppliers and enhancing self-reliance in defence production.
3. Infrastructure Development: The budgetary provisions for infrastructure development, including the creation of strategic infrastructure along the border areas and the modernisation of defence facilities and installations, will strengthen India’s defensive posture and operational readiness.
4. Human Capital Development: Investments in training, skill development, and recruitment of personnel will enhance the operational effectiveness of the armed forces and contribute to the overall capability enhancement of the defence establishment.

Nuances of GDP-to-Defence Ratio

The GDP-to-defence ratio, often used as a metric to assess a country’s defence spending relative to its economic size, has been a subject of debate among policymakers, analysts, and defence experts. While some argue that a higher GDP-to-defence ratio is necessary to ensure national security and deterrence capabilities, others caution against excessive military expenditures at the expense of social and economic development. In the Indian context, the GDP-to-defence ratio has fluctuated over the years, reflecting changes in economic growth, defence priorities, and fiscal constraints.

Frequently Asked Questions (FAQ)

Q1: How does India’s defence budget compare to other countries?

A1: India’s defence budget is among the largest in the world, reflecting its status as a major regional power with significant security challenges. However, compared to other major powers such as the United States, China, and Russia, India’s defence spending as a percentage of GDP is relatively lower.

Q2: What are the key areas of focus in India’s defence modernisation efforts?

A2: India’s defence modernisation efforts encompass a wide range of areas, including the acquisition of advanced weapon systems and platforms, development of indigenous defence technologies, infrastructure development along the border areas, enhancement of cyber and space capabilities, and capacity-building in areas such as maritime security and counterterrorism.

Q3: How does the defence budget contribute to India’s goal of self-reliance in defence production?

A3: The defence budget plays a crucial role in supporting India’s goal of self-reliance in defence production by providing funding for indigenous research and development projects, procurement of domestically manufactured defence equipment, and infrastructure development to support domestic defence industries.

Conclusion

The interim defence budget for FY2024-‘25 reflects the government’s commitment to enhancing India’s defence capabilities and promoting self-reliance in defence production. With increasing security challenges in the region and evolving geopolitical dynamics, the higher allocations for defence are timely and necessary to ensure India’s national security and strategic autonomy. However, achieving the desired outcomes of defence modernisation and self-reliance will require effective implementation of budgetary provisions, strategic planning, and coordination among various stakeholders. As India navigates the complex security environment in the years ahead, its defence budget will continue to be a critical instrument for safeguarding its national interests and promoting regional stability.

Endnotes

[1] Government of India, Ministry of Finance, “Budget Speech for 2024-25,” https://www.indiabudget.gov.in/.

[2] Ibid.

[3] “The People’s Liberation Army Navy,” GlobalSecurity.org, https://www.globalsecurity.org/military/world/china/plan.htm.

[4] Gaurav C. Sawant, “China Sends Warships, Submarines to Pakistan, Signalling Deepening Naval Ties,” India Today, September 26, 2023, https://www.indiatoday.in/world/story/china-sends-warships-submarines-to-pakistan-signalling-deepening-naval-ties-1919817-2023