India is getting all set to showcase its military might at the 76th Republic Day. This will be followed by the Union Budget being presented on 01 February 2025. While the masses look for nation-building and social welfare schemes, and relief on taxes, the security establishment and global community analyze the defence allocation. India remains highly threatened. China is pulling ahead in numbers and capability. Military-controlled Pakistan, despite being debt-ridden, is systematically adding force multiplier defence assets.
The world continues to be at war. Russia gets ready to enter the fourth year of the “special military operation” in Ukraine. West Asia has been seeing ballistic missiles flying in multiple crises. China is making invasion-like preparations, and threatening moves against Taiwan. Though there is finally a thaw in the India–China border stand-off, the trust deficit remains high and China is strengthening infrastructure at the Line of Actual Control (LAC). With Bangladesh coming under Islamic radicals and a pro-Pakistan government, India has a third front to contend with. Under these circumstances, this year’s defence allocations will be closely watched.
Recent Budgets of Big Powers
Russia recently announced defence spending for 2025, a hike by 25 percent from the previous year, a new post-Soviet era high. At $145 billion, it will be 6.3 percent of Gross Domestic Product (GDP). It will be close to a third of all government spending. Russia will thus become the third largest defence spender after the USA and China. For FY 2025 the US DoD has requested a budget of just under $850 billion. The 2024 official Chinese defence budget was 1.67 trillion yuan ($231 billion). In 2023, the Stockholm International Peace Research Institute (SIPRI) estimated that China‘s military spending was $296 billion, which accounted for 1.7 percent of the country’s GDP.
War Budgeting Dynamics – Russia Ukraine
Moscow’s military spending was $48.4 billion in 2020. As a buildup towards war, it increased to $65.9 billion in 2021, the fifth highest globally, behind the United States, China, India, and the United Kingdom. In 2024 it grew 24 percent to $109 billion.
Ukraine became the eighth largest military spender in 2023. Yearly spending surged 51 percent to reach $64.8 billion. It represented 58 percent of total government annual spending and 37 percent of its GDP. Interestingly, it had spent $5.94 billion in 2021, but increased to $44.0 billion in 2022, an increase of 640.36 percent from 2021. 2023 spending was 59 percent of Russia’s defence expenditure. Ukraine also received at least $35 billion in military aid during 2023, including $25.4 billion from the USA. When combining the two, it became 91 percent of Russian spending. The United States has given approximately $65.9 billion since the beginning of the Russian invasion on Feb. 24, 2022.
Israeli Defence Budget and West Asian Conflict
Israel‘s military budget for 2024 has seen a dramatic increase, reaching approximately $30.5 billion, representing an 87 percent rise from the previous year. The jump came in the wake of the Israel-Hamas conflict that began in October 2023, significantly impacting the country’s national priorities.
Global Defence Expenditure 2023
Full expenditure figures for 2024 are still coming out. The world feels greatly threatened and needs for improving military strength and deterrence. Stockholm International Peace Research Institute (SIPRI) data for 2023 highlighted the global tensions and hotspots. In 2023, global defence spending reached $2.443 trillion, a 6.8% increase from the previous year. This was the steepest year-on-year increase since 2009.
The 10 largest spenders in 2023 were led by the United States, China, and Russia, all of whom increased their military spending. It was the ninth consecutive year of global military spending rise. Also, it was the first time since 2009 that military expenditure went up in all five of the geographical regions. Particularly large increases were seen in Europe, Asia, Oceania, and West Asia. Clearly, there is deterioration in peace and security.
NATO Defence Expenditure
The USA remains NATO’s major spender, but European members increased their share. In 2023, the then 31 NATO members accounted for $1341 billion, equal to 55 percent of the global military expenditure. The USA’s military spend rose by 2.3 percent and reached $916 billion in 2023. This was 68 percent of NATO’s total military spend. European NATO members increased their military expenditure, and their combined share was now 28 percent of NATO, the highest in a decade. The remaining 4 percent was by Canada and Turkey.
Europe perceives that strong, autocratic, and ambitious Putin has brought the Russian threat closer to NATO. The US has been asking Europeans to take greater charge of their security. After all, the USA has to concentrate a little more on Chinese expansion and bolster security in the Indo-Pacific. Nearly a decade back, European NATO members had formally committed to target spending 2 percent of GDP on the military. 11 out of 31 NATO members actually hit or crossed the 2 percent level in 2023. NATO has also set the target that at least 20 percent of military spending be towards ‘Capital expenditure’ for new equipment. This was met by 28 NATO members in 2023, up from 7 in 2014.
China and its Threatened Neighbours
China’s military rise is the most watched and analyzed subject globally. The USA, and China’s neighbourhood, especially India, Japan, South Korea, and the Philippines closely monitor military power projection-related activities of China. There is a general belief that China spends around 40 percent outside the formal military budget under other code-heads that directly contribute to military power. All its neighbours increased their defence budgets to reduce the growing military power gap with China.
China continues to be the world’s second largest military spender. SIPRI estimates China’s 2023 military budget at $296 billion, an increase of 6 percent over 2022. It was its 29th consecutive year-on-year rise. China’s was half of the total military spending across the Asia and Oceania region.
Japan’s 2023 defence budget was $50.2 billion, an 11 percent increase over 2022. Japan has finally shed its pacifist approach. There is a move to remove the 1947 enacted Article 9 of their constitution that forbids offensive weapons. Japan’s defence budget request for 2025 is $59 billion, 1.4 percent of GDP. It plans to increase its defence budget further and bring it up to 2 percent of GDP by 2027. Taiwan’s military expenditure in 2023 was $16.6 billion. It plans to increase defence spending by nearly six percent, reaching almost $20 billion in 2025. In September 2024, the USA announced a military aid package worth $567 million for Taiwan.
Pakistan has announced a 2024–25 defence budget of nearly $7.64 billion, approximately an 18 percent increase over the previous budget. The gains are being offset by severe economic challenges including the falling value of Pakistan‘s currency and high inflation.
Conflict-Ridden West Asia
War and tensions in West Asia for decades have kept the defence budgets rising. Military expenditure in the region increased by 9 percent to $200 billion in 2023. The highest percentage increase in the last decade. Saudi Arabia is now the sixth largest spender in the world, and highest in the region. In 2024, the Saudi Arabian defence budget is $71.7 billion and planned to grow at a CAGR of more than 8 percent during 2025-2029. Israel’s military spend was the second largest in the region after Saudi Arabia. From the warming of diplomatic relations between Israel and several Arab countries in recent years to the new hostilities with Iran-backed three ‘H’s, Hamas, Hezbollah, and Houthi, brought in new dynamics. Iran was the 4th largest military spender in the region in 2023 with $10.3 billion. Iran proposes to triple its military budget for 2025 to $30 billion, in response to the Israeli threat.
Weapons Demand Grows But Production Lags
There were five U.S., three Chinese, one Russian, and one British company in the top 10 global defence manufacturers in 2023. Seven Chinese companies are in the first 25. HAL, the highest Indian company, stands at 43. China accounted for the second largest share of combined top 100 arms revenues by country, at 18 percent. Global conflicts have greatly increased weapon systems and munitions demands. However, despite receiving new orders, many US and European arms companies could not significantly ramp up production capacity because of labour shortages, soaring costs, and supply chain disruptions that were exacerbated by the ongoing wars. Relatively smaller suppliers like Germany, Norway, Iran, Turkey, Poland, and North Korea had to step in. Of course, countries like Israel and South Korea are known to maintain high stocks and surge production capacities.
European arms imports have nearly doubled, US and French exports rose, and Russian exports fell sharply. Around 55 percent of European arms imports in 2019–23 were supplied by the USA, up from 35 percent in 2014–18. The USA’s arms exports share of total global arms exports rose from 34 to 42 percent. France’s arms exports increased by 47 percent between 2014–18 and 2019–23, and for the first time, it was the second biggest arms exporter, just ahead of Russia.
The largest share of global arms transfers goes to Asia, with India among the world’s top arms importers. For the first time in 25 years, the USA was the largest arms supplier to Asia and Oceania, accounting for 34 percent, compared with Russia’s 19 percent and China’s 13 percent. Pakistan was the fifth largest arms importer in 2019-23, with China providing 82 percent of its arms imports.
Indian Defence Budget 2024-25
At ₹621,940 crore ($74.27 billion) for 2024-25, the defence budget was 13 percent of the total national budget and 1.89 percent of GDP. Excluding defence pensions, it was $57.58 billion, 1.46 percent of GDP. $20.53 billion was for Capital expenditure. The Revenue budget was $33.86 billion. $16.8 billion for pensions was nearly 23 percent of the total allocation. The allocation for defence R&D was just $1.58 billion. There was an approximately 46 percent increase in support for prototype development under the ‘Make’ Procedure. The Border Roads Organisation (BRO) again got a substantial increase of 30 percent.
The Capital budget represents 27.67 percent of the total defence budget. Many new procurements like the LCA MK-IA, C-295 transport aircraft, aero-engines, MQ-9B drones, and S-400 Triumf payments are involved. While there is a long list of items urgently required by the armed forces such as tanks, submarines, aircraft carriers, and fighter aircraft, FRA, and AEW&C, India is facing difficulty in spending due to supply chain disruptions from Russia, GE-404 delays for the LCA, and even HAL facing delays in already ordered aircraft. There are thus hurdles in Capital budget spending. Meanwhile, there is a need for early decision-making on the IAF’s 114 MRFA, and the Navy’s next aircraft carrier. Having multiple small fleets makes life cycle costs high.
Support to Atmanirbharta
India’s defence production is supported by 75 percent of Capital outlay to be spent for domestic procurements. Positive Indigenous List (PIL) items now stand at over 5,000. Allocation of ₹518 crore to the Innovations for Defence Excellence (iDEX) framework supports technological solutions from start-ups, MSMEs, and innovators. 25 percent of the defence R&D budget was set aside to aid academia, start-ups, and private industry, and encourage them to research and develop defence products and weapon systems. DRDO now gives greater access to the private industry, start-ups, and academia. Private industry is being supported for testing and certification through a nodal umbrella. India‘s annual defence production reached a record high of approximately ₹1.27 lakh crore for 2023-24. There are incentives for processing and refining critical minerals. The new policies promote industry and armed forces interaction and coordination, and confidence in domestically produced weapon systems.
It is estimated that the Indian armed forces will spend approximately $130 billion on capital procurement over the next five to six years. Increased defence production will also open avenues for exports and amortize costs. It will also generate jobs and support the nation’s target of reaching a $5 trillion economy. The target is ₹175,000 crore ($25 billion) defence production and an increase in military hardware exports from the current ₹21,083 crore ($2.6 billion) to ₹50,000 crore by 2028-29.
Building Intellectual Property Crucial
Defence technologies are invariably high-end. Obsolescence sets in early. No one shares top-end technologies. Even when you get previous-generation systems, they are at huge cost. There is a continuous need for R&D. That means a much higher percentage of R&D budgets. In 2023, China‘s investment in R&D was 2.64 percent of GDP. The United States spent 3.47 percent, and Israel 5.71 percent. India‘s is only 0.64 percent. To sit on the global high table, India must increase total national R&D spend, and build intellectual property.
The aero-engines, hypersonic, electronic warfare, directed energy weapons, AI, uncrewed systems, drones, robotics, quantum, long-range missiles, cyber, and Space, are some of the major areas. A jump-start may not be easy. Partnerships with friendly foreign countries are perhaps the best way. Prime Minister Modi held one-on-one meetings with CEOs of all top technology companies and has invited them to work with India.
Time for Capability-Based Budgeting in India
Ongoing conflicts have clearly brought out that wars will not be short and swift. Chinese and Indian troops, the two largest armies by numbers, kept facing eyeball-to-eyeball on the Line of Actual Control (LAC) for nearly four years. Despite being the fourth most powerful nation, the power index gap with China remains very significant. India is short of 11 fighter squadrons, needs many more attack helicopters, submarines, warships, tanks, artillery guns, and uncrewed systems. India must also take its call on the next aircraft carrier. The importance of air defence systems has got underscored. India has to build up munitions stocks. Clearly, the Indian military has to grow, and allocations must increase according to threat perception.
Economic sanctions have been used as a geopolitical weapon. Arms supply chains have seen interruptions. Newer disruptive technologies like uncrewed systems (drones) are democratizing conflict with smaller players affording cheaper lethal capability.
Militaries are often blamed for inefficient spending. Budgeting with SMART goals (Specific, Measurable, Achievable, Relevant, and Time-bound) that generate force-multiplier defence capabilities for multi-domain operations is important. The same level of defence output must be achieved at a lower cost. Defence budgeting for capability must be the strategy. Capabilities that will achieve national and operational military objectives.
Industry, indigenization, and international relations are important. It is time for India to announce the National Security Strategy. The defence policy and strategy must be linked to the defence budgeting.
The defence expenditure as a percentage of GDP and national expenditure has been falling in recent years. Considering the regional and global threat perception, and the need to bridge capability gaps, most analysts feel that the Indian defence budget should at least be 2.5 percent of GDP for the next ten years. Many countries, including NATO, have fixed a percentage of GDP that the defence budget must be tied to. Maybe India must also enact such a law.
Note: The article was originally written by the Author for The First Post on 2025; it has since been updated.
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