This is a two-part write up analyzing the country's defence budget. In the first part we go over the defense budget and spends on the tri-services, DRDO and the iDEX scheme in greater detail in the form of capital and revenue point of view. The second part will speak in great detail about the critical issues that we are currently facing and the current changes that are required for the changes in the budget.
India’s defence budget for the financial year (FY) 2025-26 is estimated to be around Rs. 6,81,210 lakh crore ($78 billion). Defence expenditure as a percentage of GDP stands at 1.9%, a figure which has been declining for the last 10 years. Even if we exclude pension from the defence budget, the figure continues to show a decline for the past decade, currently standing at 1.5%. When we break down the budget, around 23.4 % of the budget is allocated to pensions, capital acquisition is approximately 26%, revenue allocations for the tri-services are around 25%, and for civilians working in the MOD, their allocations are approximately 4%. The Ministry of Defence (MoD) has announced this year as the year of reform. It speaks about major reforms such as the theaterisation of commands, the integration of cutting-edge technologies like direct energy weapons, hypersonic missiles, artificial intelligence, and other technologies. The reforms also include measures to improve the speed at which weapons acquisitions take place.
Capital allocation for the FY 2025-26 defence budget is around Rs. 1,80,000 lakh crore. Capital allocation in this context refers to procurements of new weapons such as medium altitude long endurance drones, additional orders of Scorpene submarines, and payments for other weapons that were procured during previous financial years. 75% of the capital allocation for this year is for procurement of firearms from domestic industries. Looking at the allocation for the tri-services, the highest is spent on the army considering the country’s geopolitical situation and the deployment of troops in Ladakh and Sikkim due to ongoing tensions. In contrast, the capital allocation for the Indian army is approximately 20%; a low figure when compared to the other services. The air force spends the most (in absolute terms) on capital allocation, though that figure needs to be higher considering the ageing fleet of our fighter jets. According to reports given to the defence minister, IAF chief, and the defence secretary, the air force should have at least 60 squadrons for a possible two-front war, up from the sanctioned 42 squadrons, and the actual 31 squadrons that are currently operational. The standing committee on defence has also recommended that of all new additions to military equipment, 30% should be next-generation weapons, 40% from the current generation, and 30% to be the older generation.
The revenue expenditure in the defence budget is used for the operational readiness of weapons and salaries. For FY 2025-26, around Rs. 3,11,000 lakh crore has been allocated for revenue expenses. The highest revenue expenditure is of the army due to additional troops deployed at the Line of Actual Control (LAC) since 2020 due to PLA activity in eastern Ladakh. The Indian army has spent around 80 % of its budget on revenue aspects according to the Standing Committee on Defence Report 2024. Most of the revenue budget, approximately 58% of it, goes to pay and allowances of the people currently serving, with additional allowances for those serving in places like Jammu and Kashmir or the North East.
The DRDO budget allocated for this year is Rs 23,855.61, a 12.5% hike from last year's budget. More than half of the budget, around Rs 14,932 lakh crore, is spent on capital expenditure. The Innovations for Defence Excellence (iDEX) is an initiative from the MoD to foster critical technological development for defense equipment from the private sector and the start-up eco-system, has been allocated close to Rs. 450 crore. Under this scheme the government puts forth ‘challenges’ for the development of critical technologies which it publishes on the iDEX website. Interested startups or MSME companies can submit a detailed proposal that includes technological design, feasibility, projected outcomes. etc. All proposals undergo a technical evaluation from the tri-services and DRDO. Whichever company is selected, seed funding is given for the development of the prototype, after which it goes under rigorous testing in DRDO labs. Upon successful completion of testing the aforementioned prototypes get inducted into the services. iDEX scheme is a very good scheme, it's quite on the IGMDP of the country. iDEX will be today's integrated guided missile development program.
For any country to be self-reliant on defence technology, research and development (R&D) is very important. From a microeconomic perspective, R&D is a sunk cost – money spent on it cannot be easily recovered; however, from a macroeconomic point of view, R&D is not a sunk cost considering the fact that knowledge learned from a single program can be applied in other areas. For example, the Trishul missile program was officially shut down in 2008 under IGMDP, but the technologies that were learned and developed for it were used in the development of other ballistic & cruise missiles. The results from investments into R&D can be seen in how India's ballistic program stands out among other, more dominant players in weapons manufacturing.
Expenditure on R&D is not significant in India, standing at approximately 0.7 % of GDP when most countries spend around 2% of their GDP on it. The issues around R&D can be split into two distinct concerns, the first is that India spends not a lot on R&D, with the salaries in the sector being quite low when compared to the global standard. The second is that the country lacks prior material investments – the testing facilities required for R&D. The next part of the blog will dive deep into research and development issues, looking specifically at jet engines and also speak on different aspects of weapon development and the acquisition process.
Sameer Chawla
