India has long emphasised defence spending as a strategic imperative given its complex security environment, large borders, and geopolitical challenges. Recent data show that India’s defence expenditure as a share of GDP is comparable to many Western nations, yet the country lags significantly in actual investment towards modernisation and capability enhancement.

This article explores what this gap means, why it exists, where India stands compared to its Western counterparts, and what steps are needed to bridge the divide to ensure the country’s military readiness and strategic autonomy in a shifting global landscape.

India’s Defence Spend in Global Context

India ranks among the world’s top defence spenders. According to SIPRI (Stockholm International Peace Research Institute) data:

• India consistently ranks among the top 3-5 countries in total defence expenditure.

• Defence spending is around 2-2.5% of GDP, broadly comparable to NATO’s guideline of 2% of GDP.

• In absolute terms, India’s budget is significant—crossing ₹6 lakh crore (around $72 billion) in FY25.

At first glance, these numbers place India in the same league as many Western nations. But a closer look reveals that a significant proportion goes to salaries, pensions, and operational costs rather than new investment.

Current Composition of India’s Defence Budget

India’s defence budget can be divided into two major heads:

1. Revenue Expenditure

   • Salaries, pensions, daily operating costs.

   • Accounts for nearly 55–60% of the defence budget.

2. Capital Expenditure

   • Equipment purchases, modernisation projects, infrastructure development.

   • Typically 25–30% of the total budget.

This imbalanced structure limits India’s ability to invest in advanced platforms, cutting-edge technology, and strategic capabilities that modern armed forces need.

Comparison with Western Countries

Western militaries generally allocate a higher share of their budgets to capital expenditure:

• For many NATO members, capital allocation exceeds 30–35% of the budget.

• The US Department of Defense consistently invests heavily in R&D, procurement, and sustainment.

• European allies are ramping up procurement in response to new security threats.

India’s share of capital spending, in contrast, is often squeezed by mandatory costs such as:

• A large standing force.

• Rising pension liabilities.

• Legacy platforms requiring maintenance.

This means India may spend as much of its GDP as the West does, but its investment in new capabilities is much lower.

Why Does India Lag in Modernisation?

Key factors behind the gap include:

• Manpower-Heavy Structure: India maintains over 1.4 million active troops, creating high recurring costs.

• Pension Burden: One Rank One Pension (OROP) and other schemes add to fiscal pressure.

• Delayed Procurement: Complex acquisition processes and policy hurdles slow down modernisation.

• Dependence on Imports: India still relies on foreign suppliers for many critical systems, despite “Atmanirbhar Bharat” efforts.

• Budget Constraints: Competing priorities (health, education, infrastructure) limit how much can be redirected to defence.

The Impact on Military Capability

This structural imbalance has direct consequences for India’s security posture:

• Ageing Equipment: Many platforms are decades old, with limited upgrades.

• Technology Gap: Adversaries, especially China, are investing in next-gen systems (AI, drones, hypersonics).

• Readiness Concerns: Low capital expenditure reduces ability to sustain high-tempo operations or two-front conflict readiness.

• Strategic Vulnerability: Reliance on foreign imports creates risks in case of sanctions or supply disruptions.

Recent Steps Towards Improvement

Recognising these challenges, India’s defence planners have initiated several reforms:

• Indigenisation Push: “Atmanirbhar Bharat” in defence aims to promote local production.

• Defence Corridors: Infrastructure support for domestic industry in UP and Tamil Nadu.

• Private Sector Participation: Opening procurement to private players to increase competition and innovation.

• Simplified Procedures: Efforts to reduce bureaucratic delays in acquisition.

• Technology Transfers: JV agreements with foreign firms to build capabilities locally.

But these reforms take time to deliver results, and capital budgets remain stretched.

The Russia Factor

Russia remains a critical supplier for India’s military. This dependence creates both opportunities and vulnerabilities:

• Collaboration: Recent agreements with Almaz-Antey for S-400 MRO (maintenance, repair, overhaul) aim to localise sustainment.

• Sanctions Risks: Western sanctions on Russia complicate payments, spares, and new deals.

• Diversification: India seeks to balance Russian supplies with US, European, and Israeli partnerships.

As geopolitical tensions rise, India’s dependence on external suppliers underlines the urgency for local manufacturing capacity.

The Role of Defence Industry

A vibrant domestic defence industry is central to bridging the investment gap:

• Public Sector Units (PSUs): HAL, BEL, BDL and others have ramped up output but need modernisation.

• Private Sector: Tata, L&T, Mahindra, Adani Defence are emerging players.

• Start-ups and MSMEs: Bringing innovation in drones, AI, electronics.

• FDI in Defence: Increased caps aim to attract foreign investment and technology transfer.

Yet challenges remain:

• Limited R&D spending (~6% of defence budget in India vs 12–15% in US/Europe).

• Complex procurement rules.

• Low economies of scale.

Budgetary Realities and Priorities

Defence spending competes with:

• Social welfare schemes.

• Health and education needs.

• Infrastructure development.

• Subsidies and rural development.

Balancing these priorities while increasing capital allocation requires:

• Fiscal discipline.

• Policy clarity on defence priorities.

• Better management of manpower costs (including rationalisation and technology adoption).

Strategic Vision for the Future

For India to match Western capabilities, it needs a strategic shift in budgeting:

• Increase capital allocation towards 35–40% of defence budget.

• Prioritise modernisation over sheer numbers.

• Invest in indigenous R&D to develop critical technologies locally.

• Streamline procurement to reduce delays.

• Foster partnerships with global leaders for co-development.

This vision aligns with India’s goal of becoming not just a regional power, but a global strategic player with true military autonomy.

Conclusion

While India’s defence spending as a percentage of GDP is in line with Western nations, the quality of that spend—specifically the share devoted to modernisation and capital investment—lags significantly.

Bridging this gap is critical for India’s national security, strategic autonomy, and regional stability. It will require political will, budgetary commitment, domestic industry development, and policy reforms to ensure the country’s armed forces are equipped for the challenges of the 21st century.

By addressing these structural issues, India can transform its defence spending from a fiscal burden into a strategic investment—one that secures the nation’s future in an increasingly uncertain world.

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