India's defense expenditure for FY25 is less than 2% of GDP

India's defense budget has increased steadily and significantly in the last few fiscal years. However, the allocation for FY25 is only about 1.9 per cent of GDP. According to the International Monetary Fund, most advanced economies currently spend 2 to 5 percent of their GDP on the military.

This year, India allocated ₹6.21 million to the Ministry of Defense. That's 13 percent of total household spending. The revised estimates for FY24 show that the expenditure in the current fiscal stands at ₹623 crore. This was 13.2 percent of the FY24 budget and 2.08 percent of the GDP.

“The government’s decision to keep the budget below 2 percent of GDP may reflect a balance between defense requirements and broader economic considerations. “A balanced approach to overall financial management is required in the coming years,” said Subbu Venkatachalam, marketing director at Carborundum Universal Ltd, a company that provides ballistic solutions to the armed forces.

How the defense budget grew

From FY20 to FY25, there was a steady upward trend in the defense budget estimate, with significant allocations for the Indian Army.

The actual defense expenditure for the fiscal year 2019-20 stood at ₹4,52,996 crore and increased to ₹6,21,540.85 crore for the proposed budget 2024-25, representing a significant growth trajectory. In 2022, India's defense spending was $81.4 billion, lagging behind the United States, China and Russia.

Pension expenses

A sizeable portion of the budget, totaling Rs 1,53,407 crore in FY23 (actual), Rs 1,42,095 crore in FY24 (revised estimate), Rs 1,41,205 crore in FY25 (budget estimate), went towards pensions. Pensions are a critical aspect of the defense budget and ensure the well-being and financial security of retired military personnel and their families.

“Allocating a significant portion of the defense budget for pensions highlights the financial obligations to retired personnel, which is essential,” Venkatachalam said, adding, “It could be considered to set a higher base for the defense budget to ensure that there are sufficient resources for accommodation.” Factors such as emerging security challenges and the need for modernization in key areas.”

A closer look at the distribution of funds shows that spending by the Navy and Air Force has increased more sharply than the Army. From FY23 to FY24, the Navy and Air Force saw increases of 13 and 26 percent, respectively. On the other hand, the army recorded an increase of 11 percent in the same period. The data illustrates a strategic shift toward prioritizing investments in naval and air capabilities.

(The author is an intern at Businessline)

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