China’s defence budget hike demands India to boost its Aatmanirbhar capabilities – Firstpost

China announced its defence budget for 2025 at $245 billion, an increase of 7.2 per cent. It continues to build a larger, more modern military to assert its territorial claims and challenge the US defence lead in Asia. China’s military spending remains the second largest behind the US, and it already has the world’s largest navy.

Beijing also has a huge inventory of fifth-generation fighter aircraft and has already flown the sixth-generation aircraft. The Pentagon and many experts say China’s total spending on defence may be 40 per cent higher or more because of items included under other budgets.

India faces a huge capability gap with China. In recognition of this, the government had set up various committees to assess the same and suggest remedial measures to improve the performance of the Defence Research and Development Organisation (DRDO), defence public sector undertakings (PSUs), and private industry.

Clearly there is a need to drive all stakeholders to produce much more in India and simultaneously acquire urgently needed platforms and weapon systems from abroad. Also, the government has declared 2025 as the “Year of Reforms”.

Russia-Ukraine War Budgeting Dynamics

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. Last year it grew 24 per cent to $109 billion.

Russia has recently announced defence spending for 2025, a hike of 25 per cent from the previous year. At $145 billion, it will be 6.3 per cent of Gross Domestic Product (GDP). It will be close to a third of all government spending. Russia has thus become the third largest defence spender after the US and China.

Ukraine plans to spend $53.7 billion, or about 26 per cent of its GDP, on defence and security in 2025. “All taxes of citizens and businesses will be directed to the defence and security of our country.” Ukraine is now the eighth largest military spender.

Interestingly, it had spent $5.94 billion in 2021. Ukraine also received nearly $250 billion as military and economic aid in the last three years. European NATO members had formally committed to targeting spending 2 per cent of GDP on the military. In 2024, 23 out of 32 NATO members had spent at least 2 per cent of their GDP on defence.

India’s Defence Budget 2025-26

The Union Budget 2025-26 estimates the GDP to be Rs 3,56,97,923 crore ($4.11 trillion), an increase of nearly 9 per cent. The total annual national budget was Rs 50,65,345 crore ($584 billion), up 5.08 per cent. The Ministry of Defence’s (MoD) allocation was Rs 6,81,210 crore ($78.57 billion), up 9.53 per cent from the current financial year. It was nearly 13.44 per cent of the total budget and 1.9 percent of the GDP.

The total defence budget (excluding defence pensions) was Rs 5,20,415 crore ($60.16 billion). The capital outlay for modernisation, at Rs 1.8 lakh crore ($20.76 billion), saw an increase of 4.65 per cent. Rs 3,11,732 crore ($36.03 billion) was allocated for revenue expenditure, and it saw an increase of 10.24 per cent over FY 2024-25 (BE) for day-to-day operational running and training of the armed forces.

Year of Reforms

The MoD has taken a decision to observe 2025-26 as the ‘Year of Reforms’, which will further strengthen the resolve of the government for modernisation of the armed forces and is aimed at simplification of the defence procurement procedure to ensure optimum utilisation of the allocation.

There will be a strong focus on joint & integration initiatives amongst the armed forces, the establishment of the integrated theatre commands, and a focus on new domains such as cyber and space, artificial intelligence, hypersonic, and robotics.

Capital Budget: A Closer Look

In the current geopolitical scenario where the world is witnessing a changing paradigm of modern warfare, the Indian Armed Forces need to be equipped with state-of-the-art weapons and have to be transformed into a technologically advanced, combat-ready force.

Rs 1,48,722.80 crore is planned to be spent on capital acquisition for armed forces, and the remaining Rs 31,277.20 crore is for capital expenditure on research & development and the creation of infrastructural assets across the country.

During FY 2020-21, MoD took a decision to strengthen the domestic industries and to make the forces self-reliant. Since then, a substantial share of the modernisation budget is being earmarked for the capital procurement from domestic industries.

In order to encourage the private sector for manufacturing and technological development in the defence sector, in FY 2025-26, Rs 1,11,544.83 crore, i.e., 75 per cent of the modernisation budget, has been earmarked for procurement through domestic sources. And 25 per cent of the domestic share, i.e., Rs 27,886.21 crore, has been provisioned for procurement through domestic private industries.

Greater allocations have been made for aircraft and aero-engines. There is also increased focus on new domains such as Cyber & Space and emerging technologies such as Artificial Intelligence (AI), Machine Learning, and Robotics, etc.

Some major acquisitions planned in the next year, such as long-endurance remotely piloted aircraft of high and medium altitude, stage payment of deck-based aircraft, and next-generation submarines/ships/platforms, will be funded out of this allocation.

Operational and Sustenance Budget (Revenue)

Revenue expenditure takes care of sustenance & operational preparedness and pay & allowances of the armed forces. Rs 3,11,732.30 crore ($36.03 billion) allocated includes Rs 1,14,415.50 crore non-salary expenditure, which will facilitate procurement of fuel, ordnance stores, maintenance/repair of equipment, etc. In rupee terms, the Indian Navy and Indian Air Force (IAF) have witnessed the highest increase of 16 per cent in the revenue budget. There is an increased allocation of 8 per cent for the Indian Army.

The allocation will address the requirement due to the additional deployment of the forces in the border areas, hiring of vessels, increase in expenditure on longer sea deployment of ships, and increase in flying hours for the aircraft.

Capital Budget of Indian Coast Guard

The Indian Coast Guard (ICG) has been allotted a total of Rs 9,676.70 crore, which is 26.50 per cent more than the allocation for FY 2024-25 at the BE stage. This increase is primarily in line with the focus of the government on the capability development of ICG and equipping them with modern equipment. ICG not only strengthens coastal security but also provides assistance to neighbouring countries and commercial ships during emergencies through faster response.

Boost for DRDO Allocation

The budgetary allocation to the Defence Research and Development Organisation (DRDO) has been increased to Rs 26,816.82 crore, which is 12.41 per cent higher than the BE of 2024-25. Out of this, a major share of Rs 14,923.82 crore ($1.72 billion) has been allocated for capital expenditure and to fund the R&D projects. Further, support for prototype development under the ‘Make’ procedure witnessed a 13.27 per cent increase.

The budgeting focus remained on indigenous research & development (R&D) and procurement of major defence platforms such as aircraft and aero-engines. This will financially strengthen the DRDO in developing new technologies with a special focus on fundamental research and hand-holding of the private parties through Development-cum-Production Partner. It will support the flagship scheme of DRDO, i.e., the Technology Development Fund, and will assist the development of deep technology in the defence sector.

Boosting Start-up Ecosystem for Innovation in Defence

For making the Armed Forces self-reliant in defence technology and encouraging innovation, it is imperative to engage the private players and strengthen the start-up ecosystem in the country for technological development and innovation in the defence sector. For this purpose, Rs 449.62 crore has been allocated to the iDEX scheme, including its sub-scheme, Acing Development of Innovative Technologies with iDEX (ADITI), to be utilised for funding the projects to be taken up under this scheme. Allocation in this head shows a jump of almost three times in two years.

Strengthening Border Infrastructure

In order to further improve the border infrastructure and facilitate the movement of armed forces personnel through tough terrains, Rs 7,146.50 crore has been allocated to the Border Roads Organisation (BRO) under the capital head, which is a 9.74 per cent increase. BRO will not only promote the strategic interest of the nation in border areas by constructing tunnels, bridges, and roads such as LGG-Damteng-Yangtse in Arunachal Pradesh, Asha-Cheema-Anita in J&K, and Birdhwal-Puggal-Bajju in Rajasthan, but will also boost socio-economic development, provide employment opportunities, and encourage tourism. BRO has created substantial employment opportunities by employing 70,000 local youths and has contributed to the local economies, fostering long-term employability and skill development.

Defence Exports

India’s defence exports touched a record Rs 21,083 crore as of the end of FY 24 with a growth of 32.5 per cent over the last fiscal. The same is expected to cross Rs 25,000 crore ($2.88 billion) at the end of this FY, and along with an estimated Rs 100,000 crore ($11.5 billion) in defence production, is well on its way to meet the annual defence production target of the government to reach $35 billion and exports worth $6 billion, respectively, by FY 2028.

To Summarise

The projected growth rate for India is slightly lower than 6.5 per cent. India stands very tall amongst the leading economies of the world. “The Union Budget continues to be a step towards fulfilling the Prime Minister’s resolve of Viksit Bharat by 2047 with technologically advanced and ‘Aatmanirbhar’ armed forces,” Raksha Mantri Shri Rajnath Singh said. This allocation of 13.45 percent of the Union Budget is the highest among all the ministries.

The pattern of allocation is a clear signal that the domestic industrial complex is prioritised and will be encouraged. There is a significant order for LCA Mk1A aircraft that got delayed because of a delay in the supply of GE 404 engines. There are contracts for 156 Light Combat Helicopters (LCH) for the IAF and Indian Army; maritime fighter aircraft, tanks, artillery guns, and submarines are also expected to be finalised.

There is a clear challenge to spend the capital outlay of the defence budget as the MoD surrendered Rs 12,500 crore allocated as part of the capital outlay under the interim budget of July 2024 to the Ministry of Finance. This can be linked to sanctions against Russia, a major arms supplier, and also because of large oil imports from Russia that had to be acquired through rupee payments.

With a significant modernisation gap, such non-spending indicates the need to review procurement procedural delays. The pace of acquisitions of weapons systems and platforms needs a stronger push at all levels. MoD must ensure the timely execution of contracts. Rolling capital budget is the desired way.

Of course, some supply-chain bottlenecks from Foreign Original Equipment Manufacturers (FOEMs) are beyond the control of the government. But these need to be anticipated, and alternative next priority systems acquired.

Being a lead importer for decades, India has now been ranked among the top 25 exporters of arms. From 1,414 export authorisations in FY 23, the number has risen to 1,507 in FY 24. About 100 domestic companies are exporting a wide range of defence products such as aircraft DO 228, artillery guns, BrahMos missiles, Pinaka rockets and launchers, radars, simulators, and armoured vehicles.

The increase in allocations for capital acquisition remains the challenge. The real effect of the Agnipath scheme will start showing up 8-10 years from now.

Revenue expenditure at 71.75 percent of the total remains very significantly high. The pension bill under the revenue head of Rs 1.60 lakh crore alone constitutes roughly 23.49 per cent of the 2025-26 defence budget. But that is also true for all civilian government employees of the country. To single out defence pensions as a burden is unfair. One school of thought is that the government should have a consolidated code head of all civil and defence pensions.

If one looks deeper into indigenous content, there are many items or subsystems still sourced from abroad that get covered under indigenous content. This needs a realistic assessment. The “Positive Indigenisation List” and 75 per cent domestic capital procurements paths are good and highly desirable. Establishing regulatory sandboxes for testing and validating new defence technologies can help accelerate innovation and adoption of cutting-edge solutions.

The sizeable allocation for aircraft and aero-engines demonstrates the gravity of the problem the IAF and, to a little lesser extent, the Indian Navy face in depleting fighter combat aircraft strength.

Finally, India remains a highly threatened nation, with China pulling ahead in both capability and numbers. Military-led Pakistan will remain a spoiler. Capability-based defence budgeting is required. The defence budget does send a clear signal that the Modi government aims to build the nation’s defence capabilities by continuing to pursue gradual reforms —it’s time to accelerate the speed.

The writer is former Director General, Centre for Air Power Studies. Views expressed in the above piece are personal and solely those of the author. They do not necessarily reflect Firstpost’s views.