India's reactive defence spending

In contrast, the Union Budget speech in February 2026, in the 80th year of India as an independent country, referred to defence only once.

Even that solitary reference came when the finance minister announced the government’s decision to exempt basic Customs duty on raw materials imported for the manufacture of parts of aircraft to be used in maintenance, repair or overhaul by defence sector units.

Going back to 1947, Chetty was conscious of the importance of defence in India immediately after its birth as a new independent country. Not only did he devote over 1,000 words to defence services in a speech of over 10,000 words, but he also ensured that defence was the single largest item of the government’s entire annual expenditure. Of a total Budget expenditure of ₹197.39 crore, defence accounted for ₹92.74 crore — a share of 47 per cent. No surprise that Chetty began outlining his expenditure plans with the defence estimates, instead of the outlay for civilian schemes.

Nearly 80 years later, Finance Minister Nirmala Sitharaman allocated only 15 per cent of the Union government’s expenditure for 2026-27 to defence. Total defence expenditure was estimated at ₹7.85 trillion.

Of course, there are good reasons why defence accounted for about half of the Union government’s total annual expenditure in 1947-48 and continued to occupy a significant share for the next few years. A new country was born with an urgent need to rebuild its armed forces to protect its borders, even as its neighbour on the western side had begun giving the Indian government sufficient cause for concern, underlining the need for ramping up defence expenditure.

The armed forces of pre-Partition India had to be reconstituted into two dominion forces after August 15, 1947. The troop strength of the army before Partition was 410,000. After the reconstitution, the Indian Army’s strength was reduced to 260,000. How small or large was that strength? Well, one possible way of gauging this would be to note that almost eight decades later, the number of active troops in the Indian Army has risen to 1.25 million.

Chetty, however, had to face another challenge. As the finance minister, he had to provide for more financial resources for not only reconstituting the Indian Army but also for supporting the development of the Indian Navy and Indian Air Force, wings that had not received due attention till then. In that context, Chetty’s explanation in his Budget speech was significant. He said: “India had never an adequate navy or air force and the effect of the Partition has been to reduce them still further, so far as the Dominion of India is concerned. It is obvious that even without the disturbances there could be no question of an overall demobilisation in these services. The future development plans of these services are under consideration.”

There was yet another reason for Chetty’s decision to allocate as much as 47 per cent of the government’s total annual spending for defence. He recognised that even though he was expected to provide for only 230,000 men in the Indian Army, “widespread communal disturbances in the Punjab and the sporadic outbursts of disorder in other parts of the country” underlined the need to maintain the troop strength at a higher level of 260,000.

Yet, comparing the share of defence outlay in the Union government’s total annual expenditure should not be the only instrument for judging whether there has been negligence in allocating adequate resources to the country’s armed forces. Another equally important yardstick would be to evaluate how the country’s defence expenditure has fared in relation to its overall economic output. Has that equation improved or got worse?

India’s economic output data in the first couple of years after it gained independence is not readily available. One credible source for accessing that data is the final report of the National Income Committee, set up by the department of economic affairs in the Union finance ministry in 1949. The Committee, headed by eminent statistician P C Mahalanobis, who was then heading the Indian Statistical Institute, submitted its final report in 1954. This Committee had estimated the country’s net national output at market prices in 1948-49 at about ₹9,000 crore. In the absence of any other official data on India’s gross domestic product or net national product for 1947-48, it would be safe to conclude that a defence expenditure of ₹92.74 crore would be just about 1 per cent of the country’s national output around that time.

In 2025-26, for which provisional unaudited figures of the government’s expenditure are available, total expenditure on defence (excluding pensions) was estimated at ₹5.6 trillion, which was about 1.6 per cent of GDP.

The government’s defence expenditure, therefore, presents an interesting picture. In the eight decades since Independence, its civilian expenditure has risen at a rapid pace, far surpassing the growth in its defence expenditure.

That is what explains the government’s total expenditure over 80 years growing at a compounded annual growth rate of 13.6 per cent, much higher than the defence expenditure’s compound annual growth rate (CAGR) of 11.5 per cent. Clearly, the government’s commitment to spending in a wide range of non-defence sectors has been so pressing that it has given rise to a significant growth differential with its defence spending. And yet defence spending as a percentage of GDP rose during this period from about 1 per cent to 1.6 per cent, indicating that its growth in relation to the rise in GDP was slow but not stagnant.

Returning to the early years after Independence, the allocation of resources for defence did not change much in 1948-49. At ₹155 crore, its share in the government’s total expenditure of ₹340 crore stayed at a little over 45 per cent. The following year, defence spending jumped to ₹170 crore, accounting for over 50 per cent of the government’s total annual expenditure of ₹322 crore. The actual defence spending was higher by 13 per cent over what was budgeted for. This overshoot explained the pressure defence spending had continued to put on the government’s overall expenditure.

The post-Partition pressure on India’s defence spending continued for a few more years. In 1951-52 and 1952-53, the share of defence in total government spending stayed at around 45 per cent. As a percentage of GDP, however, India’s defence spending had staged a smart recovery. In 1951-52, defence expenditure was 1.66 per cent of India’s GDP and the following year it improved further to 1.8 per cent. This was steady progress as far as meeting the country’s defence needs was concerned.

The next phase began with border tensions rising from the end of 1959, leading the government to recognise the need to step up military expenditure. The month-long Sino-Indian war took place over October-November 1962. But the Union Budget presented in February 1962 for 1962-63 had proposed defence spending of ₹343 crore, whose share in total government expenditure had slipped to about 25 per cent, even as its share in GDP had been maintained at 1.7 per cent. By the time the year ended in March 1963, the government was forced to increase its annual defence spending by over 31 per cent to ₹452 crore.

This was the sharpest rise in defence spending over what was budgeted at the beginning of the year. Defence spending, therefore, accounted for over 29 per cent of the government’s total expenditure.

More significantly, by the end of 1962-63, defence spending had risen to 2.25 per cent of India’s GDP. All this was because India had fought a war with China, with an outcome that was embarrassing for the government.

A year later, Morarji Desai, the finance minister at that time, significantly increased the government’s defence expenditure in view of the India-China war. Desai increased defence expenditure to ₹708 crore, which was over 38 per cent of the government’s total expenditure and accounted for 3 per cent in India’s GDP.

In September 1963, T T Krishnamachari succeeded Desai as the finance minister. By March 1964, Krishnamachari saw defence expenditure fall short of its target, ending the year with only ₹692 crore, although this did not make a big difference. The reduced defence expenditure still accounted for about 38 per cent of the total annual government expenditure. And in terms of  its share in GDP, defence spending was maintained at 3 per cent.

This was a level that would be reached only once in the next six decades. That was in 1971-72, the year India fought a major war with Pakistan on its western and eastern front — the latter conflict leading to the birth of Bangladesh. That marked the third phase of a spike in India’s defence spending. India’s war with Pakistan on both its western and eastern fronts in December 1971 led to a perceptible increase in the government’s expenditure on defence. Remember that in 1970-71, India’s defence expenditure of ₹1,200 crore had declined to just about 21 per cent of the Union government’s total annual expenditure, even though its share in GDP stayed at a relatively healthy level of 2.56 per cent. Thanks to India’s war with Pakistan in December 1971, Yashwantrao Chavan, the finance minister at that time, had to bump up the government’s defence expenditure in 1972-73 by 27 per cent to ₹1,526 crore. Even though it was only about 22 per cent of total annual government expenditure of ₹6,892 crore, this amount was equivalent to over 3 per cent of GDP. 

Defence spending as percentage of India’s GDP

That level remains a record to this day, as in none of the following years India’s defence expenditure crossed the 3 per cent mark. Even when India was engaged in another war with Pakistan in Kargil in 1999, the country’s defence expenditure was relatively muted. In 1998-99, Yashwant Sinha, the finance minister at the time, had spent ₹39,897 crore on defence, an increase of 13 per cent over 1997-98. But as a percentage of total government expenditure and GDP, there was no significant change, with the shares staying at a little over 14 per cent and 2.2 per cent, respectively. The Kargil war did see a jump in defence expenditure in 1999-2000, when it rose by 18 per cent to ₹47,071 crore. Its share in total government expenditure and GDP also rose to almost 16 per cent and 2.4 per cent, respectively.

The first two decades of the 21st century saw the same trend as was witnessed in the previous six decades. Defence expenditure would marginally increase during a war and immediately afterwards. But it would start declining both as a percentage of total government expenditure and GDP as the situation normalised.

By 2020-21, the Covid year, the share of defence in total government expenditure had fallen to a little over 9 per cent. Similarly, as a percentage of GDP, defence expenditure had fallen to 1.7 per cent. Even as the government began to keep a tight check on its expenditure to maintain fiscal prudence, defence expenditure appeared to have borne the brunt of that exercise from 2021 to 2025. The share of defence in the government’s total expenditure stayed at a little over 9 per cent, even as its share in GDP fell from 1.7 per cent in 2020-21 to 1.36 per cent in 2024-25.

To be sure, the government made some amends in 2025-26 by raising defence’s share of total expenditure and of GDP to 11 per cent and 1.6 per cent, respectively. But the numbers once again confirm the trend seen in the last eight decades. The government’s approach to defence spending has continued to be reactive. If there is a war or border tensions are on the rise, the government steps in with an increase in its spending on defence. But once the situation returns to normal, the trend of rising expenditure also goes into reverse. The absence of a linkage between defence spending and the sustained building of capacity to protect the country on the external front is too stark to be missed.

Perhaps this disconnect can be partially explained by the rise of private-sector participation in defence as a conscious policy choice made by the government in the last decade. As a result, the government’s direct expenditure is supplemented by the private sector. In 2025-26, the private sector’s share in total defence production rose to 24 per cent, while public sector undertakings accounted for the remaining 76 per cent. Is the government slowing its defence programme because of rising private-sector participation? Well, that is another story.