Defence spending rises in Union Budget, but capability gains remain key

Operation Sindoor shapes FY27 defence Budget as India lifts spending to 2% of GDP, boosts capital outlay and modernisation to prepare for a potential two-front conflict

Operation Sindoor (May last year) has made its mark in this year’s defence Budget. At ₹7.85 trillion, defence spending is expected to touch 2 per cent of gross domestic product (GDP), reversing a decline and reflecting a recognition that India needs to be better prepared for a potential two-front war against a formidably well-equipped China and its client state Pakistan. This much is reflected in the significant increase in the outlay for capital expenditure, at 28 per cent of the defence Budget. At ₹2.2 trillion for FY27, this outlay partly reflects both the need to replace materiel lost during the four-day skirmish with Pakistan  and an effort to better enable the fast-track emergency procurement powers granted to the service chiefs to make urgent purchases to fill operational gaps. At the same time, a 24 per cent bump in the modernisation Budget in FY27 — more than double the 10 per cent increment of earlier years — is expected to augment air defence and naval undersea capabilities and long-range standoff weapons. 

As always, the real test will lie in the efficiency of expenditure, especially given that salaries and pensions continue to account for more than half the outlay, and capital expenditure almost always lags even the revised estimates. One encouraging signal is a contraction of the component of salaries and pensions. The share of pensions is estimated to shrink to 22 per cent of the defence Budget from 26 per cent in FY20. The contraction of the salary component has been sharper at 22.4 per cent in FY27 from 30 per cent in FY20. These reductions may reflect the early impact of the Agneepath scheme, launched in June 2022, though the jury is still out on the effect of the scheme on the combat efficacy of defence formations. 

Nearly 75 per cent of the modernisation Budget will be set aside for procurement from domestic sources under the “Atmanirbhar Bharat” initiative. However, this raises questions about the absorptive capacity of both public and private defence manufacturers. In a post-Budget interview with this newspaper, Defence Secretary Rajesh Kumar Singh pointed out that domestic firms accounted for 87 per cent of the value of capital procurement in FY25. But the experience suggests that the glacial delivery timelines employed by indigenous manufacturers — the delay in the delivery of the Tejas Mk1A fighters being a case in point — may need to change rapidly to meet the growing threat along the borders. The opportunity for domestic defence manufacturers to demonstrate their delivery capabilities and technical efficiencies has never been more opportune. 

The big question is whether even this significant increase in the defence Budget offers the opportunity for a radical shift in the operational efficiency of the armed forces. The defence secretary said the ministry would like to see defence expenditure rise to 2.5 per cent of GDP over the next five years. Though this is not unreasonable, a focus on practical spending such as on the integration of the multiple platforms employed by the military and bringing the number of Air Force squadrons to full strength, too, would serve the defence forces.