India's defense budget, and where it could go from here

India's defense budget stands at around $78 Billion in 2025.

Out of this, about 45% ($33 Billion) goes to the "revenue expenditure" head. It basically accounts for the operations expense which goes to salaries & allowances (30%), and training, logistics, maintenance, etc. (15%).

About 22% (roughly $17 Billion) goes to defense pensions, which are retired personnel's pension payments. India has about 32 Lakh pensioners from the defense forces.

And about 27% (roughly $20 Billion) of the total, goes to something called "capital outlay". This is what we think about when we first hear the words "defense budget". The modernisation and asset acquisition side of things. The budget for aircrafts, submarines, warships, missiles, ISR (Intelligence, Surveillance and Reconnaissance) platforms, Border infrastructure, Technology R&D, etc.

So when we talk about the procurement of Rafael Jets, Sukhoi 30 MKIs, S400s, or anything else; it's basically this $20 Billion that's taking care of it.

But even in "capital outlay", about 25% goes to upgrades of existing systems, infrastructure (roads, buildings, logistics bases), payments of past contracts, and R&D. The rest 75% is where the new equipment comes from. That's $15 Billion.

In nutshell, about 20% of our entire defense budget is earmarked for new equipment.

Interestingly, even of the "new equipment budget" (which is 75% of the total capital outlay), 80% is marked for indigenous product makers. Atmanirbhar Bharat. Which means, of the total $15 Billion, about $12 Billion goes to PSUs like HAL, BEL, MDL, etc. and private players like L&T Defense, Tata Advanced Systems, Bharat Forge, etc. All Indian.

So finally, all that means is that only $3 Billion in a year goes to procurement of defense equipment from overseas. Sometimes those deals are structured with an element of tech transfer (so they can be later made in India), but that's not for every deal.

To think of it, a part of this $3 Billion is what saved 15 Indian cities last night. S400s, especially. Without these advanced air defense systems, things could have been so different. And so bad. How few things have such an outsized impact in a nation's story and condition! This is something which is not appreciated enough. Thank god for these purchases and our armed forces.

In the coming days, I think India will look at further increasing its defence budget, and specially 'capital outlay' and 'new equipment procurement' by a lot. After all, even if Pakistan (with a defense budget of $7.5 Billion) may not be a real threat, we have China on the east, with a defense budget of about $250 Billion, according to very conservatives estimates. That's a real problem.

Even though India's PPP factor balances much of the seemingly overwhelming difference between India and China's defense budgets (not many people understand that), I sincerely believe we'll see a lot of upward movement in Indian defense spend.

Very necessary. And a great opportunity for many. Jai Bharat.

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