Analysis: India faces real-terms cut in defence funding

India’s 2021–22 defence budget climbs mildly in nominal terms to USD65.5 billion, but Janes analysis shows the expenditure is set to decline in real terms by 7%

Jon Grevatt, Principal at Janes, explores India’s recent defence funding announcement…

India’s defence budget for 2021–22 – announced on 1 February at INR4.78 trillion (USD65.5 billion) – represents a small nominal increase but a sharp real-term decline compared to last year.

The new expenditure amounts to a nominal 1.45% increase over the INR4.71 trillion defence budget in 2020-21. However, when the budget is adjusted for inflation, Janes analysis suggests that the new defence budget amounts to a year-on-year decline of 7%.

This fall reflects the deep coronavirus-linked recession that India is currently enduring, which has coincided with the country’s continuing military standoff with China in the Himalayas, which has served to highlight India’s expansive military modernisation requirements.

To address these needs, the 2021–22 budget includes INR1.35 trillion – or about 28% of the total – for capital expenditure, which is less than a 1% increase over last year’s revised allocation.

The new capital expenditure is likely to only partially meet India’s modernisation demands, given that the allocation will also pay for equipment procured in previous years. However, the tightening budget is also likely to provide impetus in India’s efforts to acquire cheaper, locally produced materiel.

Andrew MacDonald, lead analyst for AsPAC Defence Budgets provides his analysis: