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:

In nominal terms India’s 2021 defence budget continues its unbroken run of growth, which has lasted well over a decade, but even by this measure expansion has now slowed dramatically.

Down from recent highs of more than 20% year-on-year in 2008 and 2009, nominal expansion of ‘core’ spending (which excludes military pensions) still averaged close to 9% from 2010–20, and was well above trend last year at 12.8%. The core budget in 2021 of INR3,624 billion (USD48 billion) is just 0.7% larger than 2020’s, the slowest growth recorded since the start of Janes Defence Budgets data tracking in 2005.

Two further factors combine to show India’s latest budget in a less-favourable light. While total spending increased by 1.45% nominally in comparison to 2020’s initial allocation, 2021’s budget documentation reveals in-year revisions that pushed 2020’s spend almost 3% higher before the year ended. From this revised base total Indian defence spending for 2021 is in fact 1.4% lower.

Indian government figures also take no account of inflation, which has risen notably in the country in 2019 and 2020. Factoring this into its defence budget figures reveals a decline in core spending of 5.8% year-on-year, and of 7.1% in total spending. This leaves it at about the same level in real terms as it was in 2019, prior to 2020’s spending boost.

In more positive news for the country’s armed services, much of the fall in total spending is driven by a sharp decline in pensions expenditure; 2021’s allocation is 12.7% lower in real terms. This has helped to lower personnel costs and enable procurement funding to remain at the elevated rates produced by 2020’s revised budget.


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India’s 2021–22 defence budget climbs mildly in nominal terms to USD65.5 billion, but Janes analysi...

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