Defense Budget Forecast
India has been compelled to invest in developing a robust defense posture. The Indian defense expenditure, inclusive of pensions increased from $59 billion in 2018 to $69.3 billion in 2022, reflecting a CAGR of 4.1% during 2018–22. The continuous year-on-year increase in defense budget over the year 2018–22 is attributed to the immense threat posed by its neighboring rivals China and Pakistan. Having fought armed conflicts with China in 1962 and with Pakistan in 1965, 1971, and 1999. The country's defense expenditure, inclusive of pensions, is anticipated to grow from $72.1 billion in 2023 to $85.3 billion in 2027, reflecting a CAGR of 4.3%.
A significant part of the defense budget is allocated to pensions and Indian pension overheads have increased from $14.9 billion in 2018 to $15.8 billion in 2022, at a CAGR of 1.5%. The Indian government is concerned by the escalating pension burden and is exploring possibilities to mitigate pension overheads. Against this backdrop, the Department of Military Affairs (DMA) has planned to extend the retirement age of all officers by 1–3 years. Under the Tour of Duty/Agneepath scheme, only 25% of the total soldiers recruited will be re-enlisted for full service. Such a measure if implemented will enable the Indian government to alleviate the burden of escalating defense pensions more effectively. As a result, the Indian defense pension burden is likely to decrease from $15.6 billion in 2023 to $14.8 billion in 2027, reflecting a negative CAGR of 1.4%, over the period 2023–27.
Drivers of Defense Expenditure
As per GlobalData’s India’s Defense Market 2022-2027 (free) report, Military modernization program, Jammu and Kashmir conflict, Dispute with China and Research and Development are the primary drivers of India’s defense expenditure.
Indian defense expenditure is primarily driven by the need to replace the country's aging military hardware, to ensure adequate protection from potentially hostile actions by China and Pakistan, and a desire to project itself as a major power globally. Strong economic growth over the last decade has further fueled India's defense industry growth. In addition, the implementation of the proposed One Rank, One Pension for the armed forces and enhanced salary structure-based 7th Pay Commission recommendation is expected to further boost India's defense budget.
Access the report here.
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