Over the past seven years, the proportion of defense spending within the overall budget of the Central Government has consistently decreased, despite an increase in the defense budget itself. For the fiscal year 2024-2025, the Ministry of Defence (MoD) has been allocated ₹6.22 lakh crore, which marks the highest allocation among all Union ministries.
According to a research report by PhillipCapital titled “Defence 2.0: Modernize, Innovate For A Changing World,” the defense sector is expected to constitute only 12.9 percent of the central government’s total expenditure in FY24-25, a drop from 13.9 percent in FY23-24. When viewed as a percentage of the country’s GDP, defense spending for FY24-25 is estimated at 1.9 percent, the lowest level since FY13-14. The Standing Committee on Defence had previously recommended that defense spending should represent 3 percent of GDP.
Even though India ranks among the world’s top military spenders, its defense budget is increasingly restricted by economic pressures, falling short of necessary allocations, as noted by PhillipCapital. The allocation trends indicate that the share of central spending on defense was 17.1 percent in FY14-15 and saw a slight increase to 17.8 percent the next year; however, this share has been declining since.
The current defense budget allocation of ₹6.2 lakh crore represents a 0.3 percent decrease from the revised estimates of FY23-24. While the capital outlay, which covers the acquisition of equipment and arms, is expected to increase by 9 percent, it is projected to make up only 29 percent of the total defense budget for 2024-25—below the recommended minimum of 30 percent. This shortfall can be partly attributed to the rising costs of defense pensions, which constrain capital expenditures.
Capital spending is crucial as it directly affects the military’s modernization, operational readiness, and strategic capabilities. Although capital spending in FY24 was in line with projections, revised estimates indicate a 4 percent reduction from the originally budgeted amount. Insufficient funding is hindering defense modernization efforts, which have experienced a funding shortfall of 48 percent over the past five years, starting from 2021.
To address these challenges, the 15th Finance Commission has suggested four potential funding avenues: transfers from the Consolidated Fund of India, proceeds from disinvestment, monetization of surplus defense land, and returns from land transfers to state governments.
