Rupal Kalebere and Sujeet Samaddar
Capital vs. Revenue Expenditure
India’s Defence Budget for FY 2025-26 is structured into two major components: Capital Expenditure and Revenue Expenditure. The capital expenditure accounts for 26.42% of the total budget, primarily dedicated to modernizing military assets and enhancing India’s defense capabilities. On the other hand, revenue expenditure forms 45.76%of the budget, covering salaries, sustenance, and operational expenses necessary for the day-to-day functioning of the armed forces.
Capital Expenditure: Strengthening India’s Military Capabilities
Capital expenditure is the backbone of defense modernization. It is allocated for new acquisitions, upgradation of existing systems, infrastructure development, and procurement of cutting-edge technology.
The Indian Defence Budget 2025 has allocated ₹1.80 lakh crore for new defense procurements, reflecting a commitment to modernizing the armed forces and enhancing combat capabilities. Investments in next-generation fighter jets, warships, missile defense systems, and indigenous manufacturing under ‘Make in India’ aim to enhance combat preparedness and reduce dependence on imports. This year’s capital allocation focuses on several critical areas:
- Aircraft & Aero-engines: ₹48,614 crore
- Heavy & Medium Vehicles: ₹3,650 crore
- Naval Fleet: ₹24,390 crore
- Other Equipment (missiles, weapons, and defense systems): ₹63,099 crore
- Infrastructure Development: ₹19,325 crore
A significant portion of this budget, ₹1.11 lakh crore (75%), is earmarked for domestic procurement, reinforcing the government’s push toward self-reliance in defense manufacturing under the ‘Make in India’ initiative. India aims to strengthen its defense industrial base, generate employment, and encourage private sector participation in defense manufacturing.
Key Indigenous Defense Programs. Some of the major indigenous projects benefiting from increased domestic procurement include:
- Tejas Light Combat Aircraft (LCA) – A multi-role fighter aircraft developed by HAL
- BrahMos Missile System – A joint Indo-Russian supersonic cruise missile
- Pinaka Multi-Barrel Rocket Launcher – Developed by DRDO and private players
- Arjun Main Battle Tank (MBT) – A domestically developed tank for the Indian Army
- Advanced Towed Artillery Gun System (ATAGS) – A new-generation artillery gun
The increased domestic procurement budget aligns with India’s broader vision of reducing dependency on foreign suppliers and building indigenous capabilities. Over the past decade, the Indian government has introduced several initiatives to boost local defense manufacturing, such as:
- Defense Production and Export Promotion Policy (DPEPP) 2020
- Positive Indigenization Lists, banning the import of specific defense equipment
- Increased foreign direct investment (FDI) limits in the defense sector
- Establishment of defense industrial corridors in Tamil Nadu and Uttar Pradesh
However, despite a 9.6% increase in the overall defense budget, the increase in capital spending remains lower than expectations. A significant portion of this allocation is used for fulfilling past procurement commitments, leaving limited room for new acquisitions. This raises concerns about whether India is investing aggressively enough in defense modernization to match the pace of regional security challenges.
Continued Dependence on Foreign Imports. Also, despite a thrust towards greater indigenization, ₹37,006 crore remains allocated for foreign procurements, highlighting the ongoing reliance on defense imports to meet critical operational requirements. This indicates that India is still reliant on global suppliers for high-end defense technologies, particularly in areas where domestic production is yet to meet operational standards. Some critical imports include:
- MQ-9B Predator Drones from the United States
- S-400 Air Defense Systems from Russia
- Rafale Fighter Jets from France
- Submarine Technologies from Germany and France
- Advanced Weapon and Missiles Systems from Israel
Challenges in Achieving Full Self-Reliance. Several roadblocks hinder India’s progress toward 100% domestic defense production:
- Delays in indigenous projects due to bureaucratic and technological challenges
- Limited private sector participation, with PSUs dominating defense contracts
- High dependence on foreign technology transfer for critical platforms
- R&D constraints, with lower budget allocation for defense innovation compared to global standards
Revenue Expenditure: Sustaining the Armed Forces
Revenue expenditure is essential for maintaining operational efficiency and ensuring that India’s military personnel and infrastructure are well-supported. This year, 45.76% of the defense budget is allocated for salaries, sustenance, and operational costs. Key components include:
- Salaries and Pensions: A significant portion of the revenue budget goes toward compensating India’s 1.4 million active military personnel and veterans.
- Operational Expenses: This includes fuel, logistics, and maintenance of military equipment.
- Training and Exercises: Ensuring that soldiers remain combat-ready requires constant training, joint military exercises, and strategic simulations.
While revenue expenditure is critical for day-to-day military functions, its high share of the budget often leaves limited financial room for modernization efforts. Countries like China and the U.S. allocate a larger proportion of their defense budgets to capital investments, allowing them to develop advanced defense technologies at a faster pace.
Balancing Modernization and Operational Needs
The ideal defense budget should strike a balance between operational readiness and modernization. While India’s defense forces require high revenue expenditure to sustain large personnel numbers, an increased capital outlay is necessary to meet future security challenges. The Make in India initiative, defense corridors, and increased private sector participation can help optimize spending, ensuring that India builds a self-reliant and technologically advanced defense sector.
(To be continued)