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India-Defense reports that Finance Minister Mr. P. Chidambaram has announced a 7% increase in India’s Defense budget for the next fiscal year. The Defence Budget has been increased from INR 83,000 crore¹ to INR 89,000 crore ($20.11 billion at March 1/06 interbank conversion), with INR 39,400 crore ($8.91 billion) as capital allocations. According to India-Defence.com, India’s 1.2 million strong Army will receive INR 41,000 crore ($9.26 billion) while the Air Force and Navy are budgeted INR 25,000 ($5.65 billion) and 15,000 ($3.39 billion) crore, respectively. The Defence Research & Development Organization (DRDO) is expected to receive INR 8,000 crore (1.81 billion).

$20.11 billion will still be less than 2.5% of India’s GDP. Over the longer term, however, pressure is growing to raise defense spending and change its allocation…

IAI Heron UAV

Another India-Defence article quotes Chief of Naval Staff Admiral Arun Prakash as saying that India’s Navy will acquire 27 new ships in 5 years, and “another 32 ships in 10 to 15 years.” He was speaking to reporters on the sidelines of the commissioning ceremony of the first UAV Squadron of the Indian Navy (using IAI Heron and Searcher UAVs which performed so well during the tsunami) at Kochi. That statement tracks with things he has said before about a force of 24 new submarines by 2030.

Adm. Prakash said that indigenously built ships would be given priority, but that the maritime security threat is increasing day by day and more vigilance is required. India is certainly extending that vigilance, and recently signed a basing agreement with Madagascar. Its stated aim was combating pirate activity, which has been high in that part of the world.

Scorpene sub
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This year will feature payments of “thousands of crores,” estimated at about 40% of the procurement budget, toward major deals like India’s $3.5 billion Scorpene submarine deal with France, the INS Vikramaditya (Admiral Gorshkov) carrier from Russia, and Hawk jet trainers from Britain. With India promising to move ahead with a major artillery buy in 2007, an $8-10 billion foreign fighter aircraft purchase in 2007, the LCA Tejas lightweight fighter & Kaveri engine by 2010, and future shipbuilding per Adm. Prakash’s statements, the capital budget is likely to become even more crowded.

India’s defense establishment is likely to face some hard choices ahead.

At present, India’s defense spending is 2.5% of GDP. This is slightly lower than China’s estimated real spend (its official figure is 1.6% of GDP, but RAND’s Project Air Force estimates it at 2.3-2.8%, or $69-78 billion FY01 dollars – note that even this figure is lower than other observers believe to be the case). Pakistan is a smaller country, which explains in part why it’s at 3.7-4.0%. Singapore, smaller by far but determined to be prepared against all contingencies, allocates about 6% of GDP. Australia spent about 2.5% of its GDP on defense in the early 1990s and is down to about 2% in 2005, but is working to raise that figure again. The USA, as a final point of reference, is currently running a defense budget equal to about 3.5-4% of GDP, a figure that is still lower than the 6-7% of Reagan years.

¹ 1 Lakh = 100,000 Rupees (INR)
1 Lacs = 1 million Rupees
1 Crore = 10 million Rupees