India has become the world’s fourth largest spender on defence, following a 13.1 percent increase in its 2016-17 defence budget, according to IHS Inc, the leading global source of critical information and insight.
India’s climb in the rankings, from sixth position last year, is a result of an increase in expenditure to US$50.7 billion combined with cuts to military spending by other countries, namely, Russia and Saudi Arabia, where low oil prices have put considerable strain on their finances.
India’s defence spending in 2015 was US$46.6 billion and is projected to reach US$64.8 billion in 2020.
“Growth in the Indian budget is expected to outpace that of all other major defence spenders over the next five years. This position is only likely to strengthen further,” said Craig Caffrey, Principal Analyst at IHS Jane’s.
According to IHS analysis, short-term pressures, caused by increases to military pay and the introduction of One Rank, One Pension (OROP), are the main reason for the higher rate of budget growth. As a result, spending on the acquisition of military equipment remained largely static in real terms and remains lower than its 2013-14 peak, despite an increase in the overall budget.
“There are definitely strains with regards to the 2016-17 defence budget, not least that last year’s medium-term guidance suggested India would see a growth of 17-18 percent this year. The pressure on the capital budget will be the main concern from the perspective of both domestic and foreign defence suppliers,” said Caffrey.
Nonetheless, longer-term budgetary prospects have improved and are expected to strengthen further over the next five years.
The Indian defence budget is expected to reach US$64.8 billion by 2020 with procurement expenditure expected to grow faster than overall spending, according to IHS Jane’s Defence Budgets.
“The strain on the equipment budget was inevitable given the pressures of OROP and the seventh pay commission, but we should now see a period of sustained growth in procurement spending,” said Caffrey.
Increases in capital expenditure will be driven by extensive modernisation requirements across the Indian armed forces.
IHS has observed that the majority of the armoured vehicle inventory of the Indian army has passed their service life whilst the Indian Air Force possesses 34 active combat aircraft squadrons against a sanctioned requirement for 42.
As a result of these pressures, procurement spending is expected to rise from $10.4 billion this year to around $15 billion by 2020. fii-news.com
