How can Budget 2025 make India’s defence sector stronger?

This year’s budget presents an opportunity to transform the sector through strategic measures that can make India stronger in an ever-evolving global set-up

event 28 Jan, 2025

The Budget is just around the corner and with key announcements and reforms expected, this could be a pivotal year for our armed forces. Over the years, India has made significant progress in strengthening the defence sector. Last year, we were the fourth-largest defence spenders globally.¹However, there’s still room to enhance our capabilities, address key gaps and ensure our defence sector is ready for the evolving geopolitical ecosystem.

Here’s my take on what the Budget can do for defence:

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Increased spending

While last year’s defence budget saw a significant 4.8 per cent increase, there is scope for increasing this further with a more targeted focus on capital spending.²With defence spending currently at 1.91 per cent of GDP, this can be increased further.³Raising it to 3 per cent can address the growing demands of the sector

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Attracting global manufacturers

To make India a global hub for defence manufacturing, the government can introduce key reforms. For instance, the current two-year technology transfer policy can be relaxed to allow phased integration over 10 years, making India more appealing to foreign investments. Additionally, introducing more region-specific incentives and simplifying entry barriers can make India a preferred investment destination

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Boosting indigenous production

India’s reliance on imports makes the sector vulnerable to supply chain disruptions. The government can consider provisions to expand and strengthen public-private partnership modules and increase allocations under incentive schemes like the PLI. Additionally, addressing bureaucratic delays through streamlined, AI-driven processes can make defence operations more efficient

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Prioritising emerging technology

Rapid tech advancements, from AI to advanced robotics and electronics, are reshaping defence capabilities today. The budget can consider allocating 10 per cent of the defence budget to R&D to pave the way for self-reliance and innovation in these critical areas

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Deeping global partnerships

Strengthening collaborations with advanced nations and negotiating strategic FTAs can enhance the supply chain of critical components, advanced technologies and clean energy

This year’s budget presents an opportunity to transform the sector through strategic measures that can make India stronger in an ever-evolving global set-up.

^[1] Global Military Spending Surges Amid War, Rising Tensions and Insecurity, SIPRI, 22 April 2024, accessed on 27 January 2025
^[2] Ministry of Defence, Press Information Bureau, 23 July 2024, accessed on 27 January 2025
^[3] India’s Defence Budget 2024–25, Delhi Policy Group, 2 August 2024, accessed on 27 January 2025