India's Military Modernization

Between 2006 and 2010, India surpassed China as the world’s largest importer of weapons systems, reflecting the nation’s intent to modernize its armed forces and project military capabilities beyond the subcontinent. It is expected to maintain this position in the coming years, with plans to spend an estimated $80 billion on military modernization programs by 2015. At the same time, the Indian Ministry of Defense has laid out an ambitious agenda to substantially increase the country’s capacity to produce military hardware by the end of the decade. If the parallel trends of record defense spending and growth in the domestic defense industrial base continue, India will quickly become a key player in the global defense market.

Q1: How did India become the world’s largest importer of military equipment?

A1: With annual GDP growth rates between 7 and 9 percent in the past decade and the government’s commitment to steady investments in military capabilities, India’s spending on defense as a share of its GDP has remained relatively steady at 2.5 to 3.0 percent. Consequently, India’s defense budget has grown by some 64% (in real terms) since 2001—reaching $36.3 billion in the 2011–2012 budget—and enabled the implementation of long-term acquisition plans. Of the total defense budget, approximately 40 percent (some $14.5 billion) is allocated to the defense capital outlay budget, which funds arms procurements, construction and maintenance of installations, additional infrastructure, and other military equipment modernizations. Interestingly, the Indian Air Force has experienced a 6 to 7 percent growth in its share of the capital outlay budget over the past decade, while the Indian Army and Navy have seen their shares decrease. The Air Force also receives the lion’s share—some 40 percent—of the current capital outlay budget, while the Army and Navy receive 25 and 20 percent, respectively (the remainder is spent on R&D and military production elements in the Ministry of Defense).

In the past decade, the vast majority of India’s defense imports were aircraft procured from Russia, including large orders of Su-30 fighters and Mi-17 transport helicopters. In addition, India signed large contracts to purchase American maritime reconnaissance aircraft, British trainer jets, French submarines, and Israeli unmanned aerial systems.

Q2: Will India continue to rely on foreign suppliers for its military modernization efforts?

A2: Earlier this year, the Indian Ministry of Defense announced the ambitious goal of producing 70 percent of its required military equipment domestically by the end of this decade, rather than the 30 percent it currently produces. Two key elements drive this policy: a desire to boost defense-related domestic industry sectors and the belief that providing for its own defense requirements is indicative of being a global power. While previous attempts at generating greater domestic defense manufacturing were superseded by the nation’s aspiration to command a first-rate military composed of foreign-made equipment, the stage today may be set for a more successful journey toward self-reliance. In January 2011, India released its first-ever Defense Production Policy. This document is significant in that it concisely articulates the Ministry of Defense’s agenda for supporting a domestic defense industrial base, rather than couching these intentions in dense procurement documents as had previously been the case. Moreover, the Defense Production Policy highlights the need for greater involvement by the country’s private sector (including small and medium-size enterprises) and for broadening the country’s defense research and development base.

Q3: What does this mean for the global defense industry?

A3: India’s renewed commitment to building its domestic defense industrial base comes at a time of dramatic changes in the global defense market. Economic realities are forcing cuts in defense budgets in the home markets of most of the world’s largest arms producers (including the United States, which until 2010 saw record defense budgets every year since 2001). This may compel many of these companies to make greater concessions to gain territory and key partnerships in the Indian defense market. Concessions might include more generous offers for technology transfer and a willingness to undertake greater shares of the work in India. The Indian Ministry of Defense should leverage this situation by being more receptive to innovative partnership agreements between foreign and Indian companies.

The parallel trends of record defense spending and a growing domestic defense industrial base hold the potential to shake up the global defense industry. In the short term, defense companies will continue to compete for business with India’s Ministry of Defense. In the medium term, large import deals will become less common as India ramps up domestic production and becomes a more self-reliant partner among its international peers in defense manufacturing. In the longer term, Indian companies nurtured under the new policies may themselves compete with U.S., European, and Russian companies for lucrative defense contracts around the world.

Guy Ben-Ari is a fellow and deputy director of the Defense-Industrial Initiatives Group at the Center for Strategic and International Studies (CSIS) in Washington, D.C. Nicholas Lombardo is a graduate intern with the CSIS Defense-Industrial Initiatives Group.

Critical Questions is produced by the Center for Strategic and International Studies (CSIS), a private, tax-exempt institution focusing on international public policy issues. Its research is nonpartisan and nonproprietary. CSIS does not take specific policy positions. Accordingly, all views, positions, and conclusions expressed in this publication should be understood to be solely those of the author(s).

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