India ranks as Asia’s second-largest defence spender after China (excluding Japan), according to a Jefferies report, yet its military budget remains less than one-third of China’s in absolute terms.
The report underscores a sharp asymmetry in India’s defence profile. Although India commits a higher share of GDP to defence than China and ranks among the world’s top five countries by this measure, its smaller overall budget and lower capital outlays leave it trailing in equipment quality, spending per soldier and military assets.
China’s faster economic expansion—averaging about 8% annually over the past two decades versus India’s 6%—has widened the absolute gap. The figures cited by Jefferies encompass both operational and capital expenditure for both countries.
Capital spending remains a key gap
India allocates around 25 per cent of its overall defence budget to capital expenditure, according to Jefferies. Capital spending finances military equipment, platforms, weapons systems, infrastructure and modernisation. China and the United States, by comparison, are estimated to allocate between 40 per cent and 60 per cent of their defence budgets to capital expenditure.
This means the gap between India and these countries is wider when spending on military equipment is considered rather than total defence expenditure alone.
“Effectively, in terms of military equipment, India lags behind these countries more than the headline numbers suggest,” Jefferies said.
The report noted that defence spending has remained relatively healthy in India since 1992. However, a substantial portion of the budget continues to be absorbed by salaries, pensions, operations and maintenance, leaving less room for the acquisition of advanced platforms and weapons.
India’s defence spending and capability gap
| Area | India | China | United States | Key takeaway |
|---|---|---|---|---|
| Defence-spending rank in Asia | Second-largest, excluding Japan | Largest | Not applicable | India’s overall defence budget is less than one-third of China’s, according to the Jefferies analysis. |
| Share of GDP allocated to defence | Higher than China | Lower than India | Not specified | India ranks among the world’s top five countries by defence spending as a share of GDP. |
| Average annual economic growth over past two decades | About 6% | About 8% | Not specified | China’s faster economic growth has widened the absolute defence-spending gap. |
| Scope of spending figures | Operational and capital expenditure | Operational and capital expenditure | Operational and capital expenditure | Comparisons include both current and capital spending. |
| Capital expenditure as share of defence budget | Around 25% | Estimated at 40–60% | Estimated at 40–60% | India has less fiscal space for equipment acquisition and military modernisation. |
| Defence spending per soldier | Less than half of China’s; among the lowest in the top 10 spenders | More than twice India’s | Much higher than India’s | Lower spending per soldier affects equipment, training, logistics and force modernisation. |
| Submarines | Around 18 | Around 61 | Around 66 | India has a significantly smaller submarine fleet. |
| Military aircraft | Around 2,183 | Around 3,529 | Around 13,032 | India trails China and the US in the size of its air fleet. |
| Tanks | Around 3,913 | Around 4,600–5,900 | Around 4,600–5,900 | India’s tank inventory is smaller than those of China and the US. |
| Position among defence importers in 2025 | One of the top two; around 9% of global imports | Outside the top 40 | Not specified | India remained a major importer, but its dependence on foreign equipment has declined. |
| Defence-import trend, 2014–2025 | Declined at around 1% CAGR | Declined at around 10% CAGR since 2010 | Not specified | India’s decline was linked to its indigenisation drive; China’s imports have fallen more sharply. |
| Defence-spending growth | Around 4% CAGR | Not specified | Not specified | India’s spending rose even as defence imports declined. |
| Global arms imports in 2025 | Not applicable | Not applicable | Not applicable | Global arms imports rose 9% year on year, reaching their highest level since the end of the Cold War. |
| Defence capital-spending outlook, FY2026–FY2030 | Expected to grow at 10% CAGR | Not specified | Not specified | India’s overall defence capital expenditure is projected to expand steadily. |
| Domestic defence capital-spending outlook, FY2026–FY2030 | Expected to grow at 16% CAGR | Not applicable | Not applicable | Domestic procurement is expected to grow faster than overall defence capital spending. |
| Domestic allocation for capital procurement | 75% of capital procurement budget | Not specified | Not specified | The policy aims to support Indian manufacturers and reduce import dependence. |
Source: Jefferies Report
Defence spending per soldier among lowest
India’s defence spending per soldier is less than half that of China and is among the lowest in the top 10 defence-spending countries. Developed economies in the United States and Europe lead on spending per soldier, reflecting higher expenditure on advanced weapons, training, logistics, surveillance, communications and force modernisation.
India’s comparatively low spending per soldier has implications for the quality and scale of equipment available to its armed forces. The report said the country is not in a particularly strong position relative to leading military powers across the navy, air force and army.
India’s military inventory trails China and US
The gap is also visible in key military assets. India has around 18 submarines, compared with 61 in China and 66 in the United States, according to the data cited in the Jefferies report. In air power, India has approximately 2,183 aircraft, against 3,529 for China and 13,032 for the US.
India has around 3,913 tanks. China and the US each have between approximately 4,600 and 5,900 tanks, the report said. The cost of military equipment also varies significantly by service. Naval platforms are generally the most expensive, followed by air force equipment and army systems. This makes the composition of defence spending as important as the overall size of the budget.
India remains a major arms importer
India continues to be one of the world’s largest defence importers, although its reliance on overseas procurement has been declining over the past decade. According to Jefferies, Saudi Arabia and India were the top defence importers in 2025, each accounting for around 9 per cent of global imports.
Global arms imports increased 9 per cent year-on-year in 2025, reaching their highest level since the end of the Cold War, despite a sharp decline in Ukraine’s imports.
Three Gulf Cooperation Council countries—Saudi Arabia, Qatar and the United Arab Emirates—featured among the top 10 importers in 2025, compared with only one in 2010. China, which regularly ranked among the top 10 importers until 2020, has seen its imports decline at a 10 per cent CAGR since 2010 and now ranks outside the top 40, according to the report.
India’s defence imports declined at a 1 per cent CAGR between 2014 and 2025, even as its overall defence spending rose at a 4 per cent CAGR. Jefferies attributed the trend to India’s indigenisation drive, which gained momentum from 2014-15.
The report, however, noted that India’s defence imports rose sharply in 2025, partly reflecting emergency procurement linked to heightened tensions with Pakistan in May.
Operation Sindoor boosts indigenous systems
Jefferies report also mentioned that the use of Indian-made defence equipment during Operation Sindoor has strengthened the credibility of the country’s indigenisation programme. The operation, launched during India-Pakistan tensions in May 2025, reportedly involved several systems developed or manufactured by Indian companies.
These included Akashteer, an air-defence control system developed by Bharat Electronics, the Akash missile system developed by BEL and Bharat Dynamics, and BrahMos missiles deployed from Sukhoi-30 fighter aircraft.
The report also referred to Nagastra drones made by Solar Industries and components supplied by companies such as Data Patterns, Astra Microwave, Paras Defence, PTC Industries and NIBE. Akashteer enabled the armed forces to detect hostile aircraft, drones and missiles and share real-time information to coordinate interception efforts, according to the report.
“Battlefield-tested equipment does lend credibility to defence goods manufactured, especially in the international export-import market,” Jefferies said.
The brokerage believes operational deployment could help Indian defence companies build export opportunities, particularly in markets that have traditionally been dominated by suppliers from the US, Russia, Israel and other established defence manufacturing countries.
Policy push expands domestic opportunity
India’s defence manufacturing opportunity is being supported by a sustained policy push aimed at reducing import dependence and expanding domestic production. The government’s indigenisation measures include positive indigenisation lists covering more than 500 platforms and systems, as well as over 5,000 key sub-systems and line-replaceable units that are required to be localised by defence public sector undertakings by 2032.
In addition, 75 per cent of the capital procurement budget has been earmarked for domestic sourcing. The Defence Acquisition Procedure 2020 also increased the emphasis on indigenous content compared with the earlier procurement framework.
The upcoming Defence Acquisition Procedure 2026 is expected to focus on reducing procurement timelines and encouraging more competitive bidding instead of nomination-based orders. This could increase the role of private companies in major programmes, including the Advanced Medium Combat Aircraft, or AMCA, project.
The Ministry of Defence has cleared acquisition proposals worth more than $120 billion in 2025-26, providing medium-term visibility for defence manufacturers and suppliers, according to Jefferies.
Domestic defence capex may grow faster
Jefferies expects India’s overall defence capital spending to grow at a 10 per cent CAGR between financial year 2026 and financial year 2030. Domestic capital spending is expected to grow faster, at a 16 per cent CAGR over the same period.
The brokerage said the outlook could improve further if the government maintains the recent pace of capital allocation. The 2027 budget estimate reportedly reflected an 18 per cent year-on-year increase in defence capital expenditure over the previous year’s revised estimate, while the Defence Ministry has discussed medium-term capital expenditure growth of 17-18 per cent.
The faster growth in domestic capital spending could benefit Indian defence manufacturers by improving order visibility, supporting scale and reducing supply-chain risks. It could also result in better margins for companies developing indigenised equipment and components.
Spending needs to translate into capability
India’s position as Asia’s second-largest defence spender ex-Japan highlights the scale of its military commitment. But the Jefferies analysis also shows that total spending alone does not determine military strength.
India’s lower capital-spending ratio, lower expenditure per soldier and smaller inventory of high-value platforms continue to constrain its capabilities relative to China and the United States.
The long-term challenge will be to convert higher GDP allocation into advanced equipment, faster procurement, stronger domestic manufacturing and greater technological self-reliance. The indigenisation drive, rising domestic procurement and the operational validation of Indian-made systems are creating favourable conditions for the defence industry.