New Delhi [India], December 9 : India's defence capital spending is expected to remain steady at about 0.5 per cent of nominal GDP, according to a new sectoral update by B&K Research.

"Our trajectory implies defence capital expenditure staying at 0.5% of nominal GDP, similar to historical trends," the report added.

The report emphasises that capital expenditure, rather than the broader defence budget, provides the clearest measure of the scale and sustainability of future investment.
"We deliberately consider capex outlay rather than the overall defence budget, as capex is the number that matters," it added.

The report added that India's defence expenditure is expected to continue its expansionary path, supported by convergence of accelerated platform modernisation, rapid infrastructure build-out to drive indigenisation, and new capability development across emerging technologies.

The government's policy stance and budget allocation continue to remain capex-forward, it added.

"Capex outlay is expected to rise faster than revenue expenditure, and the recent commentary from Defence Secretary reinforces this view, capex is expected to rise at 17-18 per cent CAGR over the medium term, and then at 10 per cent CAGR over the long term," the report added.

Going further, the report added that India's defence & aerospace sector is entering a structural modernisation cycle, aided by a confluence of rising geopolitical conflicts, ageing military assets and technology-driven warfare.

"Modernisation is no longer confined to sporadic procurements or one-off upgrades. It has evolved into a structural capex cycle where the focus has shifted to capability creation rather than simply platform or product acquisition," the report further stated.

India's defence production has already crossed USD 17.6 billion, and the government is targeting USD 36 billion by 2029.

With large platforms like aircrafts, helicopters, missile systems, radars and electronics simultaneously approaching replacement or modernisation cycles, India is stepping into a procurement horizon with visibility for over a decade, the report added.

"This leads us to believe that the current capex cycle is sustainable in nature, much broader, stickier and technology-heavy in its vision," the report asserted.

Talking about the opportunities in the global markets, the report added that the international defence dynamics are increasingly aligning with India's ambitions for the sector. NATO's planned ramp-up towards higher defence spending, rising conflicts globally and the subsequent rebuilding of depleted inventories present an unprecedented export opportunity for India, the report added.

India's defence exports have risen more than fifteen-fold over the last eight years, and the goal is to further double this to Rs 500 billion within the next five years.