The Indian Navy has been forced to cut back its expansion plans, especially for naval aviation, because of the government putting a lower priority on meeting the Chinese threat and instead concentrating on domestic needs. The Indian navy is reducing orders for new naval helicopters and support aircraft, as well as less severe cutbacks in shipbuilding.
The current (2020-21) defense budget is $67 billion, which is about five percent larger than the previous year. This comes to 1.6 percent of GDP, which is the lowest since the early 1960s. Back then a brief war with China, which India lost, sparked growth in the military budget which at one point consumed 2.9 percent of GDP.
The government's emphasis on economic growth makes sense because that growth has been spectacular lately, with GDP nearly doubling in the last decade from $1.7 trillion to the current $3.2 trillion. The Chinese GDP growth is slowing although in the last decade it more than doubled from $6.1 trillion to $14 trillion. But for once the annual GDP growth has been faster than in China, where GDP growth rates have been declining over the last five years.
India is faced with fundamental problems that China has already taken care of. A major Chinese achievement has been to reduce the percentage of the population living in poverty. Back in 1981, some 85 percent of the Chinese population was living in extreme poverty. Now that is less than one percent. India, in contrast, still has 68 percent of the population living in extreme poverty.
A major difference between India and China is the effectiveness of the education system. India has always suffered from corruption in basic education with many teaching jobs being used to reward political supporters, not educate the children. It was quite the opposite in China where adult literacy is 93 percent compared to 66 percent for India. India and China both have about the same population (over a billion each) but far more Chinese are better educated and have the skills needed to operate a modern economy.
The Indian government has spent a lot of money on nuclear weapons and missiles to deliver them to Chinese targets. Many consider that sufficient to avoid major war with China. Such a war is a real possibility because China has made aggressive claims on Indian territory. For India, the real war is economic and cultural. India suffers higher levels of corruption than China. For example, in annual surveys of corruption China and India rank about the same in terms of low corruption but Indian corruption is concentrated in key areas like education and government administration. As a result, China has a better educated population more effective spending for the military budget and development of military procurement and local production. China develops and produces much more effective military equipment and weapons than India. In other words, not only does China have a larger defense budget but they get more out of it than India. China has more modern equipment and uses it more effectively, especially when it comes to the navy. This is where India is suffering cutbacks in procurement because the Indian defense procurement bureaucracy cannot manage its money as effectively as the Chinese.
By concentrating on economic growth the government follows a long-range, more efficient strategy to improve military capabilities. Indian military leaders don’t like the defense spending reductions but do appreciate the economic goals if they can be achieved.