India's defence spending is expected to grow at a CAGR of 6.65% in the next five years to reach $55.4bn by 2021, according to a report by Strategic Defence Intelligence (SDI).
The report, titled 'Future of the Indian Defense Industry - Market Attractiveness, Competitive Landscape and Forecasts to 2021', notes that the Indian defense budget has witnessed the CAGR of 3.41% during 2012-2016, while defence capital expenditure is expected to be $21.2bn in 2021, due to the procurement of multi-role aircraft, corvettes, surface-to-air missiles, and frigates.
The OROP (One Rank, One Pension) and 7th Central Pay commission are expected to further raise the revenue expenditure.
The Indian Air Force (IAF) has been allocated a 25.9% share, the second biggest allocation after the Indian Army, of the total budget during 2012-16 and will continue to take a major chunk of the budget in the future as the Indian Ministry of Defence (MoD) is close to finalising a multi-billion deal to acquire 36 French Rafale multi-role fighter aircraft for the Indian Air Force (IAF).
Moreover, the expenditure on air force is expected to be as high as $14.1bn by 2021 and the modernisation of the air force to counter the potential threats from China and Pakistan is anticipated to drive the expenditure.
The major IAF programmes include Medium Multi-Role Combat Aircraft (MMRCA), Tejas Light Combat Aircraft (LCA), Sukhoi Su-30MKI multirole fighter, Sukhoi/HAL Fifth Generation Fighter Aircraft (FGFA), transport aircraft and attack helicopters.