India Increases Military Budget By 11% to Nearly $40 Billion

NEW DELHI—India increased the amount of money it plans to spend on its military next fiscal year by 11% to nearly 2.47 trillion rupees ($40 billion) as the South Asian nation plans to continue to invest in expanding and modernizing its armed forces.

In the year starting April 1, India will boost military spending from 2.22 trillion rupees this year, said Finance Minister Arun Jaitley in his federal budget speech Saturday. He said India will be trying to buy more of its arms domestically.

“We have been overdependent on imports, with its attendant unwelcome spin offs,” Mr. Jaitley said in his budget speech. “We are thus pursuing the ’Make in India policy’ to achieve greater self-sufficiency in the area of defense equipment.”

India has become the world’s biggest arms importer in recent years as it attempts to build up its military to deal with tensions with Pakistan and the growing military strength of China.

India plans to cut its outlay toward new aircraft and engines for the Indian Air Force to 189 billion rupees for the coming fiscal year from 215 billion rupees this year. Mr. Jaitley allocated about 160 billion rupees for the navy to upgrade its fleet, up from a revised 94 billion rupees this year.

India’s Prime Minister Narendra Modi has made military modernization one of his top priorities since his government came to power in May. Soon after taking charge, Mr. Modi’s government started allowing foreign firms to hold up to 49% stakes in defense ventures. Previously, foreign firms were only allowed to own up to 26% stakes in military joint ventures.

Analysts said the government’s push for greater local manufacturing of equipment by foreign firms may not materialize unless the foreign ownership limit is increased.

“The biggest elephant in the room is of course enhancement of the FDI (capt) from 49% to 74%,” said Amber Dubey, head of aerospace and defense practice at KPMG in India. “Not a penny of FDI has come in since the last budget in June 2014.”

India received a meager $5 million worth of foreign direct investment in defense in the last 14 years. The telecommunications and automobile industries have each attracted more than $10 billion each over that period.