Determinants of India's Defense Expenditure

Aims: This study aims to empirically examine the determinants of India’s defense expenditure, with a focus on assessing the relative influence of economic, demographic, and geopolitical factors over the period 1960–2020. Study Design: Time-series econometric analysis based on the Autoregressive Distributed Lag (ARDL) cointegration framework. Place and Duration of Study: Secondary data covering India from 1960 to 2020 were analyzed using ARDL models estimated by the authors between 2023 and 2024. Methodology: Two ARDL models were constructed. Model 1 (1960–2020) examined the effects of GDP, Pakistan’s defense burden, population, trade balance, internal conflicts, and war on India’s defense spending. Model 2 (1974–2020) additionally included central government expenditure and a regional security web variable. Cointegration was tested using the ARDL bounds approach, while short-run and long-run dynamics were analyzed through error correction models (ECM). Results: The F-statistics in both models exceeded the 5% critical bounds, confirming long-run cointegration. In both short and long run, GDP, population growth, and wars significantly increased defense expenditure, while Pakistan’s defense burden had no significant effect, rejecting the conventional arms race hypothesis. Central government expenditure was a strong positive determinant in Model 2, while the security web had an unexpected negative effect. Error correction terms were negative and highly significant, indicating rapid adjustment toward long-run equilibrium. Conclusion: India’s defense expenditure is shaped more by domestic economic capacity and strategic priorities than by regional rivalries. External wars exert a greater influence than internal conflicts, while fiscal policy strongly conditions defense spending. Policy implications include aligning defense expenditure with economic growth, investing in technology-driven efficiency, refining conflict management strategies, and reassessing multilateral security arrangements.