Washington, April 9 (NationPress) The International Monetary Fund (IMF) has indicated that India’s initiative to enhance its domestic defence production could significantly bolster economic growth. The IMF highlighted that increased military expenditure can elevate output when it supports local industries.

According to the IMF, “Defence buildups can stimulate economic activity in the short term—boosting consumption and investment.” This observation comes amidst a global surge in defence spending due to escalating geopolitical tensions, with roughly half of all nations raising their military budgets in recent years, reversing a decline seen after the Cold War.

The findings are particularly beneficial for India, showing a clear economic advantage. The benefits are more pronounced when defence spending is focused on domestic production rather than foreign imports.

On average, the IMF noted, “Defence spending multipliers are close to 1,” suggesting that each increment in military spending generally correlates with a similar increase in economic output.

However, the impact varies significantly by country. “Countries that heavily rely on arms imports experience smaller defence spending multipliers due to demand leakages abroad,” the report stated.

This distinction works in India's favour. New Delhi has intensified efforts to minimize reliance on foreign military equipment and foster a domestic defence sector. A larger portion of defence expenditure is now allocated to local manufacturing, private enterprises, and joint ventures.

According to the IMF, spending that is heavily import-dependent can undermine external balances. “External balances worsen as demand shifts towards imported equipment,” the report explained.

India’s commitment to indigenisation could mitigate such pressures, allowing a greater portion of the demand stimulus to stay within the economy, thereby fostering job creation and investment.

The report also indicated that defence expenditure serves as a targeted demand shock, enhancing government consumption and potentially encouraging private sector spending, particularly in defence-related areas.

Over the long term, it may also enhance productivity. “A buildup that prioritizes public investment could foster sustained productivity growth,” the IMF stated.

Nonetheless, the IMF cautioned against excessive spending increases, noting that fiscal deficits could rise by approximately 2.6 percentage points of GDP and public debt might grow by around 7 percentage points within three years.

These challenges intensify during conflicts, where debt accumulates more rapidly and social expenditure may decline.

Since the mid-2010s, global defence spending has been on the rise, with nearly 40% of nations now allocating over 2% of their GDP to military expenditures.

NATO allies have committed to increasing defence and security-related spending to 5% of GDP by 2035, indicating a persistent growth trend in military expenditures.

India currently allocates about 2% of its GDP to defence and has recently expanded domestic production through policy reforms and incentives.

The IMF analysis suggests that nations with robust local defence industries are in a better position to convert increased military spending into economic growth while mitigating external risks.