India and China have been at heightened tensions across the Line of Actual Control (LAC) in the recent past culminating in hand to hand conflict on the night of 15-16 June, resulting in loss of life on both sides. While there are talks and gestures in the media on both sides that de-escalation is the preferred option, both countries have held firm on their views of moral high ground.

Irrespective of the turn of events in the immediate future, we can expect that both sides can increase spending in defence with a focus on Intelligence, Surveillance and Reconnaissance, associated EO/IR technologies, training for operations in high altitude scenarios, and the improvement of overall capabilities as part of their strategic positioning in the region.

For India, this may mean further focus on howitzers and heavy-lift helicopters (CH-47i Chinooks) and C-130J Super Hercules, while China, may look at developing the designs and capabilities of their drones and stealth aircraft to deploy against India from within its airspace.

Covid-19 has affected both economies with austerity measures and fiscal discipline proposed by the governments. GlobalData’s report “The Indian defence market attractiveness, competitive landscape and forecasts to 2025” showed that capital expenditure growth rate reduced to 3% this year from 15.9% last year indicating a shift to consolidation and fiscal discipline from India. With Covid-19, the government placed limits of capital spending in the first quarter and it was expected that spending would be frugal and limited to contractual obligations. While GlobalData’s report expected capital expenditure to grow to 8.8% next year, with the present events, we can expect a reasonably higher growth as procurements and modernization programs are expedited along with delivery of certain platforms including the Rafale jets from France.

China has long benefited from its logistics development and supply chains to strengthen borders while ensuring internal security in troubled regions like Xinjiang and Tibet. Economically, its logistics and infrastructure development has also allowed it to grow. The One Belt One Road initiative effectively drives Chinese strategic interests abroad. In a simple manner, it allows Chinese infrastructure and construction companies to grow while securing supply chains and markets for China’s industries. Technologically, deployment and control of these regions have pushed Chinese companies to develop ISR solutions, in some cases, they far exceed capabilities globally.

However, domestic use of the PLA to control and monitor regions and protect its long borders, may have spread the PLA thin. To counter this, China will need improve efficiencies and the increase the use of technologies to cover greater distances with lesser personnel, or redeploy troops to borders and leave the policing to other organizations. GlobalData’s report “COVID-19 Impact Scenarios on China Defense Budget Forecast” suggested three outcomes for budget growth, pre-Covid-19 scenario, GDP Percentage Status Quo Scenario and Austerity Scenario. With increasing tensions between China and its neighbours on all sides, the Chinese establishment would find it difficult to cut or curtail military spending. We can, therefore, expect China’s defence spending to be on the lines of GDP Percentage Status Quo with a slightly higher allocation to defence to push domestic development and procurement.

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