The SIPRI Yearbook 2007 is a reminder of our world getting increasingly militarized, reminiscent of the Cold War era. This is evident from the continuous rise in military expenditure, which reached a whopping US$1,204 billion in 2006, raising some basic questions about the causes and consequences of this increasing expenditure, and its implications for India.

These trends in global military expenditure can be traced to 9/11, which led to the 'Global War on Terror' (GWOT), exponentially increasing military expenditure. The effect of GWOT on military spending can be seen from the latter's increase, in real terms, by 5 per cent annually over 2001-2006, compared to 0.4 per cent per year during the six years prior to 2001. Much of this growth is due to the US, which alone accounts for nearly half the total global military expenditure. From 2001 to 2006, US military expenditure increased by 53 per cent in constant prices. Till 2008, the GWOT had cost the US nearly US$758 billion in supplementary appropriations or requests.

If 9/11 is the prime reason underlying enhanced US military spending, it has its impact on other countries' military spending, apparent from the rising military expenditure of some major military spenders. The United Kingdom, which is in a distant second position vis-a-vis its transatlantic cousin, has raised its real military budget by 4 per cent every year over 2001-2006, to meet the costs of its international operations, especially in Iraq and Afghanistan. The impact of higher US military spending is also visible in China, which recently surpassed Japan to become the fourth highest military spender in the world. During 2001-06, Chinese military expenditure has grown by 12 per cent per year, compared to its 10 per cent annual economic growth during the same period. Much of the Chinese expenditure is directed towards preparing for an 'informationized war' (i.e., a war which is 'high-paced, high-technology and digitized' in nature) to match the military power of the US, should they clash over Taiwan. If the Chinese expenditure continues to grow at the present rate, then by 2012, it will emerge as the second highest military spender in the world, surpassing France and UK en route.

The increased level of global military spending has resulted in a quantum leap in arms production and arms exports. During the period 2001 to 2006, the global arms production of the top 100 defence companies increased by 76 per cent from US$181 billion to US$318 billion, representing a growth of 13 per cent each year. Consequently, the value of arms exports, revealed in arms transfer agreements, increased from US$31 billion to US$40 billion, up by 29 per cent. Given that most of these deliveries are made to developing countries, which accounts for four-fifths of total conflicts world wide, where the conflicts are in higher proportion, these deliveries have played a major role in keeping these conflicts alive. During this period, the developing regions of the world received weapons and other military goods and services worth US$121 billion, which is 72 per cent of total arms deliveries to the world.

Defence spending in India, in comparison to the average global increase, has grown by one percent to 6 per cent per year in real terms between 2001 and 2006. From the global perspective, the absolute value of Indian defence spending is much lower than that of major spenders like the US, UK, or with its militarily superior neighbor, China. Indian defence spending in current dollars during 2006 stood at US$24 billion, against US$546 billion for the US, US$62 billion for the UK, and US$51 billion for China.

The increased global military spending post-9/11 and resulting increase in global arms production raises the issue of arms racing by countries like India, China and Pakistan, who have undertaken large procurements of defence equipment from the international market. For example, during 2003-2006, India's rank as a leading recipient of conventional arms among the developing nations jumped five places from the eighth position it held during 1999-2002, with the value of deliveries increasing by two and a half times to US$7.2 billion. Similarly, China and Pakistan, while maintaining their respective rankings, have increased their arms procurement; their combined arms imports during the three year period (2003-06) totaled nearly US$22 billion.

The increased flow of arms to India, China and Pakistan will not only push them into an arms race, but will also inflate their defence budgets further in future. In the context of India, whose defence expenditure in recent years has been subjected to greater scrutiny in view of competing demands from the social sectors, an over-heated arms race would pose a serious challenge to policy makers in the coming years.