What is External Threats

Some countries spend a relatively large percentage of GDP on their militaries in order to preserve or secure their status as global powers. Others do so because they are ruled by military governments or aggressive regimes that pose a military threat to their neighbors or their own populations. It is debatable whether there is a causal relationship between military spending and economic growth in the economy. It is again a policy debate how much to allocate funds for civilian and how much for military expenditure. Under these puzzling results of the impact of military expenditure on economic growth which is frequently found to be non-significant or negative, yet most countries spend a large fraction of their GDP on defense and the military. The chapter tries to investigate the relationship between military spending and economic growth in India. It also sees whether external threats, corruption, and other relevant controls have any causal effect. This chapter obtains that additional expenditure on Indian military in the presence of additional threat is significantly detrimental to growth implying that India cannot afford to fight or demonstrate power at the cost of its development.