"After the Kargil conflict in 1999, defense spending rose 18 percent on-year in fiscal year 2000 to 16 percent of total expenditure, or 2.3 percent of gross domestic product," the note said.
U.S.-India Business Council (USIBC) President Mukesh Aghi echoed those sentiments, in comments to The Hindu newspaper on Monday. Aghi said he expected spending on defense and security to "go up dramatically" due to the ongoing crisis in Kashmir.
But for some, the current geopolitical situation—however concerning—does not necessarily warrant an increase in military expenditure.
India's decisions to increase its naval capacity or buy weapons were typically aimed at catching up with China's military modernization, not battling Pakistan, noted Abhijnan Rej, fellow at New Delhi-based think-tank Observer Research Foundation.
"The decision to upgrade the defense sector is typically based on long-term integrated perspective planning, not just one single event," he said. "If the government can maintain a strong revenue base for some time to come, then it's possible we will gradually see an increase in military spending."
India was the world's fourth largest defense spender this year, according to IHS.
The bulk of economists believe the black money windfall should be allocated to social programs instead.
"It would certainly boost market confidence if the government were to target these funds towards spending that increases the economy's productivity and long-term growth potential," Eswar Prasad, senior professor at Cornell University and senior fellow at the Brookings Institution, told CNBC on Monday.
"Productivity-enhancing expenditures, such as on infrastructure or education, would not only direct boost growth but also have a positive effect on investor and consumer confidence," he continued.
Economists have long warned New Delhi to upgrade the nation's rickety roads, trains and ports, as well as health, education and other social programs that would benefit citizens, 12.4 percent of which lived below the poverty line in 2011-12, according to the latest World Bank data.
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