Sorry if it sounds like a noob question, earlier iPads have 42.5Wh battery pack and gives 10 hours of battery. But new iPad Air has only 32.5Wh battery, but it also gives same amount of battery backup that too with a more powerful processor and graphics. How so?
A combination of more efficient backlighting with fewer elements, along with reduced silicon fabrication size combined with a switch to the new more efficient 64bit architecture means that the device simply runs on less power, allowing a smaller battery to be used while maintaining the customary 10 hours usage.
I have heard several things on this. First, I believe it compares with the 3rd/4th Gen iPads in regards to battery life, so I'm not sure iOS 7 is all of it, but certainly a big part as I will explain later. I believe they have combined several things to, practically speaking, improve battery life (with using a smaller battery for the same usage).
First, and primarily, I understand the iPad Air uses a different screen than the previous retina iPads. At the core of this issue is the fact that While previous retina iPad used 84 LEDs to backlight the display, the iPad Air uses only 36. While LEDs don't consume much electricity in general, this is a reduction of almost 50%, and when the screen is likely the biggest consumer of battery, this means a lot.
Second, I would be confident that the introduction of the M7 co-processor is not just about bringing the future closer. I would think that the M7 allows iOS 7 to customize many things in support of battery life (bringing iOS 7 into the equation).
Lastly, this is a difficult question to answer positively without talking to Apple engineers. Because they are always looking for ways to increase battery life it is entirely possible that there are other factors, such as perhaps the MIMO wifi antennas, that may actually be more power efficient than their predecessors. Small gains in some of these areas can be difficult for users to detect.