Efforts by private sector to develop cutting edge military solutions have been given a major boost, with 25% annual research and development budget reserved for projects spearheaded by startups and private companies.
Major incentives for the Indian defence manufacturing industry in the Budget includes reserving 68% capex acquisition budget for weapons purchases from the domestic market and increased allocation for border roads development.
The industry has welcomed the plan to earmark a significant part of the Rs 19,000 crore plus research and development budget of the defence ministry for the private sector that is gearing to develop major platforms for sale to the armed forces as well as exports.
“Our government is committed to reducing imports in equipment for the armed forces…defence R&D will be opened up for the industry, startups and academic with 25% of the defence R&D budget earmarked,” finance minister Nirmala Sitharaman said.
Though contours of the allocation have not been disclosed, the Defence Research and Development Organisation is expected to play a major role in handholding the private sector with joint development projects. Promoting a collaborative model for research, the minister said that a special purpose vehicle model could be adopted for joint development of systems.
“Private industry will be encouraged to take up design and development of military equipment in collaboration with DRDO through an SPV model,” she said. Defence minister Rajnath Singh welcomed the move to promote R&D by the private sector.
“Substantial amounts have been allocated towards research and development in several sectors including defence. The proposal to reserve 25% of R&D budget for startups and private entities is an excellent move,” the minister said.
Announcing several measures aimed at boosting the Indian defence manufacturing sector and reducing imports, Sitharaman said that this year 68% of capital expenditure budget will be reserved for domestic procurement. This is a step up from last year, when 63% of capital budget was earmarked for domestic purchases.
The minister took up another longstanding demand of the industry for a robust testing and certification body, announcing that an umbrella organisation will be set up for the same in the coming financial year.
“Creation of a nodal body for setting up testing and certification requirements of defence systems and platforms will help domestic industry through faster processes and cost-efficiency,” Society of Indian Defence Manufacturers president SP Shukla said. The government has allocated Rs 5.25 lakh crore (including pensions) for the defence forces this year, which includes capital expenditure of Rs 1.52 lakh crore, a 12.8% increase in the capital budget for forces.
The defence ministry also spent an additional Rs 21,000 crore in the 2021-22 financial year above the budgetary allocation following the LAC standoff with China that necessitated emergency procurements of arms and equipment and creation of border infrastructure for troops.
