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The Allocations were as follows:

Rs 31,772.23 crore – Central Reserve Police Force (CRPF).

Rs 24,771.28 crore – Border Security Force (BSF).

Rs 13,214.68 crore – Central Industrial Security Force (CISF).

Rs 8,096.89 crore – Indo-Tibetan Border Police (ITBP).

Rs 8,329.10 crore – Seema Suraksha Bal (SSB).

Rs 7,052.46 crore – Assam Rifles (AR).

Rs 1,286.54 crore – National Security Guard (NSG)

Total Rs 1.27 lakh crore earmarked for paramilitary forces.

The allocations made to the ministry, headed by Union Home Minister Amit Shah, according to the Budget document, is higher by over Rs 10,000 crore, as in the Budget for 2022-23, it was pegged at Rs 1,85,776.55 crore.

The bulk of the amount allocated to the MHA, Rs 1,27,756.74 crore, has been earmarked for the CAPFs in comparison to Rs 1,19,070.36 crore in 2022-23.

Among the CAPFs, the Central Reserve Police Force (CRPF), mostly responsible for internal security duties and fighting militancy in Jammu and Kashmir, has been allocated Rs 31,772.23 crore in comparison to Rs 31,495.88 crore given in 2022-23.

The Border Security Force (BSF), which guards India’s border with Pakistan and Bangladesh, besides handling internal security assignments, has been given Rs 24,771.28 crore in comparison to Rs 23,557.51 crore given in the current financial year.

The Central Industrial Security Force (CISF), which protects vital installations such as nuclear projects, airports and metro networks, has been given Rs 13,214.68 crore in comparison to Rs 12,293.23 crore allocated in 2022-23.

The Shashastra Seema Bal (SSB), which guards India’s borders with Nepal and Bhutan, has been allocated Rs 8,329.10 crore in comparison to Rs 8,019.78 crore given in 2022-23.

The Indo-Tibetan Border Police (ITBP), which guards India’s borders with China, got Rs 8,096.89 crore in comparison to Rs 7,626.38 crore given in the current fiscal.

The Assam Rifles, which is deployed along the India-Myanmar border and for anti-insurgency duties in the North-East, has been allocated Rs 7,052.46 crore in comparison to Rs 6,561.33 crore given in the current financial year.

The National Security Guard (NSG), the elite commando force to tackle any emergency security situation, has been allocated Rs 1,286.54 crore in comparison to Rs 1,183.80 crore given in 2022-23.

Expectations

What the CAPFs expected from the 2023 Union budget was funds for infrastructure development in border areas, better equipment with latest technology for disaster management, training and operations and a robust communication system.

Each year funds for the CAPFs see only a marginal increase, most of which goes into salaries, allowances and other wages, with only a little left over for the development and modernisation of the organisation.

Although a separate fund is also earmarked for modernisation of the forces, focus on infrastructure development and better training and equipment, is often ignored owing to lack of funds.

In the previous budget, in 2022, the Ministry of Home Affairs was allocated Rs 1,85,776.55 crore – a more than 11 per cent increase over the Rs 1,66,547 crore allotted in the previous fiscal year.

Last year, as a new feature, funds were allocated for the modernisation of the CAPF, to equip the forces with modern, state-of-the-art weapons and equipment, according to their operational requirement, keeping in view their deployment pattern in different sectors. Besides, upgraded IT solutions were also to be provided to CAPF. The plan announced a total financial outlay of Rs.1,523 crore between 1 February 2022 and 31 March 2026.

The National Disaster Response Force (NDRF) and Delhi Police, both of which also roll up to the Ministry of Home Affairs, also had similar expectations from the budget.

With climate change there has been an increase in episodes of natural disasters, which requires the latest technology relief operations and the next budget should focus on that.

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The Union Budget for Financial Year 2023-24 envisages a total outlay of Rs 45,03,097 crore. Of this, Ministry of Defence has been allocated a total Budget of Rs 5,93,537.64 crore, which is 13.18 % of the total budget. This includes an amount of Rs 1,38,205 crore for Defence Pensions. The total Defence Budget represents an enhancement of Rs 68,371.49 crore (13%) over the Budget of 2022-23.

The non-salary portion of the revenue outlay has been enhanced by 44 per cent from Rs 64,869 crore in the budget estimates for 2022-23; to just over Rs 90,000 crore in the coming year.

But, for the first time in decades, India’s defence allocations have dropped below two per cent of the nominal Gross Domestic Product (GDP). It stands at 1.97 per cent of GDP, or 13.2 per cent of government spending.

The defence allocations for 2023-24 represent an enhancement of Rs 68,371 crore, or 13 per cent, over the budget allocations of 2022-23. However, if this year’s allocations are compared with the revised allocations of 2022-23, the rise is a miniscule 1.5 per cent.

The government expects to close critical gaps in the combat capabilities and equip the forces in terms of ammunition, sustenance of weapons & assets, military reserves etc.

Services Allocations

While the 1.3-million-strong army has been allocated a lion’s share of the revenue and pension budgets, the Indian Air Force has got the biggest share of the capital allocation: Rs 57,137 crore. The navy has been allocated Rs 52,805 crore, while the army will make do with the smallest capital budget: Rs 37,242 crore.

Capital Expenditure

The defence capital outlay for equipment modernisation and infrastructure development has increased to Rs 171,375 crore.

MoD pointed to the steady rise in the defence capital outlay from Rs 86,740 crore in 2013-14 to 1.52 lakh crore in 2022-23 – an enhancement of 76 per cent over a period of nine years. While that sounds like a healthy growth rate, it actually amounts to less than 5 per cent, compounded annually – barely enough to cater for inflation and foreign exchange rate variation.

The Indian Navy has received a significant rise in its capital allocation In a long-overdue recognition of the importance of maritime security. The navy’s capital budget has been enhanced by about 43 per cent, from an allocation of Rs 33,254 crore in FY 2021-22 to Rs 47,591 crore in FY 2022-23, a rise of Rs 14,337 crore. This increment will be needed to support the acquisition of new platforms, such as six air-independent propulsion (AIP) submarines being acquired under Project 75-I, a second indigenous aircraft carrier (IAC-2), 57 twin-engine deck-based fighters (TEDBFs) and four more P-8I Poseidon long-range maritime patrol aircraft to keep a watch over the Indian Ocean. The navy is also creating operational and strategic infrastructure that will be needed when the tri-service maritime command is operationalised in Karwar, near Goa.

The capital budget of the Indian Coast Guard (which operates under the navy for coastal security in peace and for operations in wartime and forms a part of the defence ministry budget) has been enhanced from Rs 2,650 crore in FY 2021-22, by over 60 per cent to Rs 4,246 crore in FY 2022-23. This will provide the wherewithal needed for building up assets such as offshore patrol vessels, maritime reconnaissance ships and aircraft, establishment of a coastal security network and building up technical and administrative support structures.

Border Infrastructure

The capital allocation to the Border Roads Organisation (BRO) has been increased by 43 per cent, from Rs 3,500 crore in FY 2022-23 to to Rs 5,000 crore in FY 2023-24. The defence ministry says the BRO’s allocation had doubled in the two years since FY 2021-22.

“This will boost border infrastructure, thereby creating strategically important assets like Sela Tunnel, Nechiphu Tunnel and the Sela-Chhabrela Tunnel,” said the defence ministry in a press release.

In 2021, BRO executed a record 102 roads and bridges at extreme altitudes and weather conditions. This includes the world’s highest motorable road at Umling La, at an altitude of 19,024 feet.

Research & Development

Towards strengthening Research and Development in Defence, the allocation to DRDO has been enhanced by 9%, with a total allocation of Rs 23,264 crore in BE 2023-24.

25 per cent of the DRDO budget has been earmarked for engagement of industry, startups and academia. The DRDO’s capital budget allocation is up 5.3 per cent from Rs 11,375 crore in BE 2021-22 to Rs 11,981 crore in the current year, providing only a limited boost to indigenous R&D projects.

Currently, the DRDO engages about 20,000 industries of various sizes in the development of various systems, sub-systems and technologies, directly and indirectly. Through its Technology Development Fund (TDF) scheme, DRDO extends financial support to Indian MSMEs and startups for indigenous design and development of defence products, components and subsystems. The fund is utilized for developing new technologies as required by DRDO, services, and DPSUs.

DRDO also works with more than 250 academic institutes on different defence R&D problems for basic, applied and targeted research. It has established 10 advanced research centres in various academic institutions.

MSMEs

The Union Budget 2023-24 has also announced that the revamped Credit Guarantee scheme for MSMEs which will take effect from 1st April 2023 through infusion of Rs. 9,000 Crore in the corpus. This will enable additional collateral-free guaranteed credit of Rs 2 lakh crore. Further, the cost of the credit has also been reduced by about 1 per cent. This scheme will give a further fillip the MSMEs associated with the Defence Sector.

Innovation

To further foster innovation, encourage technology development and strengthen the Defence Industrial ecosystem in the country, iDEX and DTIS have been allocated Rs 116 crore and Rs 45 crore respectively representing an enhancement of 93% for iDEX and 95% for DTIS over 2022-23. This will fulfill the Ministry of Defence’s vision to leverage ideas from bright young minds across the country.

The Union Budget 2023-24 has announced a National Data Governance Policy to unleash innovation and research by start-ups and academia. This will enable access to anonymized data which will further boost the Defence Start-ups and iDEX scheme.

DPSUs

Seven new Defence Public Sector Undertakings (DPSUs) were created as a result of the “corporatisation” of the Ordnance Factories. This required earmarking a sum of Rs 1,665 crore in Revised Estimates (RE) of 2021-22 and Rs 1,310 crore in Budget Estimates (BE) 2022-23 for their planned modernisation. Additionally, Rs 2,500 crore were set aside in BE 2022-23 and in RE 2021-22 as Emergency Authorization Fund.

Pensions & Welfare

The Defence Pension Budget registers a notable jump of 15.5 % in FY 2023-24. In absolute terms, this amount is Rs 1,38, 205 Crore in BE 2023-24 against Rs 1,19,696 crore in BE 2022-23. Further, RE 2022-23 allocations at Rs 1,53,415 crore records a significant jump of 28%, amounting to Rs 33, 718 crores. This includes an amount of Rs 28,138 Crore to meet the requirement on account of revision of Armed Forces Pensioners under OROP.

Towards the Government’s commitment in transforming Healthcare outreach to our veterans, Defence Budget 2023-24 registers a notable increase of 52% in the allotment for Ex-Servicemen Contributory Health Scheme (ECHS) with BE allocation of Rs. 5431.56 Crore in FY 2023-24 against Rs. 3582.51 Crore in FY 2022-23. This enhancement will ensure ‘Cashless Health Services’ and improved ‘Service Delivery’ to our veterans and their dependents across India.

Parliamentary Committee’s Recommendations

A Parliamentary Standing Committee on Defence has shown concern at the widening gap between projections and allocations in the defence budget. The Committee noted that since 2015-16, none of the three Services (Army, Navy and Air Force) has been given the matching allocation as per the projection. There is a considerable shortage in the allocation in the Capital Head, which is 35% less than the projection.

The Committee noted that committed liabilities constitute a significant part of the Capital Head and inadequate allocation would definitely lead to ‘default situation’ on contractual obligations. Committed liabilities are payments anticipated during a financial year for contracts concluded in previous years.

Such a situation is not conducive for preparation of the country to modern-day warfare, where possession of capital intensive modern machines is a prerequisite for tilting the result of the war in favour and also to have a credible deterrence.

Both the Navy and the Indian Air Force (IAF) have a situation where their committed liabilities are more than their share of the capital allocation in the Budget.

To offset this, the Services have been forced to defer payment of committed liabilities of the Defence Public Sector Undertakings (DPSU) among other measures.

The shortfall in expenditure will affect:

•    Operationalisation of three tri-service organizations i.e. Defence Space Agency (DSA), Defence Cyber Agency (DCYA) and Armed Forces Special Operations Division (AFSOD).

•    Operational readiness of Andaman and Nicobar Command (ANC).

•     Maintenance of SIGINT (Signal Intelligence) equipment.

•    Administration of training institutes and operational units.

The committee has recommended a dedicated fund for committed liabilities and procurements before the shortfall impacts modernisation, invariably from next Budget onwards (2021-22).

Push to Indigenise Defence Equipment Since 2021

The total number of items, that were under an import ban, and used in tanks, infantry combat vehicles, missiles and warships, and have been indigenised including replacement units, subsystems and spares, indigenised in the last two-and-a-half years has risen to 2,736.

The ministry’s department of defence production has so far published four positive indigenisation lists of 4,666 items.

All these items were part of different positive indigenisation lists published by the defence ministry to cut the import dependence of defence public sector undertakings.

The indigenisation has been achieved by state-run firms either through industry partners, including micro, small and medium enterprises, or in-house.

The ministry’s department of defence production has so far published four positive indigenisation lists of 4,666 items including replacement units, subsystems, spares and components that have come under a phased import ban.

The components and subsystems include several items for fighter jets, Dornier-228 planes, multiple systems for submarines, equipment for T-90 and Arjun tanks, BMP-II infantry combat vehicles, warships and submarines, and anti-tank missiles.

India has employed a two-pronged approach to achieve indigenisation through import bans. One approach relates to banning the import of weapons and systems such as fighter jets, warships, helicopters and artillery guns, while the other covers subsystems, spares and components that are part of bigger weapon platforms.

As part of the former, India has published four other lists that have imposed a phased import ban on 411 different types of weapons and platforms including light weight tanks, naval utility helicopters, artillery guns, missiles, destroyers, ship-borne cruise missiles, light combat aircraft, light transport aircraft, long-range land-attack cruise missiles, basic trainer aircraft, airborne early warning and control systems, and multi-barrel rocket launchers.

These lists were announced in the past three years — in August 2020, May 2021, April 2022 and October 2022. Import substitution of ammunition, which is a recurring requirement, has been given special emphasis in these lists.

India has taken a raft of measures over the past 4-5 years to boost self-reliance in defence. Apart from a series of phased import bans, these steps include creating a separate budget for buying locally made military hardware and increasing foreign direct investment from 49% to 74%.

Defence indigenization has been extended to areas such as Innovations for Defence Excellence (idEX) which seeks to generate innovation in the aerospace and defence industry with the involvement of Micro, Small and Medium Enterprises (MSMEs), start-ups, Research and Development (R&D) institutes, individual entrepreneurs, and academia. The government has allocated almost 500 crores towards (idEX) for the period between 2021 and 2026. In addition, the government has launched the Supporting Pole-vaulting in R&D through Innovations for Defence Excellence (SPRINT), which requires development of very niche technologies in the space and naval domains. They are part of the Make-1 and Make-2 initiated under the Department for Defence Production (DDP) for idEX to encourage technology development though 75 challenges by enlisting the efforts of young technologists, start-ups and private companies in the space and naval domains to meet key requirements of the armed forces.

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Reiterating its commitment to promote indigenization, 68% of the capital procurement has been proposed to be earmarked for domestic industry in 2022-23, up from 58% in 2021-22.

Further, 25% of the R&D budget has been earmarked for industry, start-ups, and academia. Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organizations through SPV model. This step should incentivize industry led research towards development of military platforms and encourage collaborative efforts in a PPP mode with DRDO and other research institutions in the country.

Prescribing sunset date of 31 March 2023 for existing exemption available on specific imports in relation to defence and internal security forces is a measure to promote the domestic industry and reduce reliance on imports.

Table 1: Budgetary allocation for the Ministry of Defence

                                                2019-20           2020-21           2021-22           2022-23

(Budgetary Estimate)

Defence services (Revenue)  2,23,240.83     2,24,351.76     2,38,717.09     2,39,743.71

Capital outlay                          1,11,092          1,34,304.92     1,38,850.90     1,52,369.61

Defence pensions                   1,17,810          1,28,065.88     1,16,878          1,19,696

How does the budget impact  defence sector? 

* Defence allocation for FY 2022-23 is accounted under four demands for grants:
* Demand No 19 – Ministry of Defence (Civil)
* Demand No 20 – Defence Services (Revenue)
* Demand No 21 – Capital outlay on defence services
* Demand No 22 – Defence Pensions

The total defence budget (excluding defence pensions) for FY 2022-23 amounts to USD54.20 billion (INR4,05,470.15 crores). Budgetary allocation towards capital and revenue expenditure stands at USD20.36 billion (INR1,52,369.61 crores) and USD31.14 billion (INR2,33,000.54 crores), respectively.

Unspent Funds

The Army and IAF have been lagging behind in spending allocations under the ‘capital head’ of the Budget meant for new weapons, equipment and systems.

The Army spent only 40-45 per cent of its share of capital budget of Rs 36,481 crore for FY 2021-22. The IAF was a shade better and had spent some 70 per cent of its allocation of Rs 53,214 crore. The Navy was best among the service and had spent close to 90 per cent of its allocated Rs 33,253 crore budget.

Capital Expenditure

Modernization of military forces is primarily driven by the capital outlay within each year’s budget. Budgetary allocation towards capital expenditure for this year is $20.36 billion (INR 1,52,369.61 crores). Current capital budget in INR terms is 12.82 % higher than that of 2021-22 (BE). 

Indian Navy and Indian Air Force have witnessed an increase of ~43% and ~4% of their capital budget respectively over 2021-22 (BE), whereas Indian Army’s allocation has reduced by ~12%.

Closer examination of capital expenditure budget in INR terms for Aircraft and Aeroengines shows almost ~50% reduction in case of Army, whereas there is an increase of ~21% and ~7% for Indian Air Force and Indian Navy respectively under this head. 

At the RE (2021-22) stage, both Indian Navy and Indian Air Force utilized more than what was allocated at the BE (2021-22) stage. Indian Army had spent ~69% of its allocation at the RE (2021-22) stage. 

Revenue Expenditure

Revenue budget estimates for 2022-23 have increased by 10% as compared to 2021-22 (RE). When measured in INR currency terms, Army has witnessed an increase of 10% in budget allocations compared to 2021-22 (RE). Navy has witnessed 8% increase and Air Force has witnessed a 7% increase of allocation during the same period. Overall, the revenue budget has increased by 10% over 2021-22 (RE).

Indian Army

In BE 20-the Army was allocated Rs. 33,392.38 crores, which was nominally revised downwards to Rs. 33,213.28 crores. However, the Army was only able to spend Rs. 26,285.43 crores. Still, BE 21-22 provided them Rs. 36,481.9 crores, which in RE21-22, has to be heavily revised down to only Rs. 25,377.09 crores, which suggests the Army is again failing to utilize its portion of the defense budget. Even for FY 22-23 allocation is merely Rs. 32,015.26 crores, which is even less the FY 20-21 budget allocation.

Most Army’s procurement has been either under emergency authorization from foreign vendors or repeat orders for platforms like T-90, BMP2, Pinaka, Dhruv, Rudra etc. Army in recent years have ordered quite a good number of indigenous products like Akash SAM, Pinaka MBRL, ballistic helmets, Bulltet proof vests, ASLV, Dhanush, Sharang, Dhruv, Rudra, Arjun MK1A, Swati WLR, BSFR etc. The Army still lacks 155mm artillery guns, long-range MBRLs, tank destroyers like NAMICA, attack helicopters, SPAAGs, QRSAM, Wheeled APC/IFV, tracked IFV, and small arms.

Indian Navy

Of the three Services, The Indian Navy received a significant rise in its capital allocation. The navy’s capital budget has been enhanced by about 43 per cent, from an allocation of Rs 33,254 crore in FY 2021-22 to Rs 47,591 crore in FY 2022-23, a rise of Rs 14,337 crore. This increment will be needed to support the acquisition of new platforms, such as six air-independent propulsion (AIP) submarines being acquired under Project 75-I, a second indigenous aircraft carrier (IAC-2), 57 twin-engine deck-based fighters (TEDBFs) and four more P-8I Poseidon long-range maritime patrol aircraft to keep a watch over the Indian Ocean. The navy is also creating operational and strategic infrastructure that will be needed when the tri-service maritime command is operationalised in Karwar, near Goa.

Indian Air Force

Indian Air Force for quite some time has got the biggest chunk out of capital outlay. In BE 20-21, they got Rs. 43,281.91 crores which were revised to Rs. 55,055.41 crores, while they actually spend whooping 58,137.53 crores, however, BE 21-22 allotted them only Rs. 53,214.77 crores which have now been further revised down to Rs. 51,830.93 crores in RE 21-22. BE 22-23 do saw an increase to Rs. 55,586.65 crores, but it still is not near to the actual expenditure of FY 20-21. Still, IAF has been able to keep its ball rolling by signing some big-ticket projects over the years, these include deals like 123 Tejas, 36 Rafale, 18 batteries of MRSAM, 5 regiments of S400,56 C-295, etc. But now most of its major projects are nearing completion with only Tejas MK1A,6 A319 Netra MK-II, C295, etc going into considerable future. This should free up funds for future procurements this year, with MRFA on top of the list. IAF requirements include MRFA, VSHORAD, IJT, BTA, attack helicopters, upgradation of IL76, AN32, MRTT, AWACS(I) etc.

Coastal Security

The capital budget of the Indian Coast Guard has been enhanced by over 60% in FY 2022-23. There is growing recognition of the need to boost coastal security and policing to prevent intrusions into coastal cities and ports that could lead to more terrorist incidents such as the 26/11 Mumbai strikes. Hence, the capital budget of the Indian Coast Guard has been enhanced from Rs 2,650 crore in FY 2021-22 to Rs 4,246 crore in FY 2022-23. This will provide the wherewithal needed for building up assets such as offshore patrol vessels, maritime reconnaissance ships and aircraft, establishment of a coastal security network and building up technical and administrative support structures.

Border Roads Organisation (BRO)

The Border Roads Organisation (BRO) has been augmented by 40% from the current year to FY 2022-23 from Rs 2,500 in the current year to Rs 3,500 crore in FY 2022-23. With an eye on the Chinese, this is intended to expedite the creation of border roads, bridges and important tunnels, such as at Sela and Nechiphu. In 2021, BRO executed a record 102 roads and bridges at extreme altitudes and weather conditions. This includes the world’s highest motorable road at Umling La, at an altitude of 19,024 feet.

Defence Research & Development Organisation (DRDO)

The DRDO’s capital budget allocation is up 5.3 per cent from Rs 11,375 crore in BE 2021-22 to Rs 11,981 crore in the current year, providing only a limited boost to indigenous R&D projects. 

25 per cent of the DRDO budget for engagement of industry, startups and academia.  The DRDO engages with industry as Development-cum-Production Partner (DcPP), Development Partner (DP) and as Production Agency (PA) during the execution of projects and programmes. Currently, the DRDO engages about 20,000 industries of various sizes in the development of various systems, sub-systems and technologies, directly and indirectly. Through its Technology Development Fund (TDF) scheme, DRDO extends financial support to Indian micro, small and medium enterprises (MSMEs) and startups for indigenous design and development of defence products, components and subsystems.

The DRDO works with more than 250 academic institutes on different defence R&D problems for basic, applied and targeted research. It has established 10 advanced research centres in various academic institutions. The DRDO has also proposed to set up chairs for specific areas in various universities for long term engagement with academic institutions.

New DPSUs

Seven new defence public sector undertakings(DPSUs) were incorporated under the defence ministry after the dissolution of the Ordnance Factory Board (OFB). They require a huge sum for their planned modernisation.

This required earmarking a sum of Rs 1,665 crore in Revised Estimates (RE) of 2021-22 and Rs 1,310 crore in Budget Estimates (BE) 2022-23 for their planned modernisation. Additionally, Rs 2,500 crore were set aside in BE 2022-23 and in RE 2021-22 as Emergency Authorization Fund.

Domestic Defence Industry

The MoD has created the policy conditions needed for the domestic defence industry to flourish.

The total government outlay of Rs 39.45 trillion in the Union Budget of 2022-23, the MoD was allocated Rs 5.25 trillion.

There has been a steady rise in the defence capital outlay from Rs 86,740 crore in 2013-14 to 1.52 lakh crore in 2022-23 – an enhancement of 76 per cent over a period of nine years.

 Under the ‘Aatmanirbhar Bharat’ (self-reliant India) scheme, it was announced in the Union Budget that 68 per cent of all capital defence procurement would be earmarked for indigenous manufacturers. In 2021-22, the MoD had reserved 58 per cent of all capital procurement for Indian entities.

Impact Analysis

This financial year builds up very strongly with the beginning of a new decade for an Atmanirbhar Bharat (Self-reliant India).  While a 12.82% increase over 2021-22 (BE) in the capital outlay continues to emphasize the importance of modernization of the Indian Armed Forces, there is a significant reduction as compared to a phenomenal 18.75% increase that was seen in the first year of the decade. However, a reservation of 68% of the capital budget for domestic procurement solidifies India’s resolve for an Atmanirbhar Bharat. This is an increase of 10% which was spent for domestic procurement in the current year. As we aim to achieve a US$5 trillion economy with US$25 billion (INR 1,75,000 crore) de-fence production by 2025, this allocation is a giant step towards that goal.

For the first time, a reservation has been made for R&D in defence. The dedicated allocation of 25% in R&D, while encouraging new capabilities in creating and sustaining technologies, shall aid in creating an IP culture. Thus, an increased focus on IP management, output-oriented Industry research in academic institutions and possible collaborations with foreign research labs and centers shall lead to create cutting edge technologies.

With Buy IDDM being the category of highest priority in defence acquisition, this allocation finds synergy with the other stated policies of the GoI, thereby encouraging domestic design to go hand in hand with domestic production.

Domestic demand shall increase with the aforementioned reservations, hence placing an enormous responsibility on domestic suppliers to meet the challenge placed by the Armed Forces. This will indirectly increase capacities, new production facilities, increased collaborative framework with Foreign OEMs, more JVs, and enhanced investments (FDI). FOEMs, of those, who can appreciate the increased focus on domestic spending, shall be lured to find Indian design and production houses for technology transfers, teaming arrangements and a favorable environment to establish production base in India. The spiraling effect shall also be felt in the exports and thus in the economy, with a vibrant industry ready to meet global demands.

Indian Navy’s allocation has witnessed the highest increase (~43%) of allocation of the capital budget amongst the three forces. The allocation under the naval fleet has almost doubled. This is attributed to the major platforms that are likely to be inducted in the near future. These include the Indian Aircraft Carrier, frigates under Project 15B, P 17A, Project 1135.6 and Scorpene Submarine amongst others. Increased 43% allocation suggests a renewed focus in the Indian Ocean Region (IOR). Increase in allocation for Aircraft and Aeroengines for Indian Navy could indicate procurement of fighter aircraft for the Indian Aircraft Carrier (IAC).

Indian Army’s allocation has reduced by 12% in comparison to 2021-22 (BE) with Aircraft and Aeroengines reducing by half. The major committed liabilities include MBT Arjun Mk1A, AK-203 rifles, ATGMs amongst others.

Indian Air Force has witnessed a marginal increase of 4% over 2021-22 (BE) indicating that leasing of BTA and MRTT could be progressed with majority of the budget being utilized for committed liabilities like the Rafales and S-400 Triumf systems.

After the corporatization of the Ordnance Factory Board (OFB) last year, no allocation has been made for the Defence Ordnance Factories (OFs). An allocation of INR13.1 b has been made for the 7 new DPSUs. As against an average of INR6 b each year to the OFs under capital budget, there is more than a 100% increase post corporatization.

The present allocation is the lowest in percentage terms since the 1950s. Also, as a percentage of GDP, the defence allocation amounted to just 2.03%. This is a reason of concern, especially in times when China claims many parts of Indian territory as their own.

India is focusing on military modernisation and border infrastructure development for its national security. There has been a 76% rise in the defence capital outlay from 2013-14 to 2022-23. Although it seems like a healthy growth rate, it actually amounts to less than 5 %, compounded annually.

13.31 per cent of total government spending. but this was the lowest allocation in percentage terms since the 1950s. Furthermore, as a percentage of Gross Domestic Product (GDP), the defence allocation amounted to just 2.03 per cent, threatening to fall below the 2 per cent threshold.

The actual rise in the defence capital outlay amounts to less than 5 per cent, compounded annually – barely enough to cater for inflation and foreign exchange rate variation.

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The defence budget, for Financial Year 2021-22, including outlay for payment of pensions, was increased to Rs 4.78 lakh crore for 2021-22 as against last year’s Rs 4.71 lakh crore – a marginal hike of 1.48%. Excluding the pension outgo, the allocation in the Union Budget for the armed forces stood at Rs 3.62 lakh crore. Excluding defence pensions, the hike was about 7.34%.

Capital Outlay

The allocation under Capital of Rs 1,35,060.72 crore for FY 2021-22 is the highest ever increase in capital outlay of Defence in the last 15 years. Last year, the capital outlay was Rs 1.13 lakh crore. The allocation under capital expenditure which relates to modernisation and infrastructure development of Armed Forces has been significantly increased.  represents an increase of 18.75 per cent over Budget Estimates (BE) FY 2020-21 and 30.62 per cent over FY 2019-20.

Army. In the budget, the Army has been granted a capital outlay of `36,481 crore as against `33,213 crore in 2020-21, as per the revised estimates.

Navy. The allocation made to the Navy for capital expenditure is `33,253 crore which was `37,542 crore in the previous budget.

Indian Air Force. Similarly, the IAF has been given Rs 53,214 crore to buy new platforms and weapons which is a drop of Rs 1,840 crore compared to the money it spent under capital expenditure in the current fiscal. The budgetary capital outlay for the IAF for 2020-21 was Rs 43,281.91 crore but the revised estimate put the figure at Rs 55,055 crore.

DRDO. The capital allocation for the Defence Research and Development Organisation (DRDO) has been pegged at ?11,375 crore which is an increase of 8% over the amount earmarked in 2020-21.

Revenue Expenditure

The total revenue expenditure, which includes expenses on payment of salaries and maintenance of establishments, has been pegged at Rs 3.37 lakh crore. The total revenue expenditure included Rs 1.15 lakh crore for payment of pensions.

Allocation under Non-Salary Revenue to meet operational requirement has been increased to Rs 54,624.67 crore.  This is 6 per cent growth over FY 2020-21.

Pensions

The defence pensions saw a significant dip from Rs 1.34 lakh crore in Budget Estimate last year to Rs 1.25 lakh crore in Revised Estimates and further to Rs 1.15 lakh crore allocated this year. From BE 2020-21 to BE 2021-22 this represents a decrease of Rs 17,775 crore or about 13.4%.

Last year it was more because approximately Rs 18,000 crore was to be paid on account of pension arrears. Also salary and pension are based on actuals.

Emergency Allocations

Budget data also shows that the armed forces got an additional allocation of `20,776 crore under capital expenditure last year for emergency procurements in the face of massive mobilisation along the Line of Actual Control (LAC).

In January 2021, Army Chief Gen. Manoj Naravane had said that, in 2020, 38 deals were made through ’emergency and fast track’ route worth about `5,000 crore and in addition capital procurements worth `13,000 crore were also concluded. The procurements included light machine guns, light special vehicles and protective gear for infantry, infantry combat vehicles for mechanised infantry and long range vectors for artillery and also equipment for Engineers and Signals regiments.

DRDO

The capital allocation for DRDO has been increased to Rs 11,375.50 crore, an increase of 8% over 2020-21, the Ministry said.

Despite the increase, indigenization efforts for large projects (like Tejas, Rustom UAVs, Arjun Tanks) through DRDO Labs have often been adversely impacted by various Transfer-of-Technology (ToT) shortcomings. Lack of acknowledgement of limited indigenization capabilities (be it private agencies, DRDO or OFBs) for defence has impacted the Armed Forces’ preparedness. Dovetailing defencemodernisation with these organisations may only leave the defence forces wanting.

Percentage of GDP

Despite a nominal year-on-year growth rate, the defence budget appears to be somewhat underwhelming when viewed as a proportion of India’s Gross Domestic Product (GDP), but over the last few years, India’s defence budget as a proportion of its GDP has been on a decline. The Defence budget comes to around 1.63% of the GDP.

The 15th Finance Commission observed it its report that the expenditure on defence services as a proportion of GDP declined from 2% in 2011-12 to 1.5% in 2018-19 and to 1.4% in BE 2020-21.

According to last year’s figures, the overall defence budget was just 2.1% of the then estimated GDP. This was the lowest figure since the early 1960s.

Military experts believe that India should allocate at least 2.5% of its GDP to defence expenditure for building requisite deterrence against China and Pakistan.

Border Roads Organisation

The allocation for Border Roads Organisation (BRO) has been increased to `6,004 crore which is 7.48% more than the amount given in 2021-22.

Indigenization in Defence

The indigenization in defence even with buzzwords like Atmanirbhar Bharat or Self-reliant India in Defence has not shown the leap forward required to support the defence forces. The Negative List for imports published by the defence ministry in August 2020, was in any case simply the list which was on the anvil for indigenization by defence forces for the last decade or so. Overall, this highlights the lack of vibrant defence equipment manufacturing within India. Surely, the Defence Procurement Procedures encourages induction of well proven and mature equipment for purchase after their due tests and trials.

NDA vs UPA Governments

As a proportion of the total budget expenditure, India’s defence spending was the highest in 2000-01 under the then Atal Bihari Vajpayee government at 16.73%.

The Manmohan Singh-led UPA government began its term by setting aside a handsome chunk for the armed forces in its first couple of years. But the proportionate spending fell to an average of 13% in its later years.

Similarly, the Narendra Modi government set aside an average of 12% of the total budget for defence in its initial years. However, the proportion fell to 11.62% in 2018 and then further to 10.96% in 2019, the lowest in the last two decades.

In 2020, the spending picked up again when the defence ministry was allocated the highest sum among all the other sectors at 15.5% of the total budget expenditure.

India vs The World

With a steady increase in its defence allocation, India became the third-largest military spender in the world for the very first time in 2019.

According to data released by global think-tank Stockholm International Peace Research Institute (SIPRI), India surpassed Russia with a military expenditure of $91.1 billion in 2019.

However, it still lagged way behind US and China – the top two military spenders. The US spends more than 10 times and China almost four times India’s defence budget.

SIPRI had said that China’s military expenditure reached $261 billion in 2019, a 5.1% increase compared with 2018, while India’s grew by 6.8% to $71.1 billion.

“India’s tensions and rivalry with both Pakistan and China are among the major drivers for its increased military spending,” the report had said.

Measures to Reduce Revenue Expenditure

There is an urgent need to increase the capital outlay and somehow reduce the revenue expenditure. Some of the measures which are being contemplated are:

•             A proposal to increase of retirement age in selected categories is under consideration. This will, in time, effect reduction in the revenue budget.

•             A long standing demand of the armed forces has been that since a soldier retires early, there is merit in lateral absorption of a soldier in other departments or forces. This will ameliorate the burden of pension bill, besides providing disciplined and trained manpower.

•             Right sizing of the armed forces is a bold exercise that has been undertaken by the defence forces themselves. Owing to ongoing integration of Army, Navy and Air Force, and raising other structures, this may take some time but will eventually scale down the revenue expenditure.

•             Leasing, rather than outright purchase which has recently been permitted for defence platforms is a step in the right direction.

•             A new entry scheme for officers called tour of duty is under consideration. This will not only reduce the revenue expenditure in salaries as well as pensions but also attract better talent for shorter duration.

•             There is merit in examining smart financial engagement models other than outright purchase of everything. For instance, the transportation requirements in other than operational areas can be out sourced, as can several other logistic services.

Monetisation of some selected parcels of land (not A1 land under the Army in which cantonments and military stations are housed) should be considered. There is land under the Defence Estates which is outside the cantonments and away, including grazing grounds etc. Some of these are being encroached. Judiciously selected, some of them can form part of this drive to modernise the armed forces.

Defence PSUs and ordnance factory have huge potential to generate revenue as well as enhance their outputs by opting for joint ventures with private sector.

Comments

Overall, the Budget did not bring in the focus towards bringing new technologies to replace the manpower for defensive and other ISR activities. The lack of netcentric warfare technology as required to be implemented for the Theatre Level Commands may leave the modernization of the Armed Forces at a snails’ pace. Defence cannot be tied down by progress of the local industry to produce the military equipment and such an option can be detrimental on the Armed Forces’ edge to effectively handle rapidly modernizing adversaries like China.

In the backdrop of China’s adventurism in Ladakh, it was widely expected that the defence budget would be enhanced this year. In absolute terms, the increase has not been significant, barely enough to cover inflation.

This year, however, the defence sector is eyeing a generous capital infusion amid a heightened need to strengthen the military infrastructure in view of the ongoing border conflict with China. Under the Covid-19 overhang there are competing demands, with a huge focus on healthcare as a prime and universal concern, and it should be easy to understand why the government would not be able allocate more for defence needs.

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According to the researchers, the total amount for 2019 represents an increase of 3.6% from 2018 and the largest annual growth in spending since 2010, making military spending reach the highest point since the end of the Cold War. The researchers based their calculations on official government information, such as that found in national budgets. A country’s military expenditure as a share of GDP-also known as the military burden-is the simplest measure of the relative economic burden the military places on that country.

Globally, countries spent a total of $1.917 trillion on defence in 2019, equating to 2.2% of global gross domestic product, or $249 per citizen.

Largest Spenders

The five largest spenders in 2019, which accounted for 62% of expenditure with $1.2 trillion, were the United States, China, India, Russia and Saudi Arabia.

For the first time, two Asian countries were among the top three, with China and India spending an estimated $261 billion (up 5.1%) and $71.1 billion (up 6.8%) respectively. While US military spending declined by 15% overall over the past decade, Chinese increased by 85% between 2010 and 2019.

In addition to China and India, Japan ($47.6 billion) and South Korea ($43.9 billion) were the largest military spenders in Asia and Oceania. Military expenditure in the region has risen every year since at least 1989.

Despite various armed conflicts, spending in the Middle East decreased by 7.5%. However, the SIPRI report has only partially recorded expenditure in the region since 2015 as no reliable data has been available for Yemen, Qatar, Syria and the United Arab Emirates.

US Defence Expenditure

Military spending by the United States grew by 5.3 per cent to a total of $732 billion in 2019 and accounted for 38 per cent of global military spending. The increase in US spending in 2019 alone was equivalent to the entirety of Germany’s military expenditure for that year.

For the US it marked the second year of growth with 5.3% after seven years of decline, making the country alone accounting for 38% of global spending. The increase was due to recruitment of additional personnel and nuclear and conventional weapons modernisation and return to a competition of the great powers.

European Countries

In Europe, expenditure rose more rapidly than in any other region by a total of 5% compared to 2018 and 8.8% to 2010, amounting to a total expenditure of $356 billion. In Asia and Oceania, expenditure grew by 4.8%, in North and South America by 4.7%.

Five of the world’s 15 largest military spenders are in Europe: Russia (rank 4), France (rank 6), Germany (rank 7), the UK (rank 8) and Italy (rank 12).

The French rise in 2019 by 1.6% to reach $50.1 billion followed the adoption of the Military Planning Law for 2019-25, which aims to bring France’s military spending in line with the NATO target of 2% of GDP by 2025.

Germany’s military spending rose by 10% in 2019 to $49.3 billion, the highest growth among the top 15 with almost 50 billion spent on defence in 2019. Overall Germany was also the country with the highest expenditure in the EU. According to the report, German military spending in 2019 was the highest since 1993, when the military burden was 1.7% of GDP compared to currently only 1.3%,

The growth in German military spending can partly be explained by the perception of an increased threat from Russia, shared by many North Atlantic Treaty Organization (NATO) member states . Germany will reach a NATO defence spending target by 2031, its defence minister said on Thursday (7 November), missing a 2024 deadline agreed by the allies who are under heavy US pressure to beef up their military budgets. The total military spending by all 29 NATO member states was $1.035 trillion in 2019.

There were sharp increases in military expenditure among NATO member states in Central Europe: for example, Bulgaria’s increased by 127 per cent-mainly due to payments for new combat aircraft-and Romania’s rose by 17 per cent. Total military spending by all 29 NATO member states was $1035 billion in 2019.

Poland, which accounted for 38% of the Central Europe total in 2019, increased its military spending by 51% over the decade 2010-19.

In 2019, Bulgaria had the highest relative increase in military spending of any country in the world with 127%, mainly due to payments for eight new combat aircraft.

UK’s military expenditure was unchanged in 2019 at $48.7 billion, but with 1.7% of GDP at its lowest level since 1950.

European countries buying more and more American fighter planes. All of Europe finds American fighter planes attractive, with first Slovakia and Romania and soon Bulgaria and Croatia opting to purchase these machines.

Russia

In 2019 Russia was the fourth-largest spender in the world and increased its military expenditure by 4.5 per cent to $65.1 billion. At 3.9 per cent of its GDP, Russia’s military spending burden was among the highest in Europe in 2019.

Post Covid-19 Spending

As the world heads for a potential global recession, governments will have to weigh military spending against other sectors, such as healthcare and education. It is highly likely that this will really have an impact on military spending. But the fall in spending would, however, not last.

 In Europe, NATO has encouraged its members to maintain their military spending despite the economic shock of the Covid-19 pandemic, suggesting that military can play a role in helping to mitigate the crisis.

Several European countries had used their armed forces to enforce checks after introducing border controls in an attempt to contain the outbreak.

In 2019, spending targets of 2% GDP were fulfilled by only eight European NATO members, according to the Alliance’s annual report.

Africa

The combined military expenditure of states in Africa grew by 1.5 per cent to an estimated $41.2 billion in 2019-the region’s first spending increase for five years.

Armed conflict is one of the main drivers for the volatile nature of military spending in sub-Saharan Africa. For example, in the Sahel and Lake Chad region, where there are several ongoing armed conflicts, military spending in 2019 increased in Burkina Faso (22 per cent), Cameroon (1.4 per cent) and Mali (3.6 per cent) but fell in Chad (-5.1 per cent), Niger (-20 per cent) and Nigeria (-8.2 per cent). Among Central African countries that were involved in armed conflict, military spending in 2019 rose overall. The Central African Republic (8.7 per cent), the Democratic Republic of the Congo (16 per cent) and Uganda (52 per cent) all increased military spending in 2019.

India Military Expenditure

India, with the third-largest military budget, increased spending by 6.8% – the highest increase in the top five. India’s military expenses have risen significantly over the past few decades. Over the 30-year period between 1990 and 2019, its spending grew by 259 per cent. In 2010-19 decade, the expenses grew by 37 per cent, the report said. However, the country’s military burden fell from 2.7 per cent of the Indian GDP in 2010 to 2.4 per cent in 2019.

India’s “tensions” and “rivalry” with Pakistan and China are among the main reasons for its increased military expenditure. India’s military spending grew by 6.8 percent to $71.1 billion in 2019, according to the SIPRO report on “Trends in World Military Expenditure, 2019”. This was the highest military spending in South Asia.

India’s military spending has also grown due to an expanding salary and pension bill of its armed forces personnel and capital expenditure for procuring warships, submarines, aircraft and helicopters.

In 2018, India was the fourth largest military spender, a spot below Saudi Arabia. India had spent $66.5 billion in 2018. In 2019, Saudi Arabia’s decrease and the increase in Russia’s spending (4.5 per cent) led to Russia moving to fourth position from fifth, while Saudi Arabia fell from third to fifth.

Pakistan

In comparison, Pakistan’s military expenditure rose by 70% over the decade 2010-19, to reach $10.3 billion while the military burden increased from 3.4% of GDP in 2010 to 4% in 2019, says the report. Pakistan was at the 24th position in 2019 compared to 19th in 2018.

China

China, the world’s second-largest military spender, is estimated to have allocated $261 billion to the military in 2019-equivalent to 14 per cent of the global military expenditure. Its military spending in 2019 was 5.1 per cent higher than in 2018 and 85 per cent higher than in 2010. “China’s military expenditure has increased continuously since 1994 (for 25 consecutive years). The growth in its military spending has closely matched the country’s economic growth. Between 2010 and 2019, China’s military burden remained almost unchanged, at 1.9 per cent of its GDP,” the SIPRI report stated.

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Nirmala Sitharaman, herself a former defence minister, allocated to defence Rs 471,378 crore, an increase of Rs 22,558 crore over the current year’s revised estimate of Rs 448,820 crore. This includes the outlay for revenue and capital expenditure, as well as military pensions. It works out to be 15.4 per cent of the country’s entire budget. If pensions are excluded, the defence budget was increased to Rs 3,37,553 crore, up from Rs 3,18,931 crore for the present fiscal ending March 31, 2020. This is a meagre 5.8 per cent hike.

Indian Army, Air Force and Navy which are facing a combined challenge from Pakistan and China, got just Rs 10,300 crore hike in funds to buy new arms and ammunition in the Union budget which could adversely impact their modernisation plans.

The salaries of the three Services and the civilians concerned work out to be Rs 1,34,989 crore, which now form 39.99 per cent of the budget. In other words, salaries and pensions take up more money than what is allocated for modernisation.

The forces have been demanding an increase in funds allocation to buy new weapons.  The Union budget has kept Rs 10,532 crore for defence research &development.

Army

The army has got the largest hike in capital spending, but this 8 per cent rise of Rs 2,669 crore will be insufficient to pay for the artillery guns, tanks and air defence systems the army badly requires.

Indian Army was also forced to cut some expenditures to ensure that it has ammunition for at least 10 days war.

The budget has allocated Rs 32,392 crore to the Indian army for its modernisation plans against Rs 29,666 crore given in the revised budget last year.

Navy

There is disappointment for the navy. Indian Navy has been given just Rs 26,688 crore in 2020-21 budget for modernisation against Rs 26,156 crore in the revised budget last year, despite public statements from senior admirals, including navy chief Admiral Karambir Singh, seeking a larger share of the defence budget.

Without that, the navy says it will be in no position to process important procurements – such as the production of six advanced submarines under Project 75I and the building of a second indigenous aircraft carrier to follow INS Vikrant, which Cochin Shipyard Ltd is likely to deliver next year.

A shortage in funds is forcing Indian Navy to curtail its plan to be a 200 ships fleet by 2027 as per maritime capability perspective plan. It has already cut some of the acquisition including Mine Counter Measure Vessels and P8i maritime reconnaissance aircraft.

Air Force

The Indian Air Force (IAF) has again been allocated the lion’s share of the capital budget – Rs 43,282 crore, much of which will go towards instalments on earlier procurements, such as the 36 Rafale fighters that will begin delivery this year. However, this is lower than the IAF’s allocation of Rs 44,869 crore in the current year’s revised estimates.

IAF, which is in the process of buying new Rafale aircraft and also needs more fighter jets to replace its ageing aircraft, has actually seen a slight decrease in its  capital outlay for modernisation.

Capital Expenditure

The capital allocation used for purchase of new weapons, aircraft, warships and other military hardware like guns and new UAVs is Rs 1,13,626 crore. This means modernisation gets an increase of Rs 10,316 crore over this year’s allocation of Rs 1,03,310 crore.

Despite the large number of weapons systems due for procurement, the capital allocation has been raised only marginally in 2020-21. That rise of less than three per cent is insufficient to even cover inflation and forex exchange rate slippages. The military will, therefore, have less buying power next year.

The government has allocated Rs 32,392.38 crore ($4.5 billion) for meeting the Indian Army’s capital expenses, of which Rs 4,000 crore ($560 million) has been earmarked for buying military aviation assets for the land forces.

The Indian Navy has got Rs 26688.28 crore ($3.73 billion) for new purchases, of which it is expected to spend Rs 12,746 crore ($1.78 billion) for building its naval fleet.

The IAF has got lesser capital allocation for the next fiscal at Rs 43,281.91 crore ($6 billion), which is already Rs 1,587.23 crore ($222 million) less than the current fiscal’s revised estimates. A major chunk, Rs 26,909.88 crore (3.76 billion), will go towards aircraft and aeroengine purchases in 2020-21.

Revenue Expenditure

The rest of Rs 209,319 crore (over $29.3 billion) will go towards revenue expenses, which is usually for meeting recurring expenses such as on maintenance of infrastructure, replenishment of existing weapons and equipment, and for capacity building. In the 2020 fiscal, under revised estimates.

Major Purchases

The Indian Army is already in the process of acquiring six Boeing Apache gunships and is negotiating the purchase with the global vendor under a follow-on order for the 22 Apaches bought by the Indian Air Force.

The Modi government had in 2016 ordered 36 Rafale combat jets from France and the deliveries of the aircraft began last October. The budget for the aircraft will go towards committed liabilities such as the Rafale purchase.

Pensions

The budget for pensions has been hiked by Rs 21,742 crore and is now pegged at Rs 1,33,819 crore. This year, a sum of Rs 1,12,077 crore is earmarked for pensions.

Worryingly, the only appreciable rise in spending is in defence pensions, for which the allocation has risen by almost 14 per cent to Rs 133,825 crore for 2020-21. This raise comes on the back of a an even larger 16 per cent raise this year, over the 2018-19 pension allocation.

Since the grant of “one rank, one pension” in 2015-16, the military pension budget has more than doubled from the level of Rs 60,000 crore in 2015-16.

To put this in perspective, India spends more on its defence pensioners than Pakistan’s defence budget (Rs 1 lakh crore this year). India has approximately 26 lakh defence pensioners and each year it adds 55 lakh pensioners to this total. Five-yearly revisions in pension – the One Rank One Pension (OROP) – granted by the government in 2015 – means that the pension burden is only set to increase.

Comments

The MoD is looking at “right-sizing” the forces and also at cutting costs within. The Army has already started the restructuring process.

The defence budget amounts to 15.5 per cent of the government’s total spending of Rs 3,042,230 crore next year. That share of government spending is significantly lower than this year’s share of 16.6 per cent, the 17.4 per cent share in 2018-19 and the 17.7 per cent in 2017-18.

With this, the plans of the armed forces for modernising their weapons and equipment with new acquisitions can take a backseat for the next fiscal at least.

In a tell-tale sign of how this defence budget is perceived, defence minister Rajnath Singh had not a single word to say about the allocation for the armed forces in his eight-paragraph statement on the annual budget itself. The statement came in the form of a text message to the media from the ministry’s official spokesperson.

The three Services have been pressing for higher allocations to carry forward their long-pending modernisation plans and go for big ticket acquisitions in view of fast changing security matrix in the region including China further boosting its military might.

The expectations for higher allocation rose after last year’s Balakot strikes. Military experts said though the allocation was inadequate in view of the demands of the three forces, the outlay was satisfactory considering the state of the country’s economy.

The military was hoping for healthy increase in defence funding as several modernization programmes have to be implemented – ranging from artillery guns and helicopters to fighters and submarines. The armed forces will have to prioritise their purchases given that the available resources are inadequate.

A parliamentary panel has asked the defence ministry to “strongly press” for additional funds from the finance ministry to enable the military to buy new equipment and also pay for weapons and systems it has already contracted to purchase, at a time when the armed forces projected a combined requirement of almost Rs 1 lakh crore more under the capital head for 2019-20.

The Army accounts for a lion’s share of the budget – over 56%. This year’s defence budget saw an increase of Rs 2,500 crore in the Army’s capital budget (when compared to revised estimates of last year’s defence budget). The IAF, in sharp contrast, saw capital budget slashed by Rs 1,200 crore.

For a nation that allocates 15.49 per cent of federal government’s total annual expenditure, India’s bid to strengthen its defence exports is rather an expectation than innovation. It only serves the country well to foresee itself excel in defence exports, especially when our net exports stands at a negative trade balance of $184 billion in 2018-19.

Taking pride in its defence capabilities, India can aspire for a larger role in defence export on the global front. Developing artillery guns, aircraft carriers, light-combat aircraft, submarines and combat helicopters will make India a manufacturing hub in defence on the global scale. The prime minister spoke of expanding the export of defence equipment to Rs 35,000 crore, at Defexpo show in February, mentioning how it had risen from Rs 2,000 crore in 2014 to Rs 17,000 in the last two years.

Boosting the Make in India sentiment for defence equipment not only decreases India’s imports in defence but also pushes its exports – which will help reduce the negative export balance. A call for defence investors is also a plus for India in the current economic outlook. Defence remains a lucrative sector and investor sentiment will be favourable despite dull economic growth that has played a pivotal role in shooing away investors and further adding to the misery of the investment-starved economy. A conducive business environment, efficient supply-chain and logistics supported by state-of-the-art infrastructure is perhaps the package which will put India in a position of advantage. Defence, then, can become a trump card. Expanding its defence exports will be a major plus for India. It will help reduce the net exports negative balance.

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Defence, Aerospace Got Rs 1,800 cr FDI in 5 Years

Defence and aerospace sectors, the corner stones of the government’s ambitious Make in India programme, garnered relatively miniscule foreign direct investment (FDI) in the last five years.

While the country attracted FDI valued around $286 billion in the past five years across sectors, defence and aerospace, which were projected as high potential sectors under ‘Make in India’, could grab only a measly Rs 1,834 crore, according to government data released on 10 February.

The government had also announced two defence corridors – in Tamil Nadu and Uttar Pradesh. While launching the Tamil Nadu Aerospace and Defence Industrial Policy at the Global Investors Meet in Chennai in January 2019, the then defence minister Nirmala Sitharaman had said: “…by announcing the corridor, we have invited quite a lot of manufacturers from abroad to come, choose the location where they want to establish their unit and start producing defence equipment”. But the investments are still nothing worth writing home about.

As per the data furnished by 79 companies operating in Defence and Aerospace sector, so far, FDI inflows of over Rs 1,834 crore have been reported after 2014 under both government and automatic route.In May 2001, the defence sector, until then reserved for the public sector, was opened up for 100 per cent Indian private sector participation and foreign direct investment up to 26 per cent.

Further, the government later allowed FDI up to 49 per cent under the automatic route and above 49 per cent through the government route wherever it is likely to result in access to modern technology or for other reasons to be recorded.

The government had envisaged that by allowing higher FDI in the defence sector, the global companies having high-end technologies can be encouraged to set up their manufacturing base in India in collaboration with Indian companies, thereby, resulting in creation of employment opportunities, saving foreign exchange and increasing indigenisation.

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