The development follows issue of first list (101) and second list (108) that were promulgated on August 21, 2020 and May 31, 2021 respectively. Import substitution of ammunition which is a recurring requirement has been given special emphasis. The spirit behind issuing these three lists comprising 310 defence equipment, slated to be manufactured locally, reflects the growing confidence of the Government in the capabilities of domestic industry that they can supply equipment of international standards to meet the demand of the Armed Forces. It is likely to stimulate the potential of indigenous Research & Development (R&D) by attracting fresh investment into technology and manufacturing capabilities. It will provide ample opportunities to the domestic industry for understanding the trends and future needs of the Armed Forces.

The third list comprises highly complex Systems, Sensors, Weapons and Ammunitions like Light Weight Tanks, Mounted Arty Gun Systems (155mmX 52Cal), Guided Extended Range (GER) Rocket for PINAKA MLRS, Naval Utility Helicopters (NUH), Next Generation Offshore Patrol Vessels (NGOPV), MF STAR (Radar For Ships), Medium Range Anti-Ship Missile (Naval Variant), Advance Light Weight Torpedo (Ship Launch), High Endurance Autonomous Underwater Vehicle, Medium Altitude Long Endurance Unmanned Aerial Vehicle (MALE UAV), Anti-Radiation Missiles, Loitering Munitions. Their details are available on the MoD website.

Addressing the audience on the occasion, the Raksha Mantri described the third list as a symbol of 360-degree efforts being made by the Government to achieve Prime Minister Shri Narendra Modi’s vision of ‘Aatmanirbhar Bharat’. He exuded confidence that this new list will prove to be crucial in the development of the domestic industry and take research & development and manufacturing capacity of the country to a higher level.

This third positive indigenisation list has been prepared after in-depth consultations with all stakeholders, such as Defence Research & Development Organisation (DRDO), Department of Defence Production (DDP), Service Headquarters (SHQs) and the private industry. Shri Rajnath Singh assured that, similar to the previous two lists, the time limit given in the third list will also be adhered to. He said, Ministry of Defence and the Service headquarters will take all necessary steps, including handholding of the industry, reiterating the Government’s endeavour to create an ecosystem that ensures self-reliance in defence manufacturing and encourages exports.

The DRDO, too, pitched in to strengthen local manufacturing by signing 30 Transfer of Technology (ToT) agreements with 25 industries. Raksha Mantri handed over the agreements pertaining to 21 technologies developed by 16 DRDO laboratories spread across the country. These technologies concern Quantum Random Number Generator (QRNG), developed by a DRDO Young Scientist Lab (DYSL- QT, Pune), Counter Drone System, Laser Directed Energy Weapon System, Missile Warhead, High Explosive Materials, High Grade Steel, Specialised Materials, Propellants, Surveillance & Reconnaissance, Radar Warning Receivers, CBRN UGVs, Mine Barriers, Fire Fighting Suits, Boots for Anti Mine, etc. So far, DRDO has entered into more than 1,430 ToT agreements with Indian industries, out of which, a record number of around 450 ToT agreements have been signed in last two years.

The post Third positive list of defence equipment indigenisation (prohibited items) released appeared first on IMR.

“The basic principle of security is that you should have your own customised and unique system, only then it will help you. If ten countries have the same type of defence equipment, then your armies will have no uniqueness. Uniqueness and surprise element can be brought only if the equipment is developed in your own country.”

“When we bring weapons from outside, it’s process is so long that by the time they reach our security forces, many of them have become outdated,” Modi stated.

He encouraged the industry to leverage India’s information technology prowess, calling it country’s “great strength”. “The more we use this power in our defence, the more confident we will be in our security.” Citing the example of cyber security, he said, even it has become a “weapon of war” and “a matter of national security”.

He said that this year’s budget “has a blueprint for developing a vibrant ecosystem from research, design and development to manufacturing within the country” and has set aside nearly 70 per cent of the capital allocation for the domestic industry. He mentioned that since nearly 200 items were put under negative imports list in the last two years contracts worth Rs 54 thousand crore have been signed for domestic procurement, and apart from that the “the procurement process related to equipment worth more than Rs 4.5 lakh crore is also in different stages.” He said a third positive indigenisation list will be announced soon.

The government, he said, has issued 350 new industrial licences for defence manufacturing in the last seven years, compared to 200 such licences that were issued between 2001 and 2014.

The post “Only domestically manufactured weapons can give uniqueness to services” : PM appeared first on IMR.

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.

Highlights

* 12.82% increase in capital outlay allocation.
* Nodal Body – testing and certification
* Continuing the focus on reduction of defence imports and increasing  private participation
* Encouraging private sector to collaborate with DRDO.

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.

Brief on 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 US$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. 

Brief on 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).

Key amendments

Customs 

* Several changes to duty rates aligned to ‘Make-in-India’ and ‘Atmanirbhar Bharat’ policy.

* Measures taken for simplification of Customs tariff structure for products including helicopters, parts of manned/ unmanned aircraft etc. The simplified Customs tariff structure to come into effect from 1 May 2022.

* Sunset date of 31 March 2023 specified for existing exemption available on specific imports in relation to Defence and internal security forces.

GST 

* Legislative changes proposed to introduce additional restrictions for availing Input Tax Credit (ITC).  

* Time limit for availing credit and issuance of credit note extended to 30 November.

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.

Glossary

BE- Budgetary Estimate
IDDM- Indigenously designed, developed and manufactured
GoI – Government of India
RE- Revised Estimate
R&D – Research and Development
DRDO – Defence Research and Development Organisation
SPV – Special Purpose Vehicle
OEM – Original Equipment Manufacturer

The post Highlights of the Defence Budget 2022-23 appeared first on IMR.

Emphasising the central government’s focus on the Indian Ocean Region (IOR) and overall maritime security, union finance minister Nirmala Sitharaman, on 1 February, announced a massive jump of around 43 per cent in the modernisation funds of the Indian Navy in the defence budget for 2022-23 at Rs 47,590.99 crore.

The Indian Air Force retained the biggest share of the forces’ capital budget at Rs 56,851.55 crore–an increase of just about 4.5 per cent from the previous financial year. But the Indian Army’s capital budget went down by 12.2 per cent to Rs 32,102 crore, from Rs 36,481.90 crore in the last fiscal.

The overall defence budget of 2022-23 at Rs 5.25 lakh crore is a jump of Rs 46,970.53 crore and 9.82 per cent over the budgetary estimates of Rs 4.78 lakh crore in the last financial year. This includes Rs 1.19 lakh crore as defence pensions for the Armed Forces, which increased by around three per cent from the previous fiscal.

Of this, the total capital outlay earmarked for the Armed Forces was Rs1.52 lakh crore—a 12.82 per cent increase from the capital budget of Rs 1.35 lakh crore allocated last year. The revenue budget of the Armed Forces stood at Rs 2.33 lakh crore—a hike of 9.89 per cent from the previous financial year. The fourth component of the defence budget, the civil budget for the ministry of defence, stood at Rs 20,100 crore.

In the previous financial year, the Navy’s capital budget was Rs 33,253.55 crore, but its revised estimates last year were hiked to Rs 46,021.54 crore, given its high pace of spending. The Navy also had a high total expenditure of Rs 41,666.76 crore in the financial year 2020-21. Among other things, the Navy is focusing on building its capabilities based on its threat assessments in the IOR.

As per senior government officials, the Army’s capital budget saw a cut due to its low expenditure through the financial year. This is also evident in the budget documents which show the mid-year revised estimates of the Army’s capital budget were cut to Rs 25,377.09 crore from the Rs 36,481 crore it was initially allocated.

The Army had spent just around 40 per cent of its budgetary estimates of the ongoing financial year, while the IAF had used about 70 per cent of its funds. The Navy had, so far, spent the highest of its capital funds at around 90 per cent.

The hike in both the capital and revenue defence budget is significant at a time when India continues to remain locked in a military standoff with China in eastern Ladakh. The capital defence budget is meant for new acquisitions and modernisation of the Armed Forces, while the revenue budget will be utilised for the maintenance and sustenance of the equipment, weapons systems by way of procuring ammunition, spares and will also cater for the salaries of the Armed Forces personnel.

Push Towards Indigenisation, Reducing Imports

The defence budget for the upcoming financial year also announced a 5.3 per cent jump in the DRDO budget, at Rs 11,981.81 crore—up from Rs 11,375 crore.

In her budget speech, Sitharaman said defence research and development will be opened up for the private industry, start-ups and academia. And 25 per cent of the defence R&D budget earmarked for the purpose.

Under this budget, the private industry will be encouraged to take up the design and development of military platforms and equipment in collaboration with the DRDO and other organisations through a special purpose vehicle (SPV) model.

The budget also announced the setting up of an independent nodal umbrella body for meeting wide-ranging testing and certification requirements.

Sitharaman said the government is committed to reducing imports and promoting Atmanirbharta or self-reliance in equipment for the Armed Forces.

The government’s push for indigenisation is also evident in the budget allocated for the newly created seven defence public sector undertakings (PSUs) from the erstwhile Ordnance Factory Board.

The defence budget has set aside a total of Rs 3,810 crore for these seven new DPSUs—of which Rs 2,500 crore is for emergency authorisation and Rs 1,130 crore is to handhold them in the initial years.

In her budget speech, Sitharaman announced earmarking 68 per cent of the capital procurement budget for the domestic defence industry in the defence budget for 2022-23, up from 64 per cent in the previous financial year.

Separate earmarking of 58 per cent capital budget for the private domestic industry was first made in the financial year 2021-22.

The post Defence Budget – Navy Gets 43pc Capital Outlay Hike, Army Modernisation Funds Dip 12.2pc appeared first on IMR.