The Defence Budget announced by the Finance Minister of ₹ 5.25 lakh crore marks an increase of 9.82% over the allocations made in the last fiscal. Even after taking inflation of 5.5% into account, the budget marks an increase of over 4% in real terms over the previous budget. This is indeed credible as the defence allocation has to be viewed in terms of the overall rate of growth of the economy following two years of a pandemic which has impacted growth in which the poorer section have been badly hit and whose concerns and needs had to be dealt with on priority. The defence allocation is hence a strong signal of the governments commitment to the defence of the country in the prevailing security environment.
Of the defence expenditure of ₹5.25 lakh crore, a sum of ₹2.33 lakh crore has been allocated to Revenue Expenditure and ₹1.52 lakh crore to Capital Expenditure. The balance, ₹1.19 lakh crore goes to defence pensions with ₹20,100 crore going to Civil expenditure. This represents a BE (Budget estimate) to BE increase of 9.8% and a RE (Revised Estimates) to BE increase of 4.43% over the previous fiscal. It is important however to see how the Capital revenue is being addressed as this has a bearing on the modernisation of the military and the expenditure being incurred on Research and Development (R&D).
The Capital allocation of ₹1.52 lakh crore reflects a 12.82% BE to BE increase and a 9.89% RE to BE increase over the last fiscal. This is significant in terms of the modernisation effort for the Armed Forces. The Service allocation of Capital Expenditure is Army: ₹32,015.26 crore, Navy: ₹47,590.99 crore and Air Force: ₹55,586.65 crore.
The Indian Air Force, like in the previous year, had the largest budget allocation for Capital expenditure and is about 4.5% over the allocation in the previous fiscal. This level of support has to be continued over the next few budgets to cater for the shortage of fighter aircraft squadrons and other needs of the IAF, which are now being made up in an incremental manner. The India Army has, however, seen its budget share going down from ₹36481.9 crore in the previous fiscal to ₹32,102 crore in the present budget—a decrease of 12.2%. However, data for 2021-22 shows that the Army has returned around ₹11,100 crore in the last fiscal, which possibly indicates challenges in expending the amount allotted which need to be looked into, the lacuna identified and corrected.
The Naval budget, on the other hand, has seen a massive jump of 43% from the previous fiscal. This reflects the governments concern on maritime security and its renewed emphasis and focus on the Indian Ocean Region (IOR). The Naval budget of the previous fiscal saw an increase of ₹12,767.99 crore (from BE ₹33,253.55 crore to RE ₹46,021.54 crore). In the present budget, the Naval budget at ₹47,590.99 crore reflects a massive increase over the previous years BE and a nominal increase of about 3.5% over the RE over the last year. This indicates the Navy's ability to absorb the funds required for modernisation and its focus on building its capabilities in the IOR, based on the threat assessment.
Another important aspect of the defence budget is the push being given to promote indigenisation through policy changes which will encourage self reliance in defence production. This includes reserving 68% of the Capital procurement budget for the domestic industry and ₹3,810 crore for the seven new Defence Public Sector Undertakings (DPSUs). This should spur both the private sector and the public sector to manufacture locally, both for the domestic market and to make a push for renewed exports in the defence sector. Inter alia, this will also result in reducing the heavy import bill in the defence sector.
Despite the pandemic, the defence budget has seen a hike in both Capital and Revenue expenditure. This has to be seen in terms of the ongoing threats which India continues to face over her land borders and in the maritime domain and reinforces the thrust on capital acquisitions for force modernisation and building infrastructure for quick and speedy deployment of forces in the required theatres and for maintenance of existing equipment.
An important highlight of the defence budget was the announcement by the finance minister that Research and Development (R&D) will be opened up for the private industry, start-ups and academia. Of the R&D budget of ₹11,981.81 crore, 25% is being earmarked for the purpose. 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. An independent nodal umbrella body for meeting wide-ranging testing and certification requirements has also been announced.
In the overall analysis, the budget is long-term, looking at force modernisation in a holistic manner. While the budget is focussed on modernisation, it would need to ba accompanied by institutional reforms. For example, the seven defence public sector undertakings need to be put under dynamic management. It may be better to get talent from the corporate sector to head these organisations rather than relying on the civil and military bureaucracy to provide leadership. The emphasis on start ups and R&D is a positive step, but would once again require an enabling bureaucracy for the sector to grow.
India is at an exciting cusp in its history. The budget is positive. It is now up to the nations bureaucracy to play its part in making India a vibrant defence economy.
(Sent to Organiser on 2 Feb 2022)
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