This brief is a part of the Budget 2022: Numbers and Beyond series.
Finance Minister Nirmala Sitharaman underlined India’s quest for self-reliance in defence when she mentioned in her Budget speech
the prioritisation given to the domestic defence industry and the need to strengthen research and development. The defence sector has remained an important focus for the government, cornering the largest share (13-14 percent)
of budgetary allocation over the past few budgets. That is the case this year too, with INR 525,166 crore
being allotted to the Ministry of Defence (MoD).
This budget hike comes against the backdrop of multiple security developments. The border stand-off with China’s People’s Liberation Army (PLA) in eastern Ladakh, which began in mid-2020, has entered the stalemate phase, with the latest round of talks achieving little progress
. There is every sign that this impasse is likely to last longer. So, the Indian military will have to reinforce its presence in the region to ensure that the PLA doesn’t indulge in further adventurism on the Line of Actual Control. In Kashmir, there are indications that Pak-backed terrorist groups are likely to scale up their activities, with Taliban’s victory in Afghanistan acting as a catalyst. These dynamics have made it imperative that adequate financial resources are made available to secure India.
The border stand-off with China’s People’s Liberation Army (PLA) in eastern Ladakh, which began in mid-2020, has entered the stalemate phase, with the latest round of talks achieving little progress.
But there is also a background of ongoing military reforms and the Modi government’s push for defence industrialisation. Last October, the government reorganised
the Ordnance Factory Boards (OFB) into seven new defence public sector units. Having achieved the long-pending corporatisation of the OFB, the government is expecting to achieve efficiency in producing arms, ammunition, armoured vehicles, and clothing. This will also hopefully boost defence exports. The recent US $375 million deal
to sell the Brahmos cruise missiles system to the Philippines has come as a much-needed shot in the arm for the Indian defence industry. The defence budget acquires significance in this context.
For the FY 2022-23, the Finance Minister has allocated INR 525,166.15 crore to the MoD. This is INR 46,970 crore or 10 percent more than the previous year’s allocation of INR 478,196 crore
and the sharpest increase in the defence budget in recent years.
Table 1: Budgetary allocation for the Ministry of Defence
|Defence services (Revenue)
Ministry of Finance, all figures in INR crore
But this budgetary hike masks the challenge of the availability of resources. In the last decade, the defence budget has grown at an annual average rate of 9 percent
. This increase is barely keeping up with the inflation and the demands of the three services.
For capital outlay, the current budget earmarks INR 152,000 crore—much lesser than the projected demands by the three services. For 2021-22, the Standing Committee on Defence had noted
that the gap between the projected and allocated budget for Army, Navy, and Air Force was INR 14,960.2 crore, INR 37,667.23 crore and INR 23,925.79 crore, respectively, with the Navy suffering the most.
In 2018, the Lok Sabha’s Standing Committee on Defence had recommended
that the MoD should be allocated a budget equivalent of 3 percent of the GDP. In reality, the defence expenditure has hovered at around 2 percent of the GDP. With COVID-19 still impacting India’s economic growth, this issue of inadequate allocation is expected to persist for a few years.
To overcome this constraint, the Defence Acquisition Procedure of 2020
has allowed leasing certain equipment as a means to “possess and operate the asset without owning the asset”. It emphasises that leasing is “useful to substitute huge initial capital outlays with periodical rental payments”. The Navy has gone ahead and utilised this provision by leasing
two MQ-9B Sea Guardian unarmed drones from the United States for maritime surveillance purposes.
The Defence Acquisition Procedure of 2020 has allowed leasing certain equipment as a means to “possess and operate the asset without owning the asset”.
One positive development in FY 2021-22 is that the three services reportedly spent
64 percent of their capital outlay on domestic defence equipment. This, of course, is the result of the constant push from the government to reduce dependence on imported equipment. Since August 2020, the government has brought two negative import
lists that are expected to progressively ban the import of more than 200 weapons and platforms. The defence ministry’s calculations estimate that this will generate contracts
worth INR 4 lakh crore for the domestic defence industry in the next six to seven years. However, there is scepticism within the military whether the Indian defence industry will deliver this equipment on time. Pertinently, the FY 2021-22 Budget had reserved
58 percent of the capital procurement—INR 70,221 crore—for domestic equipment. The current budget has now hiked this to 68 percent.
What may assist and expedite this pursuit of self-reliance?
Strengthening defence research and development holds the key. The government has encouraged the private sector, including start-ups, to engage in R&D. It has also instituted initiatives like the ‘Innovations for Defence Excellence
’ to tap into the domestic innovation ecosystem. The FY 2022-23 Budget takes this forward by setting aside 25 percent of the defence R&D budget for the private sector. The Finance Minister has also announced the plans to establish a new body for the private sector to test and certify new technologies.
With an assertive China on the continent and in the maritime sphere, malicious Pakistan, and an unstable Afghanistan, securing India’s security environment has become a complex endeavour. This budget, with a focus on achieving self-reliance in defence, builds on the achievements of recent years and charts a promising path ahead.
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