The Modi government in its third term has remained faithful to its commitment to develop a robust domestic defence industry
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This essay is part of the series "Budget 2024-25"
Finance Minister (FM) Nirmala Sitharaman presented the first full budget following the 2024 elections. Going into the Budget, there was expectation from Modi 3.0 that there would be greater budgetary allocation for defence. Although the Budget has not outrightly disappointed on this front, the distribution of allocations under the defence budget of 2024-25 are still skewed in favour of revenue expenditure. Nevertheless, overall spending under the Financial Year (FY) 2024-25 has only increased by 4.8 percent from the previous FY 2023-2024. A close look at the defence budget shows that it constitutes only 12.9 percent of the total budget for the FY 2024-25 and remains inadequate in meeting the extent of the threats facing the country or the requirements of the armed forces. It is actually lower than the defence budget of FY 2023-24, which stood at 13.18 percent of the total national budget.
A close look at the defence budget shows that it constitutes only 12.9 percent of the total budget for the FY 2024-25 and remains inadequate in meeting the extent of the threats facing the country or the requirements of the armed forces.
This dip may, in part, be explained by the exigencies of running a coalition government compelling the FM to make more concessions to key allies of the government such as the Telugu Desam Party (TDP) and Janata Dal United (JDU). Keeping the fiscal balance sheet intact on overall government expenditure also partially explains why the Modi government has kept the increase in defence expenditure very limited. In an important move, the government has increased spending on innovation in defence, allocating an additional INR 400 crores through the Acing Development of Innovative Technologies with iDEX (ADITI) scheme.
Let us consider defence pensions, which have skewed the spending priorities under the defence budget for many years, taking allocations away from capital acquisitions and defence Research and Development (R&D). The Modi government allocated INR 1.17 lakh crore in FY 2021-2022, which rose to 1,41 lakh crore for the FY 2024-25, representing a 20.5 percent increase in spending. However, this percentage would be even greater if you consider the Ex-servicemen Contributory Health Scheme (ECHS), which stood at INR 6,968 crores under FY 2024-25, which when included with the pension bill surges to approximately 26.5 percent. Together, salaries and allowances at 30.68 percent and pensions at 22.72 percent, together, account for 53.38 percent of total defence expenditure under the current budget, which explains the distortions caused to the defence budget and more generally long-term defence planning in India.
Let us now turn to capital expenditure, which stands at INR 1.72 lakh crore, roughly 27.67 percent and less than a third of the total defence budget. In FY 2023-24, it was this allocation that covered expenditure towards new weapons systems such as warships, submarines, fighter aircraft and so on. The government claims that 75 percent of the capital outlay for modernisation—which in reality stands at INR 1.29 lakh crore as opposed to the government’s figure of INR 1,05,518 lakh crore—will be spent on sourcing from domestic industry. Here, the government has taken a leap of faith by allocating most of the capital budget to secure supplies from domestic industry in a quest to boost manufacturing, production and innovation. This is consistent with the government’s Atma Nirbhar Bharat (ANB) initiative launch in 2020. The balance INR 43,000 crores will be spent on imports dedicated to capital acquisitions.
The government has taken a leap of faith by allocating most of the capital budget to secure supplies from domestic industry in a quest to boost manufacturing, production and innovation.
Yet, as the Vice Chief of Air Staff (VCAS) A.P. Singh noted prior to the budget of 2024-25, ANB cannot come at the cost of the country’s national defence and security. The lead times necessary to develop, produce and deploy critical technologies and weapons systems are considerable, because India’s adversaries are building capabilities at a rapid clip, and to keep pace with them domestic industry, and more generally the Indian defence ecosystem, has to deliver in time and optimally. Nevertheless, confronted with a trade-off between spending the capital outlay on imports as opposed to ploughing the bulk of that outlay into the domestic defence industry, the government has chosen the latter. Only time will tell what the payoffs will be under the ANB initiative. Timely delivery is crucial given the magnitude of the threats facing India, with the possibility of wars breaking out without warning, leaving the armed forces battling China and Pakistan with inadequate or substandard equipment.
Further, the distortions in spending accruing from high revenue expenditure covering Maintenance, Repair and Operations (MRO), pensions, salaries, allowances and pay are unlikely to be remedied any time soon as the latest budget reveals. It still leaves the armed forces facing serious shortfalls in capabilities. Initiatives like the Agnipath scheme will play a key role in redressing the expenditure imbalance, if implemented effectively, but will take time to generate savings, and help pay, if not completely, the capital acquisitions the armed services make. Yet the scheme is under stress, especially with the political opposition attacking it.
Initiatives like the Agnipath scheme will play a key role in redressing the expenditure imbalance, if implemented effectively, but will take time to generate savings, and help pay, if not completely, the capital acquisitions the armed services make.
The Modi government in its third term has remained faithful to its commitment to develop a robust domestic defence industry, which is amply reflected in the resource allocations it has made. But there are also inherent risks in increasing the capital outlay of the defence budget only marginally. This balancing act of the government will continue to define the trajectory of its defence policy.
Kartik Bommakanti is a Senior Fellow with the Strategic Studies Programme at the Observer Research Foundation.
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Kartik Bommakanti is a Senior Fellow with the Strategic Studies Programme. Kartik specialises in space military issues and his research is primarily centred on the ...
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