Defence Industry

Defence Budget 2024-2025: Well Balanced
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Issue Net Edition | Date : 05 Feb , 2024

Union Finance Minister Nirmala Sitharaman on February 1 allocated ₹6,21,540.85 crore for Defence in the FY 2024-25 which comes out to be 13.04 per cent of total budget. The defence budget is 4.72 per cent higher than what it was in the budget estimates for 2023-24 but marginally lower (0.37per cent) than last year’s revised estimates and it accounts for 1.89 per cent of the GDP which is nearly 2 per cent.

This is for the first time the allocation for the armed forceshas crossed the Rs 6 lakh crore mark, even though more than 50 per cent of the money will be spent on pay& allowance and pension. The critical defence sectors will continue to receive the highest allocation among all ministries, Sitharaman said, while continuing with the thrust to improve border infrastructure. She also announced a new scheme to strengthen deep tech in the defence sector.

The budget includes a revenue expenditure of Rs2.82 lakh crore, capital outlay of Rs1.72 lakh crore and pay, allowances and pension outlay of Rs1.41 lakh crore. The capital outlay for the modernisation of the armed forces is 9.39 per cent higher than last year’s revised estimates and 5.78 per cent more if compared to the budget estimates for 2023-24.The capital allocation for buying and upgrading the military platform will be 27 per cent of the budget while nearly 15 per cent will be spent on operational preparedness (something ambigious). The enhanced capital outlay is aimed at filling critical capability gaps through modernisation which will also help boost self-reliance in the sector. India is modernising its military with fighter jets, helicopters, warships, tanks, artillery guns, rockets and missiles, unmanned capabilities and other combat systems.

The acquisitions on the ministry’s radar include modernisation of the existing Su-30 fleet and additional procurement of the aircraft, buying advanced engines for MiG-29s and procuring of C295 transport aircraft and missile systems.Further the LCA MK–I IOC/FOC configuration will be additionally funded to ensure state-of-the-art technology in domestic production.

The sizeable allocation under capital is centred around promoting ‘Atmanirbharta’ in Defence. Large portion of the allocation will be utilised for procurement through domestic sources to provide domestically manufactured next generation weapon system to the country which will have a multiplier effect on the GDP, create employment, ensure capital formation and provide a stimulus to the domestic economy.The announcement of a Rs one lakh crore corpus for deep tech to provide long term loan to tech-savvy youth or companies and the tax advantage to the start-ups will give further impetus to innovation in the defence sector.

This year onwards, the Government of India has taken a conscious call to foster jointness among the services by consolidating  the demand of the three  services into similar items of expenditure such as Land, Aircraft and Aeroengines, Heavy and Medium Vehicles and so on. This will bring flexibility in financial management by enabling the MoD to reappropriate the fund among the three services keeping in view the inter services priority. This mechanism  will also expedite decision making and ensure better utilisation of the capital budget.

Revised estimates in the budget documents show that the armed forces were unable to spend Rs 5,372 crore of last year’s capital outlay of Rs1.62 lakh crore. In 2022-23, the armed forces spent around Rs21,000 crore on top of the previous year’s budget allocation, as border tensions with China saw the country make a raft of emergency purchases and sharpen its focus on building infrastructure in forward areas.The revised estimates for 2023-24 show that the revenue expenditure was Rs28,548 crore more than the allocation. This was mainly on account of pay and allowances, transportation, ex-servicemen contributory health scheme and Rashtriya Rifles expenses.

With no abatement of hostility between Indian and Chinese troops along the Line of Actual Control (LAC), FM has earmarked Rs 6,500 crore for border roads. The provision is the same as this fiscal’s revised estimate after the Centre jacked up last year’s budgetary allocation.Apart from promoting strategic infrastructural development in border areas, the provision made in the interim budget will also boost socio-economic development in the region.Projects such as development of Nyoma air field in Ladakh at an altitude of 13,700 feet; permanent bridge connectivity to India’s southernmost Panchayat in Andaman and Nicobar island; 4.1 km strategically important Shinku La tunnel in Himachal Pradesh and Nechiphu tunnel in Arunachal Pradesh will be funded out of this allocation.

The total allocation to Ex-Servicemen Welfare Scheme for FY 2024-25 is 28 per cent higher than the allocation for FY 23-24 (From Rs 5,431.56 crore to Rs 6,968 crore). This is in addition to the unprecedented allocation at revised estimate stage during the current year where the budgetary allocation to ECHS was enhanced by 70 per cent over budget estimate of 2023-24 and was made to Rs 9,221.50 crore. This significantly higher allocation is to take care of Medical Treatment Related Expenditure (MTRE) incurred during the COVID period and to compensate the increase in ECHS rates bringing it at par with the CGHS rates. This is in line with the Government’s resolve to provide best health care facilities to Ex-Servicemen, War veterans, Veer naris and their family members.

Allocation to the Indian Coast Guard (ICG) for this FY 2024-25 is Rs 7.651.80 crore which is 6.31 per cent higher over the allocation of FY 2023-24. Of this, Rs 3,500 crore is to be incurred only on capital expenditure, adding teeth to the arsenal of the ICG to address the emerging challenges posed in water and provide humanitarian assistance to other nations. The allocation will facilitate the acquisition of fast moving patrolling vehicles/interceptors, advanced electronic surveillance systems and weapons.

The budgetary allocation to Defence Research and Development Organisation (DRDO) has been increased to Rs 23,855 crore in FY 2024-25 from Rs 23,263.89 crore in FY 2023-24. Of this allocation, a major share of Rs 13,208 crore is allocated for capital expenditure. This will financially strengthen the DRDO in developing new technology with special focus on fundamental research and hand-holding the private parties through Development-cum-production partner. Allocation to Technology Development Fund (TDF) scheme stands out to be Rs 60 crore which is especially designed for new start-ups, MSMEs and academia attracting the young bright minds interested in innovation and developing niche technology in the field of defence in collaboration with the DRDO.

The defence budget 1.89 per cent of the GDP is still not sufficient for the ambitious mordenisation of defence forces keeping in view the threat perception from the two adversaries China and Pakistan. It should at least be 2 percent of the GDP however, the present policy of strengthening Atmanirbharta the budget is well balanced.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Col (Dr) PK Vasudeva

is author of World Trade Organisation: Implications for Indian Economy, Pearson Education and also a former Professor International Trade.

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