Although tensions have reduced on the Line of Actual Control (LAC), the forces of India and China have not materially reduced. A major strength remains deployed on the frigid heights of Eastern Ladakh. The stand-off with China has put the spotlight on the slow pace of modernisation of the Indian Armed Forces. Although concerted efforts are being made to increase the pace of modernisation of the armed forces to take on any challenge in the future, the pace needs to be enhanced and adequate funding catered for in the defence budget.
The conflicts in Ukraine, West Asia and the growing pace of defence technology have underscored the importance of improving the domestic defence industry. The government and the armed forces are committed to Aatmanirbharta in defence. Last year’s defence budget put a special emphasis on promoting the Indian defence ecosystem. The government had taken a two-pronged approach as was demonstrated by the budget. The first of these was the large share of the financial resources for the acquisition from domestic industry and the second was to provide additional resources for Research and Development.
Last year, the government allocated Rs 6,21,940.85 crore (US $75 billion) to the Defence Ministry. Of the total amount allocated 27.66% was earmarked for acquisitions, 14.82% for revenue expenditure (sustenance and operational preparedness), 30.66% for salaries and allowances, 22.70% for pensions and 4.17% for civil organisations under the defence ministry.
Off the capital outlay of Rs 1.72 lakh crore, the lion’s share of the budget at Rs 1.05 lakh crore, was earmarked for procurements from Indian firms. This allocation is in line with the government’s goal of self-reliance in the defence sector. Focus on Aatmanirbharta will remain an important consideration in allocating resources when the Finance Minister gives her budget speech, this time, also.
It is expected that the growth in the defence budget will be driven by the Capital Expenditure (CapEx). The government is expected to increase this head of the budget by approximately 11% – 15%. This would see the figure rise from Rs 1.90 lakh crore to Rs 1.99 lakh crore. If the government maintains 75% of the CapEx budget for domestic procurement, as much as Rs 1.50 lakh crore worth of defence equipment could be procured from within India.
The Border Roads Organisation (BRO) is also expected to benefit from an increase in its budget. Last year the government had increased the budget of the BRO by 30% to Rs 6,500 crore. The organisation is looking after the construction of 10,023 kms of road under the India-China Border Roads program. Around 31 tunnels are also at various stages of completion on our frontier roads, including the Zojila Tunnel as well as some other tunnels that will open a perennial road link from Himachal Pradesh to Ladakh.
In FY 2024-25, the government allocated Rs 23,855 crore for defence R&D. Recently, the DRDO chief said that nearly $10 billion is required for R&D. Under this head, the highest percentage growth could be expected. Funds for iDEX and the Technology Development Fund are also expected to see a major increase.
Pension funds and salaries are also expected to increase. More funds could be expected under this head to meet the costs of paying growing numbers of pensioners. The Agnipath entry scheme could stem the rise in expenditure over a period of time. However, as of now, with another pay commission announced, this head will need more support.
In terms of percentage of GDP being set aside for the defence budget, no major jump is expected. The contest among various ministries for funding, must have been intense. The Finance Minister must have undertaken a tight rope walk, to arrive at the allocation tables.
At the end, management of finances by the three services will remain omnipotent. More joint pursuit in procurement of common items of equipment and services could pay dividends in costs. The office of the CDS will play a larger role in ensuring optimisation of utilisation in tri-service coordination of purchases.
