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Stable outlook for India's Defence Budget-2022

India’s Defence Budget continues to be around 2% of GDP for past 5 years; It is unlikely that Defence allocation will go up in FY23

Stable outlook for Indias Defence Budget-2022

India's defence faces a daunting dilemma in the fiscal year (FY) 2022-23, as it remains locked in a costly military face-off with China in the Himalayas along the Line of Actual Control (LAC) in eastern Ladakh. The nation also confronts the dual challenge of the Covid pandemic and an economic downturn. India is the third-largest military spender and the second-largest importer of global arms, in an endeavour to equip its armed forces with advanced weapons systems. Still, the perception persists that the Indian Armed Forces are being inadequately armed and provisioned for due to a massive resource crunch.

To meet this unprecedented challenge, armed forces executed emergency purchases of Rs 20,776 crores within six months since the Galwan clash in June 2020 to the plug enduring equipment and ammunition shortages, adversely upsetting budgetary calculations. The money spent on building capabilities was over and above the budget allocation for modernisation in 2020-21. The Ministry of Defence (MoD) has extended the emergency powers for urgent procurements through a fast-track process for three more months till December 2021. This is the third extension of emergency powers granted for revenue procurements since 2020 when they were first invoked. While they were first extended till March from December, they were again extended till August last year.

It is undeniable that the military will require vast sums of money in the upcoming budget on February 1 to operationally sustain them in the faceoff with China that could conceivably continue for years. Over decades, successive governments have routinely promised that there will be no shortage of funds for the armed forces, and all additional monies which they may require will be provided. But as per data India's defence expenditure dropped from 2.4 per cent of gross domestic product (GDP) in 2011-12 to 2.1 per cent of GDP in the last fiscal. This is alarming since the Parliamentary Standing Committee on Defence (SCoD), in 2018, had publicly affirmed a shortage of funds and categorically endorsed a fixed budget of 3 per cent of GDP for the military.

India's then-Vice Chief of Army Staff, Lt Gen Sarath Chand testified before the Parliamentary Standing Committee on Defense that year said "It (the budget) is barely enough to cater to the rise in expenses on account of inflation and does not even cater for taxes," Lieutenant General Chand had told the Committee. He had stated that Rs 21,338 crore capital allocation for the army's modernisation was "insufficient to cater for the committed payment" of Rs 29,033 crore for 125 ongoing schemes and ammunition and equipment procurement."

The Vice Chief had further revealed that 68 per cent of the army's equipment was in the 'vintage category', 24 per cent in the current and 8 per cent in the state of art grouping, and consequently, insufficient funds were certainly not going to remedy this worrying state of affairs.

Last year's budget included provisions that were aimed at turning this situation around. The MoD budget estimate for FY 2021-22 amounted to Rs 4.78 lakh crore, only a 1.4 per cent increase over the previous year. Of this, the capital outlay had been enhanced to 1.35 lakh crore, a jump of 18.75 per cent, the highest ever increase in the last 15 years to support purchases of new equipment to spur modernisation. The revenue outlay had marginally increased to about 2.12 lakh crore. The defence pensions outlay had reduced to about 1.16 lakh crore, which was much lesser than that of the previous year. Capital procurements refer to the purchase of weapons or weapon systems and other critical equipment, while revenue procurements include the purchase of ammunition and spares to keep these assets running.

However, despite this significant increase, it is clear that the liabilities from India's existing pipeline of defence equipment it has already committed to purchasing would take up nearly 90 per cent of the budgeted capital expenditure, leaving only a meagre amount for additional modernisations. The Ministry of Defence had promised to spend the 19 per cent of the capital outlay set aside for the defence sector in buying new equipment, weapons, fighter jets before March 2022. That money may not be fully spent as planned. The money may go into a corpus and is likely to be spent in the next year as envisaged by the 15th Finance Commission.

The last budget indicated that its overall revenue portion accounted for almost 61 per cent, largely due to the manpower of the Army. The Navy and Air Force fared much better with their revenue budgets pegged at around 40 per cent or so.

Having pegged India's defence production mark at an ambitious $25 billion in the next four years that includes military exports of $5 billion, the government has introduced several schemes to ramp up local manufacturing, thereby avoiding major imports. This will help the country reach its target of 75 per cent 'atmanirbharta' or self-reliance in defence equipment manufacture before 2030. The government has taken steps to advance this goal, including establishing a "negative list" of equipment that will be barred from being imported between 2020 and 2025, releasing a new Defense Acquisition Procedure that emphasizes indigenous sources of defence equipment, and sub-allocating 63 per cent of the allocated capital expenditure budget towards procurement of defence equipment from only domestic sources.

However, indigenisation in defence through initiatives like 'Make in India' can only succeed with the active participation of industry, start-ups, and innovators. Like militaries across the world that depend on private industry to bulwark their modernisation efforts, India too has increased the level of industry inputs in defence and has opened the door wider to industry participation in the sector.

India's defence budget has remained stable at around 2 per cent of GDP for the past five years. It is unlikely that defence allocation will go up in absolute terms, it may remain marginal in terms of gross domestic product (GDP) as part of upcoming FY 2022-23 budget on 1st February.

(Author is a journalist who writes on defence, strategic affairs, security and conflict)

Ravi Shankar
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