STRATEGIC ANALYSIS OF THE INDIAN DEFENCE BUDGET : FY 2020-21
Ratan Shrivastava
Management Consultant|Strategy|Business Development|Defence Exports|Aerospace|Defence|Space. SME Defence & Space.
Economic Context : The state of Indian economy reflected in the India's GDP to growth of 4.8 % in 2019-20, and its projected GDP growth as per IMF at 5.8 for 2020-21, coupled with the rise in fiscal deficit to 3.8%, has constrained the Government from enhancing the allocations for the Ministry of Defence.
The increased allocations to socio-economic sectors for boosting economic growth and on development of infrastructure had a bearing on the defence allocation, with a marginal increase in the defence budget allocation from INR 318,000 Crores in FY 2019-20 to INR 337,533 Crores for FY 2020-21.
Imbalance in Allocation : The allocation for the revenue head continues to be in excess of the capital expenditure. Revenue allocation is essential for the maintenance of the weapons, equipment, transport and ammunition for the smooth functioning of the armed forces, apart from repairs, overhauls and procurements for the recoupment of the stores and the reserves.
Revenue Head : The revenue allocation saw a marginal increase from INR 201901.76 in FY 2019-20 to INR 209319.00 for the FY 2020-21 (Increase of INR 7417.24 Crores)
Capital Head : On the capital expenditure allocation, there is only an increase of INR 3340 Crores in the budgetary allocation from a RE (Revised Estimates) in FY 2019-20 of INR 110,394.31 Crores to 113734 Crores for FY 2020-21.
Despite a rationalisation of the requirements, carried out by the Navy and IAF, this allocation with the committed liabilities, of the past will fall short of the requirements for modernisation.
CAPITAL ALLOCATION FOR ARMED FORCES
Arm/Allocation 2019-20 2020-21 Increase
Indian Army : 29461.25 32392.38 2931.63
Indian Navy : 23156.43 26688.28 3531.85
IAF : 39302.64. 43281.91 3979.27
Source:Expenditure Budget 2020-21(All figures in INR Crores
BUDGETARY ALLOCATION FOR CAPITAL EXPENDITURE
The largest increase in terms of budgetary allocation for capital expenditure is for the IAF of INR 3979 Crores followed by Army at INR 3531 Crores. The Indian Army has committed liabilities for the pending procurements of artillery gun systems, rifles and ammunition. IAF has liabilities for acquisition of aircrafts both from HAL and abroad. The allocation to the Navy has risen from 13% to 18% in the current budget.
A closer scrutiny of the allocation of the capital expenditure reveals there is an enhanced share for Aircrafts and Aero engines, for all the 3 services from FY 2019-20 to FY 2020-21 apart from their core acquisitions of weapon systems and naval fleet.
Aero Engines and Aircrafts : The allocation for aircrafts and Aero engines, for the Army is INR 4000 Crores up from INR 2115 Crores from last FY; Navy from INR 2400 Crores to INR 4640 Crores; and IAF from INR 24807 to INR 26909 Crores to the FY 2020-21. Much of the increased IAF allocation will go to HAL for funding the contract of 83 LCA Mk 1A.
The Indian Armed Forces need to continue their modernisation to meet the growing challenges in the neighbourhood but the performance on the key economic parameters, will not allow for greater budgetary support in the next financial year(s).
Some long in the pipeline reforms such as enhanced FDI for Defence manufacturing, IPR protection and Defence SEZs will bring in more commitment of investment in defence production.
STRATEGY AHEAD : WAY FORWARD
A 2 pronged pragmatic approach could hold the key for meeting our security challenges.
At the strategic level of international relations – by forging alliances with partners who hold a stake in the Indian Sub-continent and the Indian Ocean Region.
The Quad in the Indian Ocean Region is one such welcome move, apart from securing naval berths in the friendly nations from Vietnam and Indonesia in the East to Qatar and Seychelles in the West, to counter the growing Chinese influence in the region buttressed by Chinese investments and OBOR.
The second approach involves a more pragmatic approach to continue modernisation of the Armed Forces by way of greater participation of the private industry through reliance on making in India and also assembling in India.
This initiative has given proven results in terms of faster induction of patrol vessels for Navy, K9 Catapult for the Indian Army and large number of key systems including air frames for LCA being sourced from the private industry – moving forward, the shortlisting of L&T with MDL for the P75I project as a Strategic Partner, displays the growing confidence on the capabilities.
There needs to be more such partnerships of the Public Sector and Private Sector, to meet the shortfalls in the budgetary allocation to fill in the wide gaps of technology, capital and to broad base the defence production in the country.
With the creation of the office of CDS (Chief of Defence Staff) and the enhanced powers of procurement to the services, it is hoped that the three wings of India’s armed forces may operate in synergy in terms of defence spends, both for capital and revenue expenditure. India’s security concerns mandate a strong army, navy and air force where the three wings work cohesively for maximum tactical and operational efficiency.
Source for Data: Union Finance Ministry Expenditure Budget Bill FY 2020-21.
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