The defence budget – is there scope for improvement Etv Bharat 03 Feb 2025 Maj gen harsha Kakar

https://www.etvbharat.com/en/!opinion/defence-budget-2025-is-there-scope-for-improvement-enn25020301419

The defence budget – is there scope for improvement? Etv Bharat 03 Feb 2025
The finance minister, Nirmala Sitharaman, in her budget speech for 2025-26 allocated a sum of Rs 6,81,210 crore for defence. This was an increase of 9.53% from the previous year. The Press Information Bureau, praising the budget mentioned, ‘This allocation will take care of major acquisitions planned in the ensuing FY and bolster jointness and integration initiatives.’ It added, ‘Capital investment in the defence manufacturing sector has a cascading and multiplier effect on the National Economy which will boost the GDP and provide greater job opportunities to the youth of this country.’
Defence allocation forms 13.45% of the Union Budget and is the highest amongst all ministries. The defence budget has remained under 14% for the past five years. It is also 1.91% of the GDP. Even this percentage has been steadily declining, while the economy as also budget allocations have been rising. Defence was 2.4% of the GDP in 20-21, 2.1% in 22-23, 1.98% last year and now 1.91%. While the overall allocation has grown by 9.53%, however as compared to the GDP it has dropped by .07%.
Galwan had occurred in Jun 2020, which saw an increased defence expenditure as a percentage of GDP in 2020-21. As years passed, this percentage reduced, implying the government only acts in a crisis. The constant demand of the armed forces has been at least 2.5-3%, however, this remains a pipe-dream.
Trump has been insisting that NATO members expend 5% of their GDP on defence to ensure creation of requisite capabilities, despite the fact that most nations have yet to touch his previous demand of 2%. The US spends about 3.5% of its GDP, which is far higher than India, while China ‘officially’ expends 1.8% of its GDP on defence. China’s GDP is five times India’s. What is missing in Chinese figures is dual-use investments in civil and military technologies as also creation of strategic infrastructure. As per SIPRI (Stockholm International Peace Research Institute), the global average is around 1.8% of the GDP.
There is no doubt that each nation has its own threats as also internal development requirements. While the US seeks to maintain a global military edge and China concentrates towards matching the US in military capabilities as also regaining Taiwan, India’s social as well as infrastructure development needs are high. Simultaneously, unless a nation is secure, internally and externally, it cannot attract investments. Balancing these needs is the task of the government. However, marginalizing defence expenditure opens doors for increased threats as the nation lacks capabilities to counter them.
The defence capital budget has been pegged at Rs 1,85,000 crore, which is 27% of the total defence allocation. From this, Rs approximately 1,50,000 crore is earmarked for modernization of the forces. Within this, procurement of aircraft and aero engines have been allocated Rs 48,614 crore, while Rs 24,390 crore is earmarked for enhancing naval power. Rs 63,099 crore is for other equipment.
In addition, Rs 31,000 crore is earmarked for R&D and building border infrastructural assets. What remains unknown are pending liabilities of the forces accruing from prior procurements. Once this figure is removed would the true amount available for modernization be known. 27% for modernization is fairly low.
There were also reports that the defence ministry surrendered Rs 12,500 crore from its allocated capital budget of the previous year as it unable to utilize the same. This highlights two aspects, firstly the long-drawn procurement procedure, which is in itself a rejection procedure rather than a procurement one. As part of its ‘year of reforms’ the MoD has announced reassessing and reducing time factors involved in procurement. It is hoped that the same is implemented and the procedures simplified and speeded up.
The second aspect is that the government must consider the demand of the armed forces and implement a roll-on budget. Defence procurement systems, even if partially shortened, involve multiple stages including request for proposals, trials, assessment, comparisons and approvals. These take time. In case a roll-on budget is introduced, surrender of funds would be a rarity rather than a norm. Simultaneously, the forces would also not deposit excess funds in Defence Public Sector Undertakings for future orders.
The budget this year enhances amounts allocated for R and D under different departments. Rs 20,000 crore has been allocated to the Ministry of Science and Technology as against Rs 6-8000 crores earlier. The DRDO budget has witnessed an increase of almost 12.5% to Rs 26,816 crore, while the iDex scheme, meant for encouraging investments by private enterprises as also strengthening start-ups has received an allocation of Rs 450 crores.
However, India’s overall investment in R and D remain below 1% of the GDP and most of it by the central government. As compared the US expends 3.4% of its GDP on R and D, while China 2.68%. Funds for defence R and D though increased by 12.4%, remains under 1% of the defence budget as compared to 13% of the US defence budget. No wonder Indian technology in critical sectors remains far behind. This aspect needs special attention.
Unless the private sector and the government invest more, India will always lag behind. In the US, the private sector invested USD 693 Billion in 2022, which was over 70% of all R and D. In India the figures are miniscule. Simultaneously, the government has increased indigenous defence procurement. This year 75% of the procurement budget has been earmarked from domestic sources and from within which 25% from the private sector. It is hoped this will give a boost to the private sector to invest in R and D.
The revenue expenditure, amounting to 68.5% of the total budget, catering for pay, pensions and maintaining forces in being, is fairly high. This has been increasing over the years and tends to give a wrong twist to the budget. As long as these remain high, funds for modernization will always be curtailed, though the budget would appear to be overall impressive.
The annual budget of the nation is closely monitored by all sections of society seeking to determine what it holds for them. The indicator of a successful budget flows from the stock market. Defence is a part. The stock market indicated their views on the defence share of the budget by dropping values of defence companies.
A fact which is generally missed is that most of the defence budget, complete revenue and a fairly large part of the capital is spent within the country, ploughing back into the economy, unlike earlier days when almost all procurements were from abroad. Further, defence procurements are never off the shelf and hence need to be planned well in advance. Capital share thus needs enhancement. There is a serious need to consider increasing the defence budget to minimum 2.5% of the GDP as also accepting the demand for a roll-on budget for defence.