Economy

Defence: crying out for more allocation

Nayanima Basu M Somasekhar | Updated on January 27, 2018 Published on February 17, 2016

Wanting more The Defence Ministry is expecting an increase of 5-10 per cent in the Budget allocation under revised estimates for weaponry and artillery modernisation from last year (file photo) PTI

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The forces need to be modernised urgently, but will Centre give the funds?



The defence sector is pinning its hopes on a substantial rise in allocation in the upcoming Budget. In anticipation, the Ministry of Defence (MoD) is gearing up for a massive modernisation of the weaponry and strategic defence, while initiating projects under the ‘Make in India’ programme.

According to officials, the MoD is expecting an increase of about 5-10 per cent in the Budget allocation under revised estimates for weaponry and artillery modernisation from last year.

The demand for equipment modernisation has jumped since the last fiscal across all the services. The Indian Army has already made a strong case for modern artillery, missiles and communication devices. The Navy has made urgent request for hi-tech submarines, frigates and helicopters.

The Air Force desperately needs more fighter jets. The multi-billion dollar deal to buy 36 French ‘Rafale’ fighters is in final stages of closure. The shopping list is quite big and investment for upgrades also huge.

OROP commitments

In addition, the Ministry also has its plate full with the One Rank One Pension (OROP) commitment and the high outflow of funds for the Seventh Pay Commission as well. However, there are concerns that the Finance Ministry might not be able to meet the actual budget of the Defence Ministry.

“The military is facing a deficit of around $500 billion. This will be difficult for the government to meet in just one Budget. And considering much of resources will be eaten up by the Seventh Pay Commission and OROP, not much will be left for equipment enhancement,” a top official told . The recently announced Defence Procurement Procedure (DPP), which is expected to be notified in April, gives a greater push to domestic defence firms.

The Centre also recently relaxed the foreign direct investment (FDI) norms for the sector.

All eyes are on Prime Minister Narendra Modi’s pet programme of ‘Make in India’. With a modest ₹150 crore allotment last year, will this get a big push?

According to Gaurav Mehndiratta, Partner-International tax and Regulatory-Aerospace and Defence, KPMG in India, for the last 7-8 years, the capital budget for modernisation of armed forces is expected to be around $130 billion and has been constantly growing at a CAGR of about 10 per cent.

“Specifically, for the Defence sector, while on one hand, the government is consciously seeking to reduce the excessive dependence on imports, the MoD on the other, is pitching for tax holidays for local manufacturers and added concessions or incentives for Research and Development,” Mehndiratta said.

The Defence Research & Development Organisation (DRDO), which has a chain of 50 national labs, has been under pressure to deliver on time and cut cost overruns in its indigenous technology development to the defence forces. It has been seeking higher allocations and more collaborations with the private sector to accelerate the projects like the LCA, AWACS, battle tanks and missiles.

“There is a need for an enhanced budget and augmentation of scientific manpower. A mere 5-6 per cent of Defence Budget for R&D is inadequate to meet the aspirations of India’s defence needs especially when China spends about 20 per cent of their Defence Budget for R&D,” said S Christopher, Director-General of DRDO, while inaugurating the 39th Directors’ Conference in September 2015.

Published on February 17, 2016
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