Higher allocation in Budget, a crying need of the defence sector

Nayanima Basu New Delhi | Updated on January 19, 2018

Domestic defence industry left high and dry with projects worth billions of dollars left hanging

The need for higher budget allocation in the upcoming Finance Budget for 2018-19 has become a crying need, as India’s defence forces focus on enhancing its combat capabilities while facing adversaries both on its western as well as eastern side of international borders.

Defence allocation continues to remain at about 1.6 per cent of the gross domestic product (GDP). The three services – Army, Air Force and Navy – need at least $4-5 billion for the next six to seven years in order to address the funding gap of $50 billion that is there at present, sources told BusinessLine.

“There has to be a significant jump in the capital outlay for defence acquisition. From ₹90-lakh crore it has to be increased to ₹120-lakh crore,” said a Defence Ministry official.

‘Make in India’

When the BJP power came to power in May 2014, there were expectations that defence acquisition process would get a shot in the arm with an increased focus on indigenisation in defence production in order to achieve self-reliance under its flagship ‘Make in India’ programme.

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However, almost four years down the line, the domestic defence industry has not only been left high and dry, the thrust on defence production has not achieved any significant milestone with projects worth billions of dollar hanging in air.

“In my view the government is no position to deviate in any substantial measure from approximately 10 per cent increase projected in this statement for 2018-19. I hope this clarifies the point. It’s difficult to make any prediction, but I expect about 10-12 per cent increase in capital outlay over the revised estimates for the current year,” said Amit Cowshish, former financial advisor (Acquisition), Ministry of Defence.

Strategic Partnership

In 2017, the Ministry of Defence rolled out a ‘Strategic Partnership’ policy in an effort to set the ball rolling for big-ticket defence programmes to procure fighter jets, battle tanks and armoured vehicles, submarines and combat choppers. However, none of the projects have not been able to get off the ground.

“In 2017-18, India’s defence budget contributed to only 1.5 per cent of GDP and is expected to be 1.6 per cent in 2018-19 as per the Budget estimates. The share of capital expenditure, which is being utilised for the committed liabilities and new acquisitions, has been showing a drop both in nominal and real terms, from 40 per cent in 2014-15 to 33 per cent in 2017-18, whereas revenue expenditure has been consistent or increasing, largely influenced by inflation,” stated Dhiraj Mathur, Partner and Leader (Aerospace & Defence), PwC India.

Modernisation of the forces continues to remain a far cry. It must be noted that the Long-Term Integrated Procurement Plans (LTIPP) for period 2012-2027 for the defence sector as well as the 12th Five-Year Plan were chalked out based on the projected defence allocation at 3 per cent of GDP.

The private industry, on the other hand, believes that the country’s defence preparedness needs to be enhanced drastically, keeping in mind the threat on Chinese borders. Last year’s military standoff, which reportedly may occur again, at the Doklam region of the India-China-Bhutan trijunction area, is a case in point.

In terms of big-ticket defence deals, the $20-billion single-engine fighter jet deal that was believed to have been the answer to the Air Force’s depleting squadrons is also in a limbo. Meanwhile, the Navy is desperately looking to acquire top-class submarines but no orders have been yet place.

Published on January 19, 2018

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