In the run-up to the finance minister’s budget speech last week, the Indian military and defence industry were hopeful of a substantial increase in allocation in the annual budget. The three services had sought more funds in their presentations to the defence ministry, which had been in talks with the finance ministry to raise defence funding.
The military had also been hoping for the announcement of a non-lapsable fund for defence modernisation.
While the finance minister did not mention budgetary allocations for the defence ministry in her speech at the parliament, figures in the budget documents revealed a small increase in defence allocations. The overall allocation for defence is Rs 5.94 lakh crore, up from Rs 5.25 lakh crore in FY 2022–23, a hike of 13 percent. The total capital outlay for this fiscal year is Rs 1.62 lakh crore, a nominal increase of 16 percent over the previous fiscal year of Rs 1.52 lakh crore.
Disheartening for Military Planners
In the modernisation budget for the Armed Forces, the Indian Air Force got the largest share among the three services at Rs 0.57 lakh crore, a 3.6 percent hike from FY 2022–23. The Indian Army was allocated Rs 0.37 lakh crore—a hike of 15.6 percent from last year—and the Indian Navy's capital budget was pegged at Rs 0.52 lakh crore, an increase of 10.6 percent from the previous financial year. The non-salary portion of the revenue outlay registered the biggest change, going from Rs 64,869 crore in the budget estimates for 2022–23 to just over Rs 90,000 crore for this fiscal year—a reported rise of 44 percent. This is reportedly meant to improve the state of military reserves, arming the military to deal with a short and intensive conflict.
Even so, there was a sense of disappointment among defence observers, many of whom felt that the military has not been accorded its due priority. In a way, though, the modest allocation for defence was only to be expected. The lack of funding has been a persistent problem in the modernisation of the military. Following the pandemic and the war in Ukraine, however, India faces fiscal headwinds and an uncertain global economic environment.
Whatever the military’s expectations, the finance minister could not have been generous with defence allocations at a time when there are competing needs in other critical sectors.
Unfortunately, this comes at a time when the country faces growing challenges for China, not only on the northern and eastern borders but also in the Indo-Pacific region.
The meagre increase in the military's capital budget is disheartening for military planners, who can see their fiscal room for manoeuvre shrinking. The navy, in particular, is bound to be affected, as it has some major platforms in the pipeline. The procurement of Rafale-M jets for the aircraft carrier, INS Vikrant, and Project-75I for submarine acquisition will almost certainly be on hold this year. The air force, too, will have to delay plans for acquiring more fighter planes and upgrading existing Sukhoi jets.
Apparently, the high pension budget is a key reason for the reduced allocation to defence. The pension outlay has been increased this year to Rs 1.38 lakh crore, up from Rs 1.19 lakh crore in FY 2022-2023, owing mainly to the announcement of the implementation of "one-rank-one-pension." The government seems to have anticipated the impact of pensions, which is why it introduced the "Agniveer" scheme last year as a way of cutting the salary and pension bill of the armed forces. Yet, the services’ committed liabilities are many, and it appears unlikely there will be much left for fresh acquisitions.
What is hardest to reconcile with the modest rise in the defence budget is the possibility of another border clash with China. Against the backdrop of the events in Ladakh and Arunachal Pradesh, the capital allocation to the Army appears inadequate. While the revenue budget has increased, the forces still require modern, more sophisticated weaponry, which necessitates a larger capital allocation. The military, however, needs to face the uncomfortable truth that it is unable to spend its allotted share of the modernisation budget. The revised estimates in the budget documents for FY2022-23 reveal that the armed forces failed to spend Rs 2,369 crore out of last year’s capital outlay of Rs 1.52 lakh crore.
In the context of the issues the country faces on its northern border, the surrender of allotted funds is unjustifiable.
Funding for Research and Development: An Area of Concern
The funding for research and development is another area of concern. The new budget's allocation for the Defence Research and Development Organisation (DRDO) is Rs 23,264 crore, a mere increase of 9% from the previous year's budget. In FY 2022–2023, the government earmarked 25% of the defence R&D budget for domestic private industry; the MoD also established a Technology Development Fund (TDF) scheme, with each project receiving Rs 50 crore in funding to support the indigenous development of components, products, systems, and technologies by small and medium enterprises and start-ups. A year later, the status of these initiatives remains unclear.
What is known is that the defence ministry’s Innovations for Defence Excellence (iDEX), billed as the flagship for technological innovation, and the Defence Testing Infrastructure Scheme (DTIS) have been allocated Rs 116 crore and Rs 45 crore, respectively, in this budget. With over 100 contracts signed, the iDEX looks promising but will probably need more funding to produce the results the military expects.
Meanwhile, the government continues to emphasise indigenisation. That is in and of itself a worthy enterprise, but it still leaves the military grappling with a paradox.
India’s armed forces must find ways to preserve their operational edge using assets and equipment that may not be fit for purpose or the best in class. Given the inadequate state of funding, the military must find ways to make do with available resources. In that sense, the defence budget heightens the military’s predicament.
(Abhijit Singh is a Senior Fellow at the Observer Research Foundation, New Delhi, and a former naval officer)
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