The NDA government has increased the allocation for the armed forces marginally to Rs 2,46,727 crore in FY16, compared with Rs 2,22,370 crore this fiscal, but the capital outlay remains unchanged at Rs 94,588 crore.
The capital allocation is used for buying new weapons and equipment for the forces and, according to experts, this is not sufficient to fund the forces’ planned modernisation and technology acquisition plans for the year.
The armed forces had raised a demand for Rs 3,10,080 crore for the 2015-16 fiscal. They wanted Rs 97,776 crore for non-Plan capital expenditure and Rs 400 crore for Plan capital expenditure. The non-Plan revenue expenditure the forces proposed was Rs 211,853 crore, apart from Rs 50 crore under the Plan revenue expenditure.
However, the forces got Rs 64,357 crore less than what was sought in the overall Budget. The allocation for buying new weapons is Rs 3,288 crore less than what was asked for.
Considering that the defence budget hike is just Rs 17,727 crore more than the previous fiscal’s budgetary estimate of Rs 229,000 crore, it is just a 7.74 % hike. However, in percentage terms, it goes up to 10.95 when compared against the revised estimates of 2014-15 that stood at Rs 222,370 crore. The defence budget for 2015 is just 1.75 % of GDP. This is less than 1.78% allocated in the last Budget in July 2014.
The air force has got a capital allocation of Rs 33,108 crore, which is a decrease from 2014-15 when it got Rs 33,310 crore. However, the allocation for aircraft and aero-engine purchases has gone up by Rs 2,595 crore to Rs 18,866 crore. The allocation was Rs 16,271 crore in 2014-15. The army’s capital allocation has gone up to Rs 26,225.32 crore from the previous year’s Rs 24,979.86 crore. The navy’s funds for capital acquisition have been slashed to Rs 6,736 crore, compared to last year’s Rs 8,615 crore. The ordnance factories have got a budgetary allocation of Rs 2,884 crore, while DRDO has been given Rs 6,570 crore. According to an industry observer: “This hike for aircraft and aeroengine purchases may not be sufficient to fund the estimated $20 bn Medium Multi Role Combat Aircraft (MMRCA). Besides this, almost 75% of the new budget will go in making payments for old deals. This hardly leaves funds for buying anything new.”
However, the defence ministry had told the parliamentary standing committee in late 2014 that when the MMRCA is contracted, additional funds would be made available. As soon as the contract gets signed, India has to make a down payment of 15 % of the contract amount to the original equipment manufacturer.
Besides the MMRCA, payments need to be made for 145 Ultra-light Howitzers, 15 Apache attack helicopters and 22 CH-47F Chinook medium lift helicopters. The navy needs submarines and stealth ships to counter the Chinese presence in the Indian Ocean.
Amber Dubey, partner and India head of aerospace and defence at global consultancy KPMG, says, “The finance minister has increased the budget allocation by 11% to about $ 41 bn, which is positive. The industry expected major reforms in the defence sector in order. It expected ‘infrastructure status’ for the sector in order to attract tax incentives and to meet capital requirements. That has been a disappointment. We hope policy and procedural support for defence will enhance throughout the year and not be limited to just the budget exercise.”