As the Union Budget is slated to be presented in Parliament on February 1 2023, India’s evolving defence industry is taking centre stage. As the countdown begins, industry watchers have highlighted several critical developments in the sector that might factor in this year’s budget considerations. The ongoing tensions along the Line of Actual Control (LAC) with China, the raging conflict in Ukraine and volatility in Pakistan, among other vital developments, could influence the Union Defence budget 2023. Financial Express Online spoke to leading analysts from the industry and the services and asked them to share their views on the budget allocations for this year.
“Budget expectations for the Indian Air Force (IAF) are going to be no different this year than last year. The Indian economy is growing at a good pace, and the external threat environment hasn’t undergone much change. The government is willing to invest in capability building,” explained Air Vice Marshal Nirdosh Tyagi (Retd) when asked what the service is expecting.
Financial Express Online exclusively spoke to the Society of Indian Defence Manufacturers (SIDM), President SP Shukla. Upon being asked how emergency/fast track helps in procurement, the SIDM President explained, “Emergency procurement of defence equipment is undertaken to meet a threat arising; action is immediate and could be off the shelf or within a very short duration of time. It is generally undertaken to address operational situation-based requirements or fill up voids or procure items that have been expended. Typically, this is an extraordinary process where procurement procedures are relatively shortened.”
He explained, “On the other hand, Fast Track Procedure is a modified procedure to procure off-the-shelf already in-service equipment. This is to meet any immediate needs to be fulfilled in a short span of time. The fast-track process has been normally used for foreign equipment procurement or for purchasing certain classified equipment. Unlike emergency procurement, financial limits are not generally defined for the fast-track process. Overall fast, track procurement is a shortened procedure that includes limited trials and procurement oversight by a committee. Both these processes are important for our armed forces to acquire a capability in a relatively short span of time.”
When asked if he sees recent geopolitical developments impact the upcoming Indian defence budget, Shukla responded saying, “Geopolitics, including threat perception alongside the fiscal health of a nation, are factors that determine the defence budget. Recent global developments have shown that our government’s approach over the last few years of Atmanirbharta are steps in the right direction. In our case, the land borders are not as tranquil as we would want them to be. Fortunately, post Covid-19 our economy is on the growth path that is reflected by buoyant GST collections. Given these factors, we can certainly see some increase in the defence budget. Further, it is likely that our government is going to focus on the indigenous development of defence equipment. Given these dynamics and the recent activity in the northern and northeastern borders, it may be important to increase allocation towards tactical armoured vehicles, infantry combat vehicles and light tanks for supporting the Army.”
Sandeep Shah, Co-Founder and Managing Director at Optimized Electrotech, shared his take with Financial Express Online: “Amidst a global recession scare, India is poised to grow. We must utilise this opportunity to increase our absolute Defence spending as well as our percentage GDP spending to ensure that we protect the sanctity of our borders against our neighbours who are aggressive strategically and financially. R&D allocation given to the Defence Research and Development Organisation (DRDO) and other research and development entities must also include a budget for procurement from startups that have innovative products. This will encourage the industry to invest further in innovation for Defence.”
Jitender Mittal, Chief Financial Officer at Crown Group Defence, shared an extensive assessment of various aspects of the defence budget. He noted that “Defence and Aerospace is an emerging industry in India following recent policy initiatives for increased private sector participation and thrust on Make in India. The sector looks forward to opportunities in the upcoming Budget 2023-24 to escalate growth in the coming years. In the last five years, the budget allocation of the defence sector has increased by 46%. With increased budgetary support over the last few years, the Government has placed modernisation and infrastructure development of the Armed Forces as the main focus of the National Security and Defence Planning process. The Government of India’s policies ‘Make in India’ and ‘AatmaNirbhar Bharat’ have opened tremendous opportunities for growth in the defence sector. The industry expects Budget to focus on R&D, speedy orders, creation of testing facilities and an ecosystem to support innovation for the defence & aero industry.”
Speaking about Micro, Small and Medium Enterprises (MSMEs) in defence, he said, “India is the fifth-largest economy and is poised to be the third-largest in the near future. A 5 trillion USD economy is in sight. 2047 is the target for India to be a developed nation. To achieve these targets, India needs a strong, organised MSME sector.
The TReDs (Trade Receivables Discounting System) platform has been created for faster settlement of dues to MSMEs. With TReDS, a large part of the working capital finance requirement of MSMEs can be taken care of. Government organisations like the Army, Navy, Airforce and Coast Guard must consider registering at these platforms. This will ensure prompt and competitive financing for MSMEs (MRO and other defence-related suppliers), which can resolve the issue of access to finance.”
Vikas Gupta, the Chief Executive Officer and Chief Investment Strategist of OmniScience Capital opined that the defence Budget has to be increased significantly due to the following reasons:
– Since 2017, and even earlier, India has been experiencing friction along its border with China, especially the border in the North East near Bhutan to Ladakh in the North.
– India’s border with Pakistan has always been volatile.
– Kashmir needs a strong defence from infiltrations across the border.
– Pakistan-China highways pass through Indian Territory, which needs to be monitored and eventually taken control of.
– The Quad wants India to play a vital part in defending the marine trade routes passing through the Indian Ocean.