Defence Budget 2024-25

Packing a Punch with Every Rupee

Ravi Gupta

The Union Budget presented in Parliament on July 23, 2024, prioritises the nation's security, development, economic growth, and job creation, with a particular emphasis on the defence budget. The defence services (that include our Armed Forces, DPSUs, Defence R&D and other defence related organisations) - the world's single largest employer together with the railways (the second largest employer in India) and infrastructure development programmes (yet another mega employment generator) have received a lion's share in the budget. These sectors are among the most powerful growth engines of the economy and strong contributors to India's strategic autonomy.

The defence budget covers the requirements of the Department of Defence (DoD,) the Department of Military Affairs (DMA), the Department of Defence Production (DDP) that includes the Defence Public Sector Undertakings (DPSUs), the Department of Defence Research and Development (DDR&D) that includes the Defence Research and Development Organisation (DRDO), the Aeronautical Development Agency (ADA) and the Department of Ex Services Welfare.

Shot in the Arm for Security Growth and Employment

The defence sector has received the highest budgetary allocation of Rs. 6,21,940.85 crores (including Rs. 1,41,205 crores for pensions), being 12.9% of the total expenditure budget of the current financial year. An even bigger increase in the defence budget was in fact expected in view of existing and potentially emerging threats to our national security. Both the historical rivals - China and Pakistan - have significantly increased their defence spendings even as they face internal unrest and economic crisis. Ongoing conflicts in the Middle East and Europe are already turning more and more intense even as the Indo-Pacific region continues to remain tense. The economic and strategic importance of the Indian Ocean Region has been consistently rising with our country emerging as the guardian and main peacekeeper in the region. Thus, the quantum of threat has been increasing in terms of both intensity and envelope. More so as India, already the fifth largest economy of the world, is on track to soon becoming a seven trillion dollar economy and the third largest in the world. Even a cursory look at our history of the past 25 centuries indicates our prosperity has been attracting foreign invaders. Whenever we failed to match our military strength with our prosperity, we had to pay a heavy price.

However, this highest budgetary allocation till date, when viewed in perspective of overall national budget and in the backdrop of rapidly enhancing Aatmanirbharta, turns out a shot in the arm for national security, growth and employment generation.

In brief, the total defence allocation for the current financial year is higher by about 18.43% over the allocation for FY 2022-23 and 4.79% more than the allocation of FY 2023-24. Out of the total allocation, a share of 27.66% goes to capital; 14.82% for revenue expenditure on sustenance and operational preparedness; 30.66% for pay and allowances; 22.70% for defence pensions, and 4.17% for civil organisations under Ministry of Defence (MoD).

The focus on Aatmanirbharta in itself magnifies the purchasing power of each available rupee, since the indigenously designed, developed, and produced defence products are relatively cost effective in every aspect - initial procurement, induction and training, their maintenance overhaul and repair, in other words, the entire life cycle. Whereas the budget spent on defence procurements of indigenously designed, developed, and manufactured products contributes very significantly to generation of employment and wealth as well as overall growth of our country; expenditure on importing defence products remain a burden on national exchequer with all the benefits of such potentials for jobs and growth going to the countries manufacturing those products.

Thus, continuing its stress on Aatmanirbharta and consequential economic growth and employment, the Modi 3.0 government in this budget has enhanced the capital budget earmarked for domestic defence procurements to Rs. 1,05,518.43 crores, the total budgetary allocation for capital procurements being Rs. 1,72,000 crores. The capital expenditure constitutes the  expenditure on building assets and includes procurement of weapon systems and platforms, equipment, land, machinery etc. The defence Capital expenditure builds long term strengths for the nation's security. Even though the actual capital expenditure on capital acquisitions in the previous year was Rs. 1,57,228.20 against the budgetary allocation of Rs.1,62,600.00 the budgetary allocation this year has been enhanced by 9.4% to Rs. 1,72,000 crores.

The impact of earmarking Rs. 1,05,518.43 crores for procurements for domestic sources together with the

5 Positive Indigenisation Lists (PILs) of 509 major defence products and systems already notified by the DMA that will be procured exclusively from indigenous sources as per provisions given in the Defence Acquisition Procedure 2020 in staggered timeline, will have a positive synergistic effect on Aatmanirbharta.

Additionally, with the aim of indigenising systems already imported/ being produced under licence by DPSUs, in the process, reducing dependence on imports and promoting our own industry especially the MSMEs and the Startups, the DDP has on the 16th July 2024 had promulgated its own fifth positive indigenisation list consisting of 346 items.  This takes the number of such items to 5012, of which 2,972, having import substitution value worth Rs. 3,400 crore, have already been indigenised. The lists include strategically-important Line Replacement Units LRUs, Systems, Subsystems, Assemblies, Subassemblies, Spares, Compo-nents and Raw Materials, with import substitution value running in thousands of crores. These items will only be procured from the Indian Industry after the timelines of indigenisation as indicated in the list available on the Srijan portal (Ref 1). Till June 2024, over 36,000 defence items had been offered to the industry for indigenisation by the DPSUs and Services HQs, more than 12,300 of these items have been already indigenised in the past three years. As a result, the DPSUs have placed orders on domestic vendors to the tune of Rs. 7,572 crore.

This earmarking of a major portion of the capital budget for procurements from domestic sources will provide stimulus to the economy through its multiplier effect on GDP, employment generation and capital formation.

Enhanced allocation of Rs. 92,088 crore for sustenance and operational readiness of our Armed Forces that is about 48% higher than the budgetary allocation of financial year 2022-23, will in addition to providing required maintenance facilities and support system to all platforms including aircraft and ships, mobility of resources and personnel and strengthening the deployment of forces, will also significantly contribute to employment generation.

Impetus to Innovation, Research and Development, Prototyping

The allocation of Rs. 13208 crore under the capital head for defence R&D, an increase of merely 2% (not enough to even compensate for inflation) doesn't gel with otherwise strong emphasis on Aatmanirbharta. The indigenous technologies and know-why generated through R&D provides the building blocks for self-reliance. The budget allocations for DRDO since its inception have remained abysmally low (p167 Ref. 6). The defence R&D budgets as a percentage of GDP has been as low as 0.09%, standing presently around 0.14% with an allocation of Rs. 23,855 crore for the current financial year. This turns out to be merely 3.84% of the total defence budget. In comparison, countries like the USA and China have been spending approximately 12% and 20%, respectively on Defence R&D as compared to their Defence Budgets.

In recent years, the Govt's efforts have been to make R&D, innovations and development of prototypes broadbased through several centrally funded schemes. One such scheme, Innovation for Defence Excellence - iDEX initiative launched by the PM in April 2018 aims to achieve self - reliance and foster innovation and technology development in Defence and Aerospace by engaging Industries including MSMEs, start-ups, individual innovators, R&D institutes and academia. Through the iDEX scheme, the MoD is engaging with start-ups, MSMEs and innovators to develop Defence Technology solutions and supply our Armed Forces with innovative and indigenous technological solutions. Under the Acing Development of Innovative Technologies with iDEX (ADITI) scheme, a grant of up to 50% of Product Development Budget with the enhanced limit of Rs. 25 crore per applicant can be awarded in accordance with the prevailing iDEX guidelines. The budgetary allocation for iDEX has now been enhanced to Rs. 518 crore from Rs.115 crore in FY 2023-24 to promote innovation.

With the aim of nurturing indigenous development of systems, the capital budget to provide assistance for prototype development under make procedure has been enhanced by 361% to Rs. 1797.48 crores from the last year's revised budget allocation of Rs. 389.89 crores.

Strengthening the Border Infrastructure

Strengthening of border infrastructure has been given significant importance with the allocation of Rs. 6,500.00 crores under capital head for Works under Border Roads Development Board (A rise of 30% from Rs. 5,000.00 crores allocated in the previous year and 160% higher over the allocation of financial year 2021-22). This, in addition to promoting strategic infrastructure development in border areas, will also boost socio-economic development in these regions. Development of Nyoma Airfield in Ladakh at an altitude of 13,700 feet, permanent bridge connectivity to southernmost Panchayat of India in Andaman and Nicobar Islands, 4.1 km strategically-important Shinku La tunnel in Himachal Pradesh, Nechiphu tunnel in Arunachal Pradesh are examples of projects that will benefit from this enhanced budgetary allocation.

Similarly, the Coast Guard Organisation has been allocated Rs. 7651 crore, a hike of 6.31%, out of which Rs. 3500 crores is under the capital head. This will facilitate the acquisition of fast-moving patrolling vehicles and interceptors, advanced electronic surveillance systems and weapons, strengthening much needed maritime security for over 7500 km long coastline and more than 23 lakh square kilometres of our exclusive economic zone.

Getting More from a Rupee - Aatmanirbharta and beyond

Aatmanirbharta in Defence is not the only contributor to enhancing the value of available funds. Guarding over 15000 km long borders of our vast nation with an area more than 32.8 square kilometres, our military that is among the largest in the world, has to spend huge resources and funds on logistics with roads and railways being primary modes of transportation of personnel, equipment, weapons and ammunition. This year's budget has once again made significantly enhanced allocations for strengthening logistics infrastructure in the country. Together with higher allocations in the defence budget for border roads infrastructure, enhanced budgetary allocations of

Rs. 272241.15 crores and Rs. 252000.00 crores for Roads and Railways respectively under the respective capital heads will go a long way in making the logistics cost and time effective, acting as a force resource multiplier.

Strength is essential for peace and prosperity. This visionary defence budget 2024-25 is expected to contribute towards a more prosperous and Aatma Nirbhar 'Viksit Bharat' besides enhancing our country's military and economic strengths.

Salient Features of Defence Budget

(The author is former Spokesperson, DRDO, and a defence and strategic affairs analyst. Feedback on this article can be sent to feedback. employmentnews@gmail. com).

Views expressed are personal