Should India Inc cheer defence Budget 2022?

Continuing with the Prime Minister's template of 'Make in India' and 'Atmnanirbhar Bharat' (self-reliant India) pitch, this year's defence budget shows the government's resolve to reduce arms imports by earmarking 68 per cent of capital procurement for domestic industry. Last year Budget had reserved 58 per cent of the capital procurement Rs70,221 crore for domestic equipment.

The total allocation for defence in the Budget has gone up marginally to $54.2 billion (Rs. 5.25 lakh crore) up from last year's Revised Estimates of Rs 5.03 lakh crore. This is up by 4.43 per cent higher than the revised estimates of last year. Out of which $13.84 billion will go towards promoting self-reliance among local defence companies and reducing the country's import dependency under its $22.26 billion fund for acquisitions of new weapons and military platforms.

Between the forces, when it comes to comparing the Budget Estimates from last year, the Navy has got the highest jump. Compared to the revised estimates, the widest gap is for the Army. This year, capital outlay meant for new weapons purchases for the Indian Air Force has been reserved for $7.43 billion whereby the Navy has been given $6.36 billion and the Army has been allocated $4.28 billion. Still, the capital outlay, the current budget earmarks Rs. 152,000 crore much lesser than the projected demands by the three armed services-Army, Air Force and Navy.

In 2018, the Lok Sabha's Standing Committee on Defence had recommended that the Ministry of Defence (MoD) should be allocated a budget equivalent to 3 per cent of the GDP. In reality, the defence expenditure has been hovering at around 2 per cent of the GDP. With the Covid-19 pandemic still impacting India's economic growth, this issue of inadequate allocation is expected to persist for a few years.

The Air Force, which has the largest capital outlay among the forces, has seen a stable though marginal growth, as it tries to phase out its ageing aircraft with modern fighter jets, both produced within the country and from outside. The Indian Air Force will spend most of the money to cover existing commitments for French Rafale fighters, Russian S-400 air defence systems, Apache and Chinook helicopters, and Israeli medium-range surface-to-air missile systems.

The Navy will use its funds to pay for one aircraft carrier, destroyers, stealth frigates and multirole helicopters, which were previously contracted. The Navy is preparing to roll out a Rs 43,000-crore project to build six conventional submarines in India and is pushing for building a second aircraft carrier. The first one, Vikrant, is expected to be commissioned this year.

The Army will use its funds to pay for T-90 and Arjun MK1A battle tanks, BMP-2/2K infantry combat vehicles, Dhanush artillery guns, Akash air defence missiles, Konkurs-M and Milan-2T anti-tank guided missiles, and multiple types of ammunition. Besides, pushed by the military standoff in eastern Ladakh with China, the Army has been forced to upgrade its infrastructure along the entire 3,488 km-long boundaries with the northern neighbour, along with building new surveillance, army aviation, billeting and other structures.

Key private sector players like Bharat Forge, Solar Group, L&T Defence, Mahindra Defence and Tata group's defence and infrastructure companies which are leading the 'Make in India' charge in the defence and aerospace manufacturing spaces expect additional orders from the Armed Forces. No wonder, India Inc welcomes the budgetary proposals but finer analysis belies their optimism as the business will continue as usual because nearly 70 per cent of funds for arms procurements will be used toward previous commitments with both domestic and foreign companies as well as via government-to-government deals.

Private companies are still struggling to secure meaningful defence orders as the majority of the contracts are awarded to public sector undertakings. Last year, the government allocated about $11.17 billion from the total $18.4 billion procurement budget for domestic companies to manufacture weapons and platforms locally. However, almost 85 per cent of the contracts were awarded to state-run companies. Moreover, indigenous procurement produced by local companies still contains a significant number of foreign-made technologies.

Defence public sector undertakings (DPSU) were awarded major contracts for LCA MK1 fighter jets, Arjun MK1A battle tanks, software-defined radios, radars, anti-tank guided missiles, AK-203 assault rifles, and advanced light helicopters, among other weaponry systems and equipment.

Focusing on boosting domestic manufacturing, Finance Minister Nirmala Sitharaman has also allocated $1.6 billion in the latest budget for defence research and development programmes, which have been solely controlled by around 50 laboratories of the government-run Defence Research and Development Organisation (DRDO). Those programmes will now be opened to industry and academia, with 25 per cent of the defence R&D budget earmarked for this change, Sitharaman said, adding that private industry would be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organisations through the SPV model.

This is meant to give the private sector more exposure to defence R&D efforts. The Society of Indian Defence Manufacturers (SIDM), which lobbies on behalf of the industry, said the move is a much-needed reform that will encourage innovation and investment. It is anybody's guess that the DRDO, which has a near-monopoly on defence R&D efforts, the industry will face greater competition.

The moderate increase raises questions about India's ability to buy new equipment and induct cutting edge technology as its borders with both China and Pakistan to remain hostile. India had previously announced plans to spend $250 billion over 10 years to 2025 on defence modernization, focused on upgrading its ageing fleet of fighter jets, submarines, battle tanks and armoured vehicles. Reserving a substantial fund for domestic purchases is something to cheer about but budget restraints and a renewed focus on the domestic manufacturing of weapons is a huge challenge to overcome the present scenario.

(Author is a journalist who writes on defence, strategic affairs, security and conflict)