Defence Budget 2024: Navigating trends and skepticism this time

The armed forces remain on high alert, prepared to respond to any unforeseen circumstances. This heightened state of readiness underscores the significance of the defence sector, which generates the lion's share of attention in our country's budget

The global landscape is currently teetering on a delicate balance, marked by numerous ongoing conflicts. This instability is evident in the hot wars in Ukraine and West Asia, alongside the daily Chinese military coercion in Taiwan and the South China Sea. Adding to the tension, the Indian subcontinent is now grappling with a warlike scenario due to recent bombings between Iran and Pakistan.

For over three years, the Indian military has been mission-deployed along the Chinese border.

Now, the Indian Navy is busy countering piracy and Yemen’s Houthis rebels in the Arabian Sea and the Gulf of Aden. The Navy has strategically deployed more than a dozen frontline warships and surveillance aircraft to address the escalating threats to maritime security in crucial sea lanes.

The armed forces remain on high alert, prepared to respond to any unforeseen circumstances. This heightened state of readiness underscores the significance of the defence sector, which generates the lion's share of attention in our country's budget. Finance Minister Nirmala Sitharaman is all set to unveil the Union Budget on February 1. Given the upcoming Lok Sabha elections this year, she will present an interim budget. It indicates that the budget will primarily focus on fulfilling the essential expenses of the government until the commencement of the next financial year on April 1, sans any big-ticket announcements like Agniveers or the acquisition of major military platforms announced in the previous budget.

During last year's defence budget presentation, the government underscored the need for the armed forces to be battle-ready for any eventuality. In line with this objective, the budget intended to plug in critical gaps in the combat capabilities and equip the forces in terms of ammunition, sustenance of weapons and assets, and military reserves by substantially increasing the non-salary revenue outlay, rising from Rs. 62,431 crore in the Budget Estimates (BE) for 2022-23 to Rs. 90,000 crore in the BE for 2023-24, marking a significant 44% jump.

Also, the budget maintained a strong emphasis on the modernisation and infrastructure development of the defence services, continuing the upward trajectory of capital outlay. This allocation has substantially increased for the third consecutive year, rising by 33% to reach Rs. 10 lakh crore. This amount constitutes 3.3% of the GDP, nearly three times the outlay observed in the 2019-20 fiscal year.

Examining the budgetary allocation trends of the past five years and the current emphasis on economic development and welfare programs suggests that a significant increase in the defence outlay, either in terms of its ratio to the Gross Domestic Product (GDP) or as a percentage of the total Central Government Expenditure (CGE), is unlikely.

Without credible estimates for the required funds for the Ministry of Defence (MoD), the correlation of defence outlay with GDP and CGE remains the key criteria traditionally used to assess its sufficiency. Any substantial deviation from the established trend on these fronts appears improbable.

The Union Budget for the Financial Year 2023-24 outlined a comprehensive outlay of Rs 45,03,097 crore. The Ministry of Defence has been allocated a budget of Rs 5,93,537.64 crore, constituting 13.18% of the total budget. Despite a notable increase in the total CGE, which rose from Rs 27,86,349 crore in 2019-20 to Rs 45,03,097 crore in 2023-24, there is a consistent decline in the defence outlay as a percentage of CGE, dropping from 15.47% in 2019-20 to 13.18% in the current fiscal year. This trend has generated skepticism within the domestic defence industry regarding the likelihood of increased purchase orders and contracts from the Ministry of Defence.

Certainly, despite the decrease in the defence outlay as a percentage of the total CGE, the capital outlay has experienced a significant rise, escalating from Rs.1,03,394 crore in 2019-20 to Rs. 1,62,000 crore in the current fiscal year. However, it remains to be seen whether these annual allocations align adequately with the numerous acquisition projects worth thousands of crores that are regularly approved in principle by the government.

Defence Dilemma Vs National Imperatives

The impact of the defence budget extends beyond industry, international relations, and indigenous capabilities. Achieving a balance between strategic partnerships, operational requirements, and self-reliance demands a practical implementation that aligns with operational necessities. The allocation of funds for defence continues to serve as a vital gauge for India's security policies. In the face of various competing priorities and challenges, a sophisticated and strategic approach to budget allocations becomes imperative to ensure the preparedness and capability of the nation's defence forces.

However, India's aspirations to emerge as a global leader in defence technology face a financial challenge, as highlighted in a recent Parliamentary Committee on Defence report. The Committee emphasised the constraints imposed by the existing allocation of research funding compared to that of developed nations. This percentage falls below India's requirements for attaining global leadership.

The Committee, scrutinising the operations of DRDO, pointed out a significant inadequacy in the current budget allocation. With only 5.38% earmarked for research, it suggests a substantial increase to bolster India's ambitions.

Expressing concern over the decline from 6.59% in 2010-11 to the present 5.38%, the committee underscored the need for a robust budget augmentation, proposing an increase to 8-10% for research and development (R&D).

Highlighting the crucial role of research and development (R&D) in strengthening the country's defence, the panel urged the government to strike a balance in allocations between in-house initiatives and outsourced R&D.

It also emphasised that the allocation in the Union Budget for defence-related expenditures needs to be revised, considering India's aspirations for global leadership. It expressed apprehensions regarding India's defence preparedness, particularly pointing out the budget allocations for FY 2023-24.

However, one certainty remains amid the uncertainty surrounding the potential increase in the defence outlay in the upcoming budget. Enough funds will be available to fulfill contractual obligations for already signed contracts.

The Union Government has successfully negotiated on this front and hopes to stay consistent with this trend in the upcoming budget.

(The author is a journalist, who writes on defence, strategic affairs and technology)