By Aritra Banerjee
India’s 2022-23 budget aims to increase total capital expenditure by 33%, according to Finance Minister Nirmala Sitharaman, focusing on boosting the country’s indigenous defence sector. However, while the overall defence spending has increased by 13% compared to the last fiscal year, there still needs to be a significant gap in capital expenditure allocation.
The armed forces’ capital expenditure requirements have exceeded the funds allocated in the budget, negatively impacting India’s military modernisation efforts, particularly as it confronts evolving operational needs amid an ongoing standoff with China along the Line of Actual Control (LAC)
Despite this challenge, Defence Minister Rajnath Singh announced that India would reserve 75% of its defence capital budget for the next fiscal year for domestic industry, building on earlier similar allocations. The government’s emphasis on indigenisation, reducing reliance on other countries for defence technology while promoting the domestic industry, is seen by most as an admirable goal. However, there is a strong opinion the country must balance spending towards indigenisation with those that advance its goals on modernisation, mainly since modernisation is critical for the forces’ access to and adoption of new technologies.
Capital Expenditure Underinvestment & Disparity In Funds Between Tri-Services?
Data from reports tabled by the Parliamentary Standing Committee for Defence (SCOD) shows a years-long trend of underinvestment in the capital expenditure budget for the armed forces. The Indian Army, Navy, and Air Force increased budgets by only 16%, 11%, and 2%, respectively. The perceived disparity in the increase of capital expenditure for the different forces suggests a need for a more equitable distribution of funds.
While the increased allocation of the defence capital budget towards the domestic industry is a step in the right direction, India’s underinvestment in its capital expenditure budget remains a concern for its military modernisation. “The country must balance its spending to meet evolving operational needs and advance its goals of indigenisation and modernisation, “strategic affairs analyst Major General VK Madhok (r) told IADB.
India’s pursuit of greater indigenisation of its defence industry is a long-term goal that policymakers should continue to pursue, despite the merits of forced indigenisation being a subject of debate. However, in the near term, India must balance its modernisation and indigenisation efforts given the coercive challenges it faces along the Line of Actual Control (LAC) and maintain its importance in the Indian Ocean. Moreover, Russia’s invasion of Ukraine has impacted the sustainment of India’s Russian-origin military hardware.
Three Pronged Solution
To achieve this balance, author and analyst Col. Vinay B Dalvi (r) opined that there are three things the Indian government needs to do. Firstly, it needs to create a non-lapsable modernisation fund that would allow the armed forces to reallocate unspent funds from previous budget allocations to supplement their budgets for the following fiscal year. The government has yet to adopt this idea, which was endorsed by the Fifteenth Finance Commission and received ‘in principle’ approval.
Secondly, the government must push forward long-pending defence reforms that could create efficiencies and reduce costs. This includes creating theatre commands that can reduce logistics and costs by creating more significant synergies between the services and freeing up resources for the armed forces operational and new acquisition needs.
Finally, the government should invest in fostering greater research and development (R&D) by private defence industry players, start-ups, and universities. Although the government earmarked 25 per cent of the defence R&D budget for the private industry last year, this falls short of what is needed to make an impact, given that the total R&D budget for FY 2022-23 was $1.45 billion (Rs. 11,981 crores) and stands at $1.55 billion (Rs. 12,850 crores) for FY 2023-24.
While the government has recognised the need to boost capital expenditure as it steers India through its post-COVID recovery, industry analysts that it must balance its defence spending between indigenisation and modernisation. The government must navigate India through geopolitical challenges, from the border challenges with China and Pakistan to the ongoing effects of Russia’s invasion of Ukraine. Achieving this balance is crucial in ensuring India’s national security interests.