Editor’s Note
India’s attempted rapid strides towards the indigenisation of defence equipment undoubtedly serve a purposeful objective of great import to the nation. However, there is a possibility of modernisation being adversely affected by pursuing indigenisation too fast. With both the northern and western borders being threat prone, the pace of modernisation cannot be allowed to lose momentum. The article examines such a probability in the context of limited budgetary allocation for India’s defence.
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The resounding theme from the Modi government’s final full-year budget, tabled in Parliament on 1st February, was the significant increase in total capital expenditure, which India’s Finance Minister Nirmala Sitharaman vowed to increase by 33 per cent over the next fiscal year. However, the increases in India’s defence spending were disproportionate. There was a noticeable disparity with the increased capital expenditure for the Army, Navy, and Air Force, rising by only 16, 11, and 2 per cent, respectively.
Two weeks later, India’s Defense Minister Rajnath Singh announced that India would reserve 75 per cent of its defence capital budget over the next fiscal year for domestic industry to strengthen India’s indigenous defence sector. Even as underinvestment remains a challenge, the government can take measures to efficiently use available resources while simultaneously promoting indigenisation and modernisation of the force – both worthy yet challenging goals to pursue simultaneously.
Indigenisation of defence production is undoubtedly an important goal for India to pursue. Indigenisation decreases reliance on other countries for critical defence technology while promoting domestic industry. However, as India faces an increasingly complex global environment, India must balance its spending aimed towards indigenisation with that which advances its goals on modernisation, especially as modernisation is imperative for the forces’ access to and adoption of new technologies.
The topline figures of India’s defence spending (including civilian and pension spending) show an increase of 13 per cent compared to the last fiscal year to $72.6 billion (Rs. 5.94 lakh crore). This allocation includes similar increases to the overall budgets of all three services, with the Army, Navy, and Air Force increasing their budgets by 12, 17, and 14 per cent, respectively.
However, a closer analysis shows that this year’s Budget, too, continues a years-long trend of underinvestment in the capital expenditure budget for the armed forces. Looking at data from the reports tabled by the Parliamentary Standing Committee for Defence outlining the “Demand for Grants,” which outline the military’s requirements for funds, between FY 2017-18 and FY 2021-22, the gap between the military’s stated requirements for capital expenditure and the fund allocated in the Budget stood at $89 billion (Rs. 7.37 lakh crore).
This continued gap in allocations to capital expenditures poses negative implications for India’s overall military modernisation drive, particularly given the armed forces evolving operational needs considering the ongoing border standoff with China along the Line of Actual Control (LAC) in Eastern Ladakh.
While this gap has continued to grow, the Modi government has steadily ramped up policy measures to increase the indigenisation of India’s defence production. Since August 2020, the Indian government has released four “positive indigenisation” lists, outlining a total of 411 defence weapons and platforms that should be manufactured domestically. In addition, Defence Minister Singh’s latest announcement that India would reserve 75 per cent of its total defence capital budget for domestic industry builds on earlier similar allocations, which stood at 68 per cent for FY 2022-23 and 58 per cent in FY 2021-22.
While the merits of forced indigenisation can and should be debated, greater indigenisation of India’s defence industry is a worthy, long-term goal that policymakers should continue to pursue. However, given the coercive challenges India faces in the near-term along the LAC, India’s desire to continue to maintain its primacy in the Indian Ocean, and the impact of Russia’s invasion of Ukraine on the sustainment of India’s Russian-origin military hardware, a greater balance between modernisation and indigenisation is the need of the hour.
First, the government should proceed with the long-pending demand of the armed forces to create a non-lapsable modernisation fund, which would allow the armed forces to reallocate unspent funds from previous budget allocations to supplement their budgets for the following fiscal year. This idea, which was endorsed by the Fifteenth Finance Commission and received “in principle” approval from the government, has yet to be taken forward.
Second, the government should move forward with long pending defence reforms that could create efficiencies and reduce costs. Forward momentum on creating theatre commands, for example, which can reduce logistics and costs by creating greater synergies between the services, can free up more significant resources for the armed forces operational and new acquisition needs.
Finally, the government should continue to invest in fostering greater R&D by private defence industry players, start-ups, and universities. The decision by the Finance Minister last year to earmark 25 per cent of the defence R&D budget for private industry was encouraging but needed to go further. Given that the total R&D budget for FY 2022-23 was $1.45 billion (Rs. 11,981 crore) and stands at $1.55 billion (Rs. 12,850 crore) for FY 2023-24, a 25 per cent allocation to entities in the private sector and academia falls short of what is needed to make an impact.
Indian policymakers have rightly recognised the need to boost capital expenditure as they shepherd India through its post-COVID recovery. However, as they look to navigate India through a series of geopolitical challenges – from the challenges along its border from China and Pakistan to the ongoing effects of Russia’s invasion of Ukraine – the need of the hour is to balance defence spending between indigenisation, which continues to see forward momentum, and modernisation, which hasn’t but should.
Aman Thakker
The author is an adjunct fellow, non-resident, with the Wadhwani Chair in US-India Policy Studies at the Center for Strategic and International Studies and Senior Associate at The Asia Group.
