Defence production and Make in India

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Search 21st June 2019 Spotlight here: http://www.newsonair.com/Main_Audio_Bulletins_Search.aspx 

TOPIC:

General Studies 2:

• Union Budget 

General studies 3:

• Security challenges and their management; linkages of organized crime with terrorism
• Challenges to internal security
• Linkages between development and spread of extremism.

In News: The allocation for defence in the Union Budget remained unchanged from the interim Budget. 

A Defence Budget or Military Budget is the amount of financial resources allocated by a government for raising and maintaining its armed forces and its personnel or other methods essential for defence purposes. Though no country dares to ignore major budgetary allocation for its defence forces, there are two aspects for this too: 

• Some suggest that military expenditure is a boost to local economies besides safety against external aggression. 
• However, another argument that comes up against the allocation is that maintaining military expenditure is a drag on the development.

According to Stockholm International Peace Research Institute, the US leads in defence spend in the world with about $648 billion followed by China ($250 billion), Saudi Arabia ($67.6 billion and India ($66.5 billion).

Highlights of Defence Budget in 2019-20

The defence budget for 2019-20 stands at ₹3.19 lakh crore, excluding defence pensions which stood at ₹1.12 lakh crore.

• The allocation made in the Union Budget is an increase of 6.87 per cent over revised estimates of Rs 2.98 lakh crore given in 2018-19. 
• This is the first time the defence budget of the country has crossed the ₹3 lakh crore mark, which is only a logical progression. 
• Capital allocations, which funds the purchase of new weapons and equipment for modernisation, remains at Rs 1.08 trillion, or just one quarter of the total Defence budget.

Defence spending is falling in percentage terms even though all military purchases are now subject to GST

The total defence allocation of ₹4,31,010.79 crore, including defence pensions, accounts for 15.47% of the total Central government expenditure for the 2019-20. This year’s allocation is 6.87% higher than the revised estimates of last year. However, it is a meagre hike, considering the mega defence tenders lined up as part of military modernisation. It doesn’t cover the revenue expenditure, committed liabilities in some cases, inflation and currency fluctuation. 

This is a worrisome scenario for the much-needed military modernisation as India has signed big ticket defence deals with several countries in the last few years and the current capital allocation doesn’t even cater for payments to the committed liabilities. There would be barely any money left for new procurements that have been lined up and it is a major worry for the Services.

The Forces

• The Air Force got 38% of the ₹1.03 lakh crore capital component which comes to ₹39,303 crore. Yet, this is unlikely to suffice, with the IAF paying annual instalments for the Rafale fighters which will start joining the fleet this year; and for ongoing purchases of Sukhoi-30MKI and Tejas fighters and upgrades to its Mirage 2000 and Jaguar fleets. 
• The 1.26 million-strong army, which includes 85 per cent of the military’s manpower and is in combat round the year, has been allocated Rs 31,815 crore, or 29 per cent of the modernisation budget.
• The 83,500-strong navy has been allocated Rs 25,656 crore for modernisation, or about 24 per cent of the capital budget. This includes Rs 2,500 crore for the Coast Guard. Navy planners will struggle to fund the planned purchase of six conventional submarines and a second indigenous aircraft carrier. Payments are also being made for the first indigenous carrier, INS Vikrant, which Cochin Shipyard promises to deliver by 2021.

Customs duty exemption

Defence has an immediate requirement of modernisation and upgradation. For this purpose, import of defence equipment that are not being manufactured in India are being exempted from the basic customs duty. The customs duty exemption is a small relief for the Services which have approached the government over the customs and Goods and Services Tax (GST) that add a significant cost to defence imports. This will have an impact of augmenting the defence budget by approximately ₹25,000 crore on account of savings in expenditure on customs duty over the next five years.

Conclusion

To provide greater momentum to the modernisation of the armed forces, there is a need to enhance defence spending. To overcome the constraints, the government may have to get more creative in how it generates the funds. 

• A case in point being, the MoD, being the largest landholder in the government, sits on vast tracts of land measuring 1.73 million acres. A large portion of this land is unused or under-used. Given that much of the land is in prime areas, its judicious commercial exploitation, while keeping security concerns in view, would generate resources, which, in turn, could be channelled for modernisation. 
• For optimisation of resources, MoD has already started implementing some of the recommendations of the Committee of Experts (CoE) it had set up under the chairmanship of Lt. Gen. (Retd.) D.B. Shekatkar with the mandate of suggesting measures to “enhance combat capability and rebalance defence expenditure”. The implementation of the pending reforms measures suggested by the CoE may be expedited to achieve the intended objectives.

Must Read:

Defence Preparedness in India

Defence Industrial Corridor

Connecting the Dots:

1. The size of the Defence Budget also reflects the country’s ability to fund military activities. Comment.