INDIAN BUDGET REPORT

2021-2022
BY RAHUL JAISWAL
 DEFENCE
SECTOR
 INTRODUCTION
 The defence industry of India is a strategically important sector in
India. With a strength of over 14.4 lakh (1.44 million) active personnel,
it is the world's largest military force. India has the world's largest
volunteer military of over 51 lakh (5.1 million) personnel. The total
budget sanctioned for the Indian military for the financial year 2019 is
₹4,31,011 crore($60.9 billion). In 2020, India with third largest annual
defence budget (US$70 b) behind USA (US$732 b) and China (US$261 b),
and second largest defence imports behind Saudi Arabia making up
9.2% of global arms import, also has domestic defence industry 80% of
which is government owned public sector including DRDO and its 50
labs, 4 defence shipyards, 5 defence PSUs and 41 ordnance factories,
has come up with new draft 2020 Defence Manufacturing Policy to
reduce imports and enhance domestic manufacturing.
 MILITARY BUDGET OF INDIA
 The military budget of India is about 1.49% for year 2018–19
of the total GDP.[12] However, it spends nearly an equal
amount in importing arms from other countries.Its defence
expenditure for the 2017–18 fiscal year, based on allotments
by its Ministry of Finance was 86,488 crores for Defence
capital and 2,96,000 crores for defence pensions.
 Service/ department-wise allocation as a percentage of total

defence estimates in 2017–18:

 Army: 55.9%
 Air Force: 22.5%
 Navy: 14.6%
 DRDO: 5.7%
 Global and Indian perspective
 Globally, 50 countries account for 92% of the world’s total spending on national
defence. Within the top 50, six nations – the US, China, Russia, Saudi Arabia,
Japan and France generate 60% of global defence spending. India’s current
defence expenditure of $37 billion is roughly 2% of the global defence
expenditure. Though small in the global basket, India is the second largest
defence spender in Asia after China. In absolute terms, it is less than one-third of
China (US$$171billion). These global defence spend numbers include revenue and
capital expenditure. India’s capital spend as a proportion of overall defence spend
is 38%. For China and the US, on the other hand, capital spends accounts for 50-
60% of their respective defence budgets. Effectively, in terms of capital spends,
India lags these countries much more than the headline numbers - suggesting
massive business opportunities for all players, domestic or otherwise.
 India – Largest importer of arms in
the world
 India has been the largest importer of weapons in the world. As per Stockholm
International Peace Research Institute (SIPRI), for 2009-13, India accounted for about
14% total imports of major arms followed by China (5%) and Pakistan (5%). In 2014,
according to IHS, Saudi Arabia became the largest defence importer, just overtaking
India, with the other slots in the Top 5 being occupied by China, UAE and Taiwan.

 Interestingly, China’s overall defence spending is significantly higher than India’s but
India imports more than twice as much as China. Given India’s defence spending is
not the highest in the world and India is still the largest importer of arms in the world,
this highlights the magnitude of India’s dependency on imports. Furthermore, as per
the finance commission XIV report, the Union Government has planned to grow capital
expenditures at 13% from FY16E to FY20E indicating the dire need to build indigenous
capabilities.
Data of past years
 The Ministry of Defence’s role is to frame policy on defence and security-related matters,
and ensure its implementation by the defence services (i.e. Army, Navy and Air Force). In
addition, it is responsible for production establishments such as ordnance factories and
defence public sector undertakings, research and development organisations, and ancillary
services that assist the defence services (ex. Armed Forces Medical Services). This note
analyses budgetary allocations and expenditure trends in the Ministry. It also provides
insights into key issues affecting the defence sector.
 Overview of Finances
 In 2017-18, the Ministry of Defence has been allocated Rs 3,59,854 crore (including pensions)
for expenditure across the various services, production establishments and research and
development organisations. This forms 16.8% of the central government’s budget of 2017-
18 and 2.1% of India’s estimated GDP. Note that this is the highest allocation among all
central ministries.
 India’s defence budget decreasing as a percentage of GDP
 India’s defence budget 2017-18 has decreased from 2.4% of GDP in 2011-12 to 2.1% of GDP
in 2017-18. This year’s allocation is also the lowest allocation as a share of GDP since 2011-
12. It has been recommended that India’s defence budget should be about 3% of GDP to
ensure adequate preparedness of the defence services.[1]
 As a share of the total central government budget, the defence budget has been about 16%-
17% every year between 2011-12 and 2017-18. However, there has been a decrease from last
year’s 17.1% to this year’s 16.8%.
Table 1: Defence budget as share of GDP and total
central government budget
Figure 2: Composition of Expenditure (%)
DATA OF CURRENT BUDGET

2021-2022
 Forces got additional ₹20,776
cr last year amid Ladakh
standoff:
In the backdrop of the ongoing standoff with China and impetus for military
modernisation, the allocation for capital expenditure in the Defence Budget
saw an increase of ₹21,326 crore or 18.75% compared to Budget Estimates
(BE) of last year.

Budget data also shows that the armed forces got an additional allocation
of ₹20,776 crore under capital expenditure last year for emergency
procurements in the face of massive mobilisation along the Line of Actual
Control (LAC).

The total allocation for defence in the Union budget at ₹4.78 lakh crore
including defence pensions, is a marginal hike compared to ₹4.71 lakh
 Dip in pensions
 The allocation for 2021-22 stands at ₹3.62 lakh crore excluding defence pensions which stood
at ₹1.16 lakh crore. Excluding defence pensions, the hike is about 7.34%, up from 3.37 lakh
crore to 3.62 lakh crore. However, data shows that defence pensions have gone down
significantly from the Budget Estimates of last year.
 The capital allocation in BE last year at ₹1.13 lakh crore went up to ₹1.35 lakh crore in the BE
this year, an increase of ₹21,326 crore. Referring to the almost 18.5% increase, a Defence
Ministry statement said. “This is the highest ever increase in capital outlay for defence in the
last 15 years.”
 The defence pensions saw a significant dip from ₹1.34 lakh crore in Budget Estimate last
year to ₹1.25 lakh crore in Revised Estimates and further to ₹1.15 lakh crore allocated this
year. From BE 2020-21 to BE 2021-22 this represents a decrease of ₹17,775 crore or about
13.4%.
 The capital allocation in BE last year was ₹1.13 lakh crore which went up to ₹1.35 lakh crore
in the BE this year.
 Budget data shows that last year the armed forces got an additional allocation of ₹20,776
crore under capital expenditure in the Revised Estimates, largely to cater to emergency
procurements due to the LAC standoff.
 As the standoff in May last year, the Army deployed 50,000 troops and equipment along the
LAC in Eastern Ladakh. The Indian Air Force (IAF) too forward deployed its frontline fighters.
The services also went in for a series of emergency procurements including equipment and
extreme weather clothing for the troops deployed in the high altitude areas in the peak winter.
 Emergency allocations
 month, Army Chief Gen. Manoj Naravane had said last year 38 deals were made through ‘emergency and
fast track’ route worth about ₹5,000 crore and in addition capital procurements worth ₹13,000 crore were
also concluded. The procurements included light machine guns, light special vehicles and protective gear
for infantry, infantry combat vehicles for mechanised infantry and long range vectors for artillery and also
equipment for Engineers and Signals regiments.
 On the decrease in defence pensions, a Defence official said, “Last year it was more because approximately
₹18,000 crore was to be paid on account of pension arrears. Also salary and pension are based on actuals.”
 The capital allocation for DRDO has been increased to ₹11,375.50 crore, an increase of 8% over 2020-21,
the Ministry said. The allocation for Border Roads Organisation (BRO) has been increased to ₹6004.08
crore which is 7.48% increase over 2021-22.
 The 15th Finance Commission observed it its report tLasthat the expenditure on defence services as a
proportion of GDP declined from 2% in 2011-12 to 1.5% in 2018-19 and to 1.4% in BE 2020-21.
 Between 2011-12 and 2018-19, defence revenue expenditure grew faster, 10%, than the increase in defence
capital outlay, 4.7%, and resulted in a reduction of the share of defence capital outlay in total defence
services expenditure (excluding defence pension) from 40% in 2011-12 to 33% in 2018-19, the main report
observed.
CONCLUSION
India’s security environment is defined by a complex interplay of
regional and global challenges. With troubled borders and hostile
neighbours, it is imperative to pursue a robust defence strategy and
policies, which aim to address the wide spectrum of conventional
and non-conventional security challenges faced by the country. This
is possible with an investor friendly regulatory regime that provides
for technological self reliance in defence systems and encourages
investment in developing critical infrastructure for the aerospace
and defence industry.

With the current thrust of the government, we believe this

opportunity has critical mass, good growth due to low base as well
as longevity.
THANK YOU