Budget 2023 gives a bigger slice to defence sector

Large budgetary allocation for the military in Budget 2023 is probably based on optimism that the revenue and capital outlay would grow at a healthy rate

The second Narendra Modi-led National Democratic Alliance (NDA) government’s last full Budget before the general elections in 2024 has few surprises for India’s armed forces. The budgetary allocation for the defence sector has been hiked to Rs 6.2 lakh-crore — which is an increase of more than 16 per cent from the last fiscal.

But this budgetary hike is hardly remarkable when reckoned with inflationary trends, since military inflation is always much higher. That said, Finance Minister Nirmala Sitharaman seems to have made the best of a tough situation to reassure the army, navy, and air force, which reportedly made representations through the Ministry of Defence to the finance ministry for a bigger budgetary consideration.

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A large part of the annual budget is usually taken up by political-populist schemes and other subsidies, leaving the allocation for defence a casualty. This time round, though, it is good to see the government define fiscal prudence based more on national security imperatives. The large budgetary allocation for the military in this Budget is probably based on optimism that the revenue and capital outlay would grow at a healthy rate during the current fiscal.

What gives room for such confidence is the fact that India’s economy seems to have shrugged off the woes of the Covid-19 pandemic, and is now picking up pace. The Economic Survey 2023, which was released on January 31, expects India’s gross domestic product (GDP) growth for the next fiscal to hover around 6.5 per cent — a dip from the current 7 per cent, but healthy nevertheless.

A Budget, by default, is also a roadmap for a country’s role on the world stage. This is particularly significant today when uncertainties are haunting global economies like never before. In India’s case, the external threat environment remains critical with new challenges in the neighbourhood and global crises — like, say, the war in Ukraine — adding to the insecurity. Not-so-friendly neighbours to the east and west make it a Hobson’s choice for India to rapidly modernise its armed forces. The heightened tensions along the Line of Actual Control (LAC) underline China as the real long-term challenge for India on the strategic horizon. India's security planning is thus geared towards countering the rapidly growing Chinese capabilities. China’s defence budget is currently the second highest in the world, next only to the United States, and Beijing keeps pushing its military spending ever upwards with a staggering 8 per cent year-on-year jump.

It is, therefore, crucial for New Delhi to invest in capability building. The large chunk of the capital expense set aside for defence in this Budget will be a shot in the arm for indigenisation programmes which are integral to the government’s atmanirbharta policy. This is good news for the defence and aerospace industry, as well as all sunrise sectors supported by the policy.

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At the same time, India’s increasing importance as an attractive market and investment destination for joint ventures in defence depends on capital acquisition programmes such as the state-of-the-art submarines, drones, and fighter jets that are in the pipeline. It is just as well that the Budget allocates enough funds for this, along with unprecedented sops to encourage the MSMEs in defence.

The tax exemption given to Agnipath recruits is another positive takeaway from the Budget. It is aimed at popularising the Agnipath scheme where soldiers are recruited on four-year contracts, and 25 per cent of them are retained for longer tenures. This is expected to cut the military pension budget which currently makes up a whopping 23 per cent of the annual defence allocation.

Prakash Chandra is former editor of the Indian Defence Review. He writes on aerospace and strategic affairs. The views expressed are the author's own. They do not necessarily reflect the views of DH.