Indian defence budget focuses on technology at home

In a move to encourage local manufacturing to enhance modernisation and infrastructure development, India’s planned annual defence budget (April 2022 till March 2023) has allotted a target of 68% of capital procurement to domestic industry.

This figure is up from 58% in last year’s budget. Most of this still goes to state-run companies but, with a thrust to encourage the private sector, it is likely a larger portion will be allotted to it compared to the past.

Announced on 1 February, the 2022 defence outlay of INR5.25166 trillion ($70.4 billion) represents a 4.4% nominal increase over last year’s final expenditure. 

Interestingly, India’s 2021-22 planned budget increased by 4.2% throughout the fiscal year, which eased the initial constraints imposed by COVID-19.

The 2022 defence budget amounts to 2.1% of India’s projected GDP. However, this proportion of spending continues to trend downwards compared to 3.2% of GDP spent on defence in 2000, for example.

India’s current budget is just a third of China’s defence expenditure of $209.2 billion last year. Over the past five years, India’s defence spending has risen annually at an average of 7.8%.

However, much of the increase is chewed up by personnel, day-to-day expenses and pensions, which saw a massive rise to INR2.33 trillion.

In terms of modernisation and weaponry for each service, the air force receives INR555.87 billion, the navy INR475.91 billion and the army INR320.15 billion. The overall increase in procurement allocation has risen by 9.8%, and it now accounts for 29% of the defence budget.

Indeed, as the Indo-Pacific continues to be a geostrategic focus for India and China, the Indian Navy is the biggest beneficiary. Its allocation is 43% greater than last year’s.

The MoD has attributed this to the ‘underlining importance of overall maritime security, aimed at the acquisition of new platforms, creation of [operational] and strategic infrastructure, bridging of critical capability gaps…[to become] a maritime force for the future’.

The Indian Air Force procured 56 C295W transport aircraft last year, with 40 to be assembled in India by Tata Group. (Airbus)

In recent years there has been a trend to spend more on new ships and less on aircraft. However, this is also mainly due to constant delays in awarding contracts for new aircraft such as fighters, with only 36 Rafale fighters purchased in recent times.

Delhi spent about $2.8 billion on emergency procurements due to tensions along the Chinese border since a confrontation in 2020. Significantly, a total of $467 million was allotted to the Border Road Organisation to improve roads and infrastructure along India’s borders, particularly that with China. This represented a 40% increase from last year.

The Indian Coast Guard was also a beneficiary, receiving $566 million. This is a 60% hike compared to last year.

India is the world’s second-largest arms importer after Saudi Arabia, with Delhi wishing to reduce this dependency. Finance Minister Nirmala Sitharaman confirmed her government was committed to reducing imports.

She noted: ‘Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO [Defence Research and Development Organisation] and other organisations through the special-purpose vehicle model. An independent nodal umbrella body will be set up for meeting wide-ranging testing and certification requirements.’

However, a vibrant manufacturing ecosystem needs a more extensive business base that includes exports. For instance, on the right track, the recent Bharat Dynamics Limited agreement with Thales will make it part of the Starstreak air defence missile’s global supply chain.

The acquisition of K9 self-propelled howitzers, assembled locally, was a successful venture by a a private Indian company. (Gordon Arthur)

This focus on R&D is essential, especially with a quarter of it to be steered outside of state-run entities.

S.P Shukla, President of the Society of Indian Defence Manufacturers, said, ‘The allocation of 25% of defence R&D budget for start-ups, academia and private industry is a much-needed reform.’

This will focus on technology, including UAVs and AI, and the design and development of military platforms and equipment in collaboration with the DRDO.

Sameer Joshi, CEO of New Space Research and Technology, a successful 4-year-old start-up that has delivered Air-Launched Flexible Asset Swarm UAVs to the Indian Army, told Shephard that this was a huge step.

‘What will be interesting to see is the implementation, which will effectively define success ... We keenly await the various parameters to engage and access this budget.’

Ankit Mehta, co-founder and CEO at ideaForge that is delivering Switch UAVs to the army, also told Shephard, ‘This will also encourage more military UAV modernisation and motivate start-ups to enter or grow.’

Challenges remain, though. ‘We don’t make motors, sensors, controllers, engines or batteries. Also, the review teams making a decision on which start-up to choose often are clueless about the product,’ a senior retired military official confided.