India’s Defence Budget Up 6%, Higher Capital Allocation Cheers Defence Industry

A move that cheered the defence industry on Wednesday, Finance Minister Arun Jaitley in his Budget proposals for 2017-18 increased the defence budget allocation to Rs 2,74,114.12 crore, a 5.6% increase over the revised estimates of the present year. This exclude Defence pension that is not part of this allocation.

Significantly, this shows that India’s defence budget allocation for the next year is 1.62 per cent of the GDP.

Out of the budget allocation for 2017-18,  Rs 1,82,534.42 crore is for revenue expenditure while Rs 91.579.7 crore is for capital expenditure. Out of the capital allocation, Rs 86,488 crore is meant for new purchases by the services or a 10% hike from this year’s allocation of Rs 78,586.68 crore.

In contrast, in the last year defence budget, the allocation was Rs 2,58,589.32 crore excluding pensions.The capital outlay, meant for acquisition of of assets such as aircrafts and tanks for the defence services, was announced at Rs 78,586.68 crore in last Budget.

However, the Defence Ministry could spend only 71,700 crore,out of the Rs 78,586.68 crore capital outlay, leaving Rs 6,886 crore or 8.76 per cent unspent.

Defence pension has also been raised from Rs 82,332.66 crore in 2016-17 to Rs 85,740 crore for the current defence budget.
Later while addressing a news conference, Finance Minister Arun Jaitley said defence is considered a big section and “if it needs more, we will provide more”.

The defence industry welcomed the defence budget. “We are glad that Defence Capex allocation has been increased by 20% over RE 16-17 and 10% over BE 16-17. Great directional change…While Defence Capex is up 20% (RE 16-17 to BE 17-18) the Revex is nearly flat over RE of 16-17. Great directional change. Unmatched Capex growth in past many years while flat Revex is new benchmark to provide fillip to modernise our forces faster,” said Jayant D Patil, Head Defence and Aerospace at Larsen and Toubro.

“The budget of Rs.2.74 lakh cr. for defence, out of which capital outlay is Rs.86,500 cr is about 10% higher than the previous year.  It appears that while the capital outlay is similar to last year, the increase in the revenue budget by about 16% which would indeed increase the spend on ammunition and consumables, it would be good for the domestic manufacturing companies in this segment. Considering that the estimated lapse of 10% in the capital spend in the previous year, the budget on capital expenditure is satisfactory provided it is utilized with minimum lapse in budget,” said Roomie Dara Vakil, Director of the Nagupr based Solar Industries India Limited that is India’s largest manufacturer of Industrial Explosives and Explosive Initiating Systems.

However Vakil said that since Government’s emphasis has been on defence preparedness has been the Central theme, “we would have been happy if some incentives by way of tax exemption or deferment on loan payments would have been announced for domestic industry.”

Meanwhile, while presenting the budget today the FM announced that a central defence travel system has been developed through which soldiers can book tickets online. A comprehensive web based defence pension distribution system for defence pensioners has also been developed.

“A centralised defence travel system has now been developed through which travel tickets can be booked online by our soldiers and officers. They do not have to face the hassle of standing in queues with railway warrants,” he said.

On the pension disbursement system, Jaitley said that the system to be established will receive pension proposals and make payments centrally.

It is significant to note here that even the 11 member Shetakar Expert Committee led by Lt Gen D B Shekatkar (Retd) that submitted its report to Defence Minister Manohar Parrikar on December 21, 2016 had recommended a higher budget allocation for India’s defence sector.

Re-balancing Defence Expenditure of the Armed Forces was an important mandate of the Shekatkar Committee that had recommended India’s defence budget should be atleast 2.5% of its GDP. However, as per the current announcement, India’s defence budget allocation for the next year is 1.62 per cent of the GDP.

“Jane’s Defense Budget Report by IHS Markit forecasts India to re-emerge as a key growth market for defence suppliers over the next three years,” Angel Broking said in a report. India ranks fourth in the list of top 10 defence spenders in the world, according to an annual Jane’s Defense Budgets Report.

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