Budget 2023 provides a larger slice to the defense sector

The 2nd Narendra Modi-led National Democratic Alliance (NDA) govt last full Budget before the general elections in 2024 has few surprises for India’s armed forces. The budgetary allocation for the defense sector has been increased to Rs 6.2 lakh crore — which is an increase of more than 16 percent 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.

A large part of the annual budget is usually taken up by political-populist schemes and other subsidies, leaving the allocation for defense a casualty. This time around, 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 percent — a dip from the current 7 percent, 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 neighborhood and global crises — like, say, the war in Ukraine — adding to the insecurity. Not-so-friendly neighbors to the east and west make it a Hobson’s choice for India to rapidly modernize 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 defense budget is currently the second highest in the world, next only to the United States, and Beijing keeps pushing its military spending ever upward with a staggering 8 percent 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 defense in this Budget will be a shot in the arm for indigenization programs which are integral to the government’s atmanirbharta policy. This is good news for the defense and aerospace industry, as well as all sunrise sectors supported by the policy.

At the same time, India’s increasing importance as an attractive market and investment destination for joint ventures in defense depends on capital acquisition programs such as 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 defense.

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 percent of them are retained for longer tenures. This is expected to cut the military pension budget which currently makes up a whopping 23 percent of the annual defense allocation.

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