The previous Defence Ministers always highlighted the defence allocation with the customary remark that more funds will be allotted if required. Since last year, Arun Jaitley has avoided any special reference to defence forces. This year he started with, “On this auspicious day of Vasant Panchami, I rise to present the budget for 2017-18. Spring is a season of optimism. I extend my warm greetings to everyone on this occasion.” The speculations and the anticipation of OROP (One Rank, One Pension) and the Seventh Pay Commission are issues of the past. The government also considers the defence manufacture as a key player to boost ‘Make in India’ and have provided incentives to the private sector although nothing major has emerged so far. Maybe it will take time to evolve. Micro, Small and Medium Enterprises has been given some tax relief which will provide them incentive to grow and thereby give a trigger to the defence industry as they produce many components for them. It is also mentioned in the annexure to his budget speech that “Services provided or agreed to be provided by the Army, Naval and Air Force Group Insurance Funds by way of life insurance to members of the Army, Navy and Air Force under the Group Insurance Schemes of the Central Government is being exempted from service tax from September 10, 2004 (the date when the services of life insurance became taxable).

Defence Budget Allocations

The Ministry of Defence (MoD) Demands for Grants, 2017-18 has four tables from Demand Number 19 (miscellaneous), Demand Number 20 (revenue), Demand Number 21 (capital) and Demand Number 22 (defence pensions). The total allocation for defence is 2,74,114 crore which is 6.2 per cent higher than last year’s allocation of 2,58,000 crore and is 1.62 per cent of the GDP. Out of every rupee the government spends of the budget, nine paisa will go for defence as compared to ten paisa last year. This marginal increase will not be able to meet the impact of inflation, depreciation of the rupee and customs duty imposed on military imports from last year.

MoD. This includes revenue/capital expenditure of various departments which come directly under the MoD like Secretariat General Services, Indian Coast Guard (ICG), Jammu and Kashmir Light Infantry, Rashtriya Rifles, National Cadet Corps, capital outlay of DRDO and Ordnance Factories etc., whose establishment expenditure is included in this demand . The Hindustan Shipyard Limited has also been given subsidy on interest and assistance towards restoration work under this demand. Total allotment is 14,852.22 crore which is down from 38,728.79 crore allotted in the revised estimates of 2016-17. Footnote also clarifies that the provisions relating to revenue and capital expenditure of Defence Ordnance Factories, DRDO, DGQA, Rashtriya Rifles and NCC have been shifted from Demands to Grants of Defence Services in BE 2017-18.

Revenue Budget

The total revenue allocation is 1,72,773.89 crore which is more than the revised estimates of 1,49,052.34 crore of 2016-17. Details are:

Army. A total allocation of 1,21,027.05 crore is shown which includes other revenue expenditure like pay and allowances and miscellaneous expenses of Auxiliary Forces, civilians, transportation, stores, works, etc. This is up from 1,07,419.83 crore of last year. Out of this, pay and allowances for the Army personnel are 75,882.33 crore which is more than the revised estimates of 70,703.14 crore in 2016-17, probably due to the Seventh Pay Commission.

Navy. A total of 18,493.82 crore is shown which includes other revenue expenditure and is up from the revised estimates of 17,813.99 crore of last year. Out of this pay and allowances for naval personnel is 5,979.88 crore which is more than the revised estimates of 5,495.37 crore of 2016-17, probably due to the Seventh Pay Commission.

Air Force. A total of 24,802.33 crore has been allocated which includes other revenue expenditure and is up from the revised estimates of 23,817.52 crore in 2016-17. Out of this, pay and allowances for Air Force personnel is 13,254.95 crore which is more than last year’s revised estimate of 12,224.23 crore, probably due to the Seventh Pay Commission.

Indian Coast Guard. 1,829.79 crore for revenue and 2,200 crore for capital expenses have been allocated as compared to 1,737.76 crore for revenue and 2,500 crore for capital expenditure was shown in the revised estimates of 2016-17.

Capital Budget

Capital allocation under this head is meant for all modernisation schemes and 86,488.01 crore (about $13 billion) has been allocated as compared to 71,700 crore allocated in the revised estimates of 2016-17. This is up by 10 per cent. This head covers committed liabilities and the remaining is for the new schemes. Out of this, 78,586.68 crore is specifically for the three services. This allocation includes weapons and warlike platforms and also land and construction, Naval Fleet, Naval Dockyards, Joint Staff, Special projects and procurement of rolling stock.

Army. A total of 25,275.63 crore which includes aircrafts and aero-engines, heavy and medium vehicles, Rashtriya Rifles, land works, etc. This is up from 23,709.17 crore allotted last year. 1,465.89 crore has been allocated for aircraft and engines. This amount will just be able to sustain the existing fleet and major new acquisitions are ruled out. For heavy and medium vehicles 3,193.74 crore and for other equipment 15,112.17 crore has been allocated thus it is anybody’s guess as to what new equipment can be inducted.

Air Force. A total of 33,555.62 crore have been allocated which includes land, construction works, aircraft and aero-engines, heavy and medium vehicles, other equipment, etc. 28,210.76 was allotted last year. Under aircrafts and aero-engines, 19,277.68 crore, under heavy and medium vehicles 152.05 crore and under other equipment 11,455.62 crore has been allotted.

There is not much change in the defence budget as compared to last year. With the current capital allocation it will be difficult to achieve a force level of 198 warships from the current fleet of 137 by 2027.

Navy. The overall allocation for the capital budget is 19,348.16 crore which is marginally down from last year’s revised estimates of 19,596.28 crore (about $3 billion). This includes land ( 35.35 crore), construction works ( 563.60 crore), aircrafts and aero-engines ( 3,364.22 crore as compared to revised estimates of 3,000.41 crore for 2016-17), Heavy and Medium Vehicles ( 30.95 crore), other equipment ( 2,298.80 crore), Naval Fleet ( 11,022.73 crore up from revised estimates of last year of 8,096.34 crore), Naval Dockyard/projects ( 1,288.06 crore down from last year’s revised estimates of 2,456.0 crore).

Analysis of Navy’s Capital Budget

The total capital budget for modernisation (aircraft and aero-engines; heavy and medium vehicles; other equipment and naval fleet) comes to 16,716.7 crore. Naval Dockyards which repair the naval ships have a separate budget of 1,288.06 crore.

Naval Fleet. This allocation covers the modernisation of the Naval Fleet. About 40 plus platforms ranging from submarines to aircraft carrier are being built at Indian shipyards. The major warship construction programmes in progress include the Aircraft Carrier Project 71, P15B Destroyers, P75 Scorpene submarines, P28 ASW Corvettes, P17A Stealth Frigates and fast-attack boats. The seven stealth frigates will be built under Project-17A out of which four are to be build at the Mazagon Docks, Mumbai, and three at the Garden Reach Shipbuilders and Engineers Limited, Kolkata. Apart from these projects, six conventional (P-75I) and six nuclear powered submarines, two midget submarines for special operations and 12 mine countermeasure vessels (MCMV) have been cleared by the DAC. MCMV are to be built at Goa Shipyard Limited (GSL) as ‘Make in India’ initiative with foreign collaboration at an approximate cost of 32,000 crore. It is reported that the letter of intent has been issued to GSL. MCMV project will replace the 12 existing Pondicherry class ocean minesweepers procured in the 1970s and 1980s. South Korea’s Pusan-based Kangnam Corporation is expected to be one of the foreign contenders. However, there are some issues of transfer of technology which are yet to be resolved.

Aircraft and Aero-engines. Navy is acquiring four additional P8I aircraft. Simultaneously, the contract for upgradation of Ka-28 helicopters has been concluded which will give a boost to the integral aviation capability. Procurement cases for other aircraft, including Dorniers, multi-role and utility helicopters, and unmanned aerial vehicles are being actively pursued by the Navy. Multi-role helicopters is a critical void at present as there are to be onboard of all warships. Also is the long pending void of an amphibian aircraft for which US-2 ShinMaywa is a strong contender. There is also a requirement for eight mediumrange maritime reconnaissance aircraft for which an RFP was floated in 2013. During Prime Minister Narendra Modi’s visit to Russia in December 2015, India had signed an agreement with Russia to build Kamov Ka-226 light utility helicopters under the government’s ‘Make in India’ mission. HAL has already started the construction of a separate helicopter manufacturing plant in Tumakuru, 70 km near Bengaluru. Prime Minister Modi has laid the foundation stone on January 3, 2016. This facility will be utilised for the manufacture of all defence utility helicopters. We can hope for the best as delays are inherent wherever government agencies are involved.

Indian Coast Guard (ICG). It was allocated 2,500 crore last year which had been reduced to 2,200 crore in the revised estimates. The amount is allocated for the acquisition of ships like advanced offshore patrol vessels, inshore patrol vessels, fast-patrol vessels, helicopters, aircrafts, etc. to bolster their coastal security capability. ICG has an ambitious plan to have a fleet of 150 ships and 100 aircraft by 2020. It will be difficult with the current capital allocation.

Naval Dockyards. The allocation of 1,456.77 crore has been made to cater for their upkeep and modernisation and is marginally more than last year.

Modernisation of Shipyards. Modernisation needs of the defence shipyards have been made based on the requirement of the ongoing and future projects. Accordingly the defence public sector undertaking (DPSU) shipyards, i.e. Mazagon Dock Shipbuilders Limited, Garden Reach Shipbuilders & Engineers Limited, Goa Shipyard Limited and Hindustan Shipyard Limited have embarked on a comprehensive modernisation programme. Adequate funds also have been allotted for the purpose by the government from a separate head as applicable to DPSUs. The Indian Government has also announced that all warship requirements for the Indian Navy are being met by domestic shipyards thus modernisation of shipyards is underway accordingly.

It is projected that by 2027, Navy’s force level is likely to be 198 warships as compared to its current fleet of 137.

Conclusion

There is not much change in the defence budget as compared to last year. With the current capital allocation it will be difficult to achieve a force level of 198 warships from the current fleet of 137 by 2027. Navy is on an even keel and way ahead of the Army and the Air Force. The successful conclusion of the 47 ships of all types including submarines, aircraft carrier and fast-attack vessels, which are under construction will add to Navy’s maritime power. Shortage of all types of helicopters is an area of concern, so is amphibian US-2 ShinMaywa which has been on the drawing board for a long time. Another area is the dwindling conventional submarine fleet. Considering the long gestation period of acquisition of submarines, there is a requirement to expedite these projects. However, in spite of these limitations, the Chief of Naval Staff Admiral Sunil Lanba has stated that the Indian Navy has over 40 ships, 4 submarines, and 12 aircraft deployed in waters near and far around the Indian peninsular and island territories.