Can it be a sheer coincidence that the year 2022 has already started with bang for the Defence sector as we have signed the Brahmos Deal with the Philippines. And the union budget gave a big boost and more focus on R&D and indigenous manufacturing.
In the words of Finance Minister N. Sitharaman -“Our government is committed to reducing imports and promoting AtmaNirbharta in equipment for the Armed Forces. 68 per cent of the capital procurement budget will be earmarked for domestic industry in 2022-23.”
This is up from 63 percent in 2021-22.
On the face of it, Budget is simply a process to plan expenditures for a year, to analyse the money that can be generated through taxes, amount of it, source of it, and, probably – the perceptive quality of it. The amount of loan or debt we are already in and then how much we can spend on different projects for the betterment of people and the economy, both for the concerned year and the future.
Let’s peep into the Defence Budget 2022 with this perspective. The Defence Budget for the financial year 2022-23 is Rs 5,25,166 crore. This is an increase of Rs 46,970 crores over last year’s Rs 4,78,196 crore and includes pensions too. In simple words, it means that the government plans to spend Rs 5.25 lakh crore in India’s Defence which is 9% more than previous year’s expenses.
Now let’s begin with the first définir point – How and where would the Government spend this?
As per the budget, Rs 1.52 lakh crore will be spent in Capital Expenditure. In plain words, the allocation under capital expenditure relates to modernisation and infrastructure development of the Armed Forces. The Capital Budget allocation has increased by Rs 17,309 crore to reach Rs 152,369 crore, an increase of 12.6% over the capital of Rs 1,35,060.72 crore for FY 2021-22, which in turn was an increase of 18.75 per cent over FY 2020-21.
Out of this 1.52 lakh crore, 68% of the amount will be spent on indigenous manufacturing. An increase of more than 10 percent in back-to-back Capital Budgets expresses the continued push towards the modernisation of the armed forces.
Further, although a budget is for a definite period, still, the capital acquisition of the armed forces consists of two factors: 1. It is continuation of the committed liabilities, and 2, it is about ushering in new schemes. Committed liabilities are payments anticipated during a financial year in respect of contracts concluded in previous years. Normally, high-tech defence acquisitions are a complex process involving gestation periods longer than the budget periods. Ushering of new schemes include new projects which may be at various stages and might be implemented in future.
25% of Defence R&D Budget is earmarked for Private Industries, StartUps and Academia. DRDO backed JVs too will get financial assistance for Defence Manufacturing.
Apart from Rs 1.52 lakh crore, Rest amount is used in OPEX (Operational Expenditure) so two terms are very important (CAPEX – Capital Expenditure which means directly investing in asset creation, including infrastructure or ammunition) whereas OPEX means Salary, Pension, Training, War Preparation, Daily Needs etc. and all kind of activities which are required to make Armed forces operational.
So, total allocation of Rs 5,25,166.15 Cr ($70.3 Bn), of which Rs 2,33,000 Cr ($31.2 Bn) & Rs 1,52,369.61 Cr ($ 20.4 Bn) for Revenue and Capital Expenditure for Defence Services & Rs 119,696 Cr ($16 Bn) for Pensions.
So, 68% of capital outlay of defence budget for domestic industries, so that they may sustain investments and attract fresh capacity creation.
In nutshell, Defence R&D will be opened up for industry, startups and academia with 25 per cent of defence R&D budget earmarked.
Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organizations through SPV (Special Purpose Vehicle) model.
Ease of doing business is an implicit part of it. An independent nodal umbrella body will be created for meeting wide ranging testing and certification requirements of defence systems and platforms. This will help domestic industry through faster processes and cost-efficiency.
Now, revisit the initial paragraphs of this piece. It is words, translated in deeds.
