Union Finance Minister Nirmala Sitharaman unveiled the seventh Union Budget for FY 2024–25 of the Modi 3.0 administration shortly after the BJP led NDA government at the Centre took charge for an unprecedented third term under Prime Minister Narendra Modi.
The defence budget has been somewhat reduced by the FM compared to the interim budget. The Modi government is now placing a greater emphasis on employment creation, which they believe is a significant factor in the BJP’s declining number of parliamentary seats.
In order to reduce dependency on defence imports, the government is putting a lot of emphasis on domestic production in this budget, particularly indigenization of the defense industry.
The government is placing a strong focus on domestic production in this budget, especially indigenization of the defense industry, in an effort to reduce reliance on defence imports.
In a bid to boost homegrown defense companies, the Defence Ministry recently revealed that over 12,300 items had been indigenized in the last several years. Plans to increase military gear exports from the current level of Rs 21,083 crore to Rs 50,000 crore by 2028–2029 were recently announced by Defence Minister Rajnath Singh. In contrast, during the course of the next five to six years, the Indian armed services may spend roughly $130 billion on capital acquisition.
The FM gave the defense sector’s funding for FY25 an allocation of Rs. 6.21 lakh crore, which is just Rs. 0.01 lakh crore less than the Rs. 6.22 lakh crore she had previously declared in the Interim Budget.
The administration emphasizes that, at roughly 13% of the total budgeted expenditures of the central government, the amount spent on the defense sector remains the largest among the other ministries. This amount still falls short of 2% of India’s GDP, though.
Nirmala Sitharaman emphasized India’s dual goals of export development and self-reliance in the interim budget. Over Rs 6,21,540.85 crore was allocated to defense in the fiscal year 2024–2025. This equals 13.04 percent of the proposed Union Budget in its entirety. Out of all the Ministries, the Ministry of Defense (MoD) continues to get the largest allocation.
The budgetary allotment to defence for FY 2024–25 is 4.72 percent more than that for FY 2023–24 and rises by over one lakh crore (18.35 percent) over FY 2022–23. A significant portion of this—27.67%—goes toward capital; 14.82 percent is used for revenue expenditures related to operational readiness and sustenance; 30.68 percent is used for pay and benefits; 22.72 percent is used for defense pensions; and 4.11 percent is allocated to civil organizations under the Ministry of Defence.
The continuous battle between Russia and Ukraine, Israel and Hamas, and China’s exploration of the South China Sea’s coastlines suggests that India should be ready for any global crisis. Particularly when Chinese maneuvering around the Indian Ocean Region (IOR) and Line of Actual Control (LAC) makes it harder for India’s defense industry to protect its territorial integrity.
It is anticipated that India’s defense budget will instantly adapt to the swiftly shifting geopolitical landscape on the world arena. India might address some of these security issues by dramatically raising its defense expenditure.
Between Modi 1.0 and Modi 2.0, the defence industry saw a 4-5% decrease. Even now, Modi 3.0 accounts for 13% of total spending. The defense industry continues to demand that the government devote at least 25% of annual central government spending, particularly to defense modernization and upkeep. India can therefore “handle” the perception of threat at the Line of Actual Control (LAC), Indian Ocean Region, Line of Control (LOC), and the territories surrounding them.
Over the years, pay allowances and pensions have accounted for the majority (more than 50%) of the defense budget. The remaining funds are being used for infrastructure projects, research and development, modernization, and defense purchases. It is noticeable that there is very little money left over for the expansion of defense after more than 50% was used for pay allowances and retirement alone.
However, it’s a common misperception that the Agniveer system was primarily implemented to lighten the defense budget’s pension load. After considering the matter, the defense economists calculated that there would only be a total savings of only Rs. 1,054 crores on pensions.
Furthermore, the defense industry will grow significantly if the government decides to keep pay allowances and pensions apart from the main defense budget. Given that pensions and pay allowances are required. Consequently, the government ought to stop doing this custom and take pay allowances and pensions out of the defense budget. It ought to remain in the union budget with the pensions and benefits received by other employees of the central government.
However, in light of the harsh criticism leveled at the Agniveer scheme, the government may decide to modify this policy by implementing the Indian Army’s suggestions for a significant overhaul of the Agniveer scheme, which include raising the age of induction for technical services, increasing the retention rate by 60–70%, and extending the service tenure from four to eight years.
A few of these changes may raise the general efficacy of the Agniveer scheme. According to electoral pundits, the Agniveer scheme had created a negative impression among the voters against the BJP-led NDA government at the Centre led by Prime Minister Narendra Modi. Thus, there is a very good chance that the government will heed the advice of the review committee in this matter.
However, a few states which are being ruled by the BJP are now offering 10% reservation to former Agniveers in government jobs.
Additionally, the government should keep advancing exports and self-reliance as part of its dual goals in the defense industry. India is now seen as a net exporter rather than a net importer.
In the Financial Year (FY) 2023–2024, defense exports reached a record of Rs 21,083 crore (about US$ 2.63 billion), a rise of 32.5% over the previous fiscal year when the amount was Rs 15,920 crore. According to these numbers, defense exports have increased 31 times over the past ten years when compared to FY 2013–14.
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The defense sector has worked extremely hard to achieve the highest-ever defense exports, including the commercial sector and Defense Public Sector Undertakings (DPSUs). About 60% and 40% of the contributions have come from the private sector and DPSUs, respectively. India’s strategy of encouraging domestic production and technological advancement should be continued since it will greatly lessen the country’s reliance on imports for its defense sector and strengthen its economy.
India has the potential to achieve its $5 trillion economy target by 2027, largely through defense exports. However, it might take some time for the defense industry to become self-sufficient.
Given the perceived threats that China and Pakistan pose to New Delhi, as well as the rise in terror assaults in Jammu and Kashmir, among other places, India needs to concurrently address both fronts, namely defense modernization and defense indigenization.
Thus, the Modi government should allocate at least 25% of all federal government spending annually to the defense industry in order to address these issues.
