Union Budget 2025 Highlights for Defence Sector

1. 75% of modernisation budget to be spent on domestic procurement

1. Focus on increasing private sector participation in defence manufacturing

1. Rs.450 crore allocated to promote innovation and self-reliance in defence

Budget Allocation

1. Total allocation of Rs.6.8 lakh crore for defence

1. Rs.3.11 lakh crore for revenue expenses (including pensions)

1. Rs.1.8 lakh crore for modernising military equipment

1. 9.5% increase in defence budget compared to FY2024-25

Allocation Breakdown

1. Rs.1.11 lakh crore for domestic procurement in modernisation

1. Rs.7,146.50 crore for Border Roads Organisation (BRO) to improve border infrastructure

1. Rs.26,816.82 crore for Defence Research and Development Organisation (DRDO)

1. Rs.450 crore for iDEX and ADITI schemes to foster defence innovation

Defence Budget Allocations in FY 2024-25

The highlights for Union Budget 2024-25 for the Defence Sector are as listed below:

Budget Overview:

1. The Defence Budget for FY 2024-25 stands at Rs. 6,21,540.85 crore, constituting 13.04% of the total Union Budget.
2. This represents an increase of approximately Rs. 1 lakh crore (18.35%) compared to FY 2022-23 and a 4.72% rise from the allocation for FY 23-24.

Allocation Breakdown

1. Capital: 27.67%
2. Operational Expenses: 14.82%
3. Pay and Allowances: 30.68%
4. Defence Pensions: 22.72%
5. Civil Organisations under MoD: 4.11%

1. Enhanced Budget Implications for Armed Forces

1. Modernisation Initiatives: The increased allocation supports modernisation efforts to fill crucial capability gaps through the acquisition of advanced technology and weapons systems. Upgrades for the Su-30 fleet, additional aircraft procurement, and investments in indigenous defence projects are prioritised.
2. Promoting 'Make in India': Funds aim to strengthen domestic defence production and promote self-reliance, with a significant portion allocated for domestically manufactured weapon systems. Projects like LCA MK–I IOC/FOC configuration and Indian Navy initiatives will receive support.

Allocation Details

1. Operational Readiness: Funds allocated for day-to-day operations in FY 2024-25 are Rs. 92,088 crore, a substantial increase compared to previous years. This includes provisions for maintenance, support systems, and resources to ensure the readiness of the Armed Forces.
2. Defence Pension Budget: Allocation for Defence pensions is Rs. 1.41 lakh crore, reflecting a 2.17% increase from the previous year. Additionally, allocations to the Ex-servicemen Welfare Scheme (ECHS) are significantly higher to provide enhanced healthcare facilities.

Border Infrastructure Strengthening

1. Border Roads Organisation (BRO): Increased allocation for BRO aims to fortify border infrastructure, with funds directed towards strategic development and socio-economic progress. Noteworthy projects include infrastructure development in Ladakh, Andaman and Nicobar, Himachal Pradesh, and Arunachal Pradesh.

Coast Guard and DRDO Allocations

1. Indian Coast Guard: Allocation for FY 2024-25 is Rs. 7,651.80 crore, with a focus on capital expenditure to enhance maritime capabilities. Funds will support the acquisition of patrolling vehicles, surveillance systems, and weaponry.
2. DRDO Funding: Budgetary allocation for DRDO increases to Rs. 23,855 crore, emphasising capital expenditure for technology development. Initiatives like the Technology Development Fund (TDF) scheme aim to support startups and academia engaged in defence technology innovation.

Additionally, the government has allocated Rs.400 crores towards advancing defence technology innovation through the Acing Development of Innovative Technologies with iDEX (ADITI) scheme. This initiative is designed to promote indigenous research, development, and deployment of cutting-edge defence solutions, aligning with India's broader ambitions to achieve self-reliance in defence production.

Union Budget 2021

According to the Union Budget 2021 that was announced by the Finance Minister on 1 February 2021, the defence budget has been increased from Rs.4.71 lakh crore to Rs.4.78 lakh crore. Apart from the outgo of pension, the Union Budget is currently at Rs.3.62 lakh crore. The Finance Minister further added that Rs.1.35 lakh crore of the total allocation will be used for the purchase of warships, aircraft, and new weapons.

For the last financial year, the capital outlay was at Rs.1.13 lakh crore. Rs.1.15 lakh crore has been provided for the payment of pension and Rs.3.37 lakh crore has been provided for the maintenance of establishments and payment of salaries.

Union Budget 2019-20 for Defence Sector

At the Union Budget held on 5 July 2019, Nirmala Sitharaman, the finance minister who has been appointed newly, announced that the financial expenditures for the Defence Sector will remain as decided in the Interim Budget that was presented on 1 February 2019. 

The amount that was fixed for the Defence Sector in the February 2019 Interim Budget was Rs.3.18 lakh crore, and this will stay the same. 

The finance minister announced that the import duty that is applicable on defence equipment has been removed from basic customs duty.  

The Interim Union Budget 2019-20

The Interim Union Budget 2019-20 was presented on 1 February 2019 by Interim Finance Minister Piyush Goyal in the Lok Sabha. Earlier, in the event of the illness of Indian Finance Minister Arun Jaitley, Piyush Goyal was appointed as the Interim Finance Minister. The budget presented by Goyal not only focussed on key areas like Universal Basic Income, income tax, and farm credits on which the Indian citizens had held high hopes but has also laid significant focus on the defence sector. Aligned to the expectation of the nation, the government has announced a hike in the defence budget which is the highest in the history of India. As a matter of fact, this is for the first time that the budget for defence has crossed Rs.3 lakh crore in India. 

Ahead of the Union Budget 2019, defence experts were expecting an increase in the budgetary allocation for this sector to make it more technologically advanced like China and Pakistan. They were of the view that the government must increase the defence budget as the Indian defence sector needs to be modernised considering the severe threat scenario. Since China and Pakistan are already going through a huge modernisation exercise, India is also required to invest more in technology for the armed forces. 

Key highlights of Union Budget 2019 in the Defence Sector 

Here are the significant budget allocations of the recently released Union Budget 2019 for the defence section: 

1. A record allocation of Rs.3 lakh crore for the defence sector has been declared by Interim Finance Minister Piyush Goyal for the first time in the country. 
2. A substantial hike in the Military pay service has been announced by the Finance Minister during the Budget 2019-20. 
3. While presenting the budget, the minister stated that Rs.35,000 crore has already been disbursed for soldiers who are under 'One Rank One Pension' (OROP) scheme in the last 3 years. 
4. As part of the Union Budget 2019, the government has announced an increase in defence allocation but has also proposed a significant increase in the pension of defence personnel. 

With the increase in the allocation, the current budget for the defence sector in India now stands at Rs.3.18 lakh crore and defence pensions at Rs.1.12 lakh crore, which is higher than the budgetary allocation for FY 2018-19 which was Rs.2.95 lakh crore (excluding pensions). Keeping the defence sector on high priority, the Modi government has allotted this budget to secure the borders while maintaining combat readiness of the highest order. The government has also assured to provide additional funds, if required.  

However, according to the defence experts this increase in the defence budget is hardly a hike considering factors such as inflation and currency instability. They are also of the view that this amount is not enough to meet the expenses associated with the much-needed military modernisation in the defence section of the country, as several multi-billion-dollar defence projects are in the pipeline.

Union Budget 2018: Defence sector witnesses marginal growth

As expected by various analysts, defence budget of the country was increased only marginally owing to higher spending in other sectors. Most industry expects predicted already that the government may not be able to allocate higher resources for the military. Since the allocation is not adequate, modernisation of the armed forces have to wait a little longer.

Defence allocation

Defence allocation was increased to Rs.2.95 lakh crore in the Union Budget 2018. This is about 7.8% higher than the Rs.2.74 lakh crore allocated in the previous budget. The allocated amount represents about 1.58% of the country's GDP. In the previous budget (2017-18), defence allocation represented only 1.56% of the country's GDP. With the government spending focused on other growth sectors and infrastructure development, the budget allocation for the defence sector only witnessed a marginal growth.

Delay in modernisation

The armed forces in India are mainly using AK-47's and INSAS (Indian Small Arms System) rifles, which are outdated compared to the modern day assault rifles. Moreover, the Indian military gear which comes with bullet-proof jackets are heavier than what is used in many countries around the world. Defence analysts across the country have been pushing for budget allocation around 3% of the GDP to ensure modernisation on par with the global standard. Considering the budgetary constraints of the government, a significant delay in modernisation is inevitable.

The Union Budget 2018 has raised many expectations with regard to the changes that might be witnessed in various sectors. In addition to industrial sectors, taxpayers in the country have their own expectations regarding the potential reliefs they might be getting from this budget. While the priorities of the government lie mainly on economic growth, defense is one major sector that cannot be ignored at any cost. With the rising threat of terrorism looming over the country, there is an imminent need to upgrade the force and modernise the defense sector. However, the revenue expenditure for the current year may not allow a large contribution to the defense sector.

Defense allocation in previous budgets

The 'Make in India' initiative was announced by Prime Minister Narendra Modi in September 2014. While the previous budgets including Union Budget 2016 pushed for this initiative in the defense sector, last year's budget did not highlight any specific initiatives for this. In Union Budget 2017, finance minister Arun Jaitley allocated more than Rs.3.59 lakh crore (including defense pensions) for defense spending. Excluding pensions, defense budget for this period stood at Rs.2.62 lakh crore. This represented a 5.34% growth from the defense budget for the year 2016. In terms of GDP share, this allocated amount stood at 1.56%.

Expectations from defense analysts

Defense analysts across the country have been arguing for the modernization drive for a long time. Every year they push for a considerable increase in the defense budget. While India's defense budget has been around the 1.5% GDP mark over the last few years, analysts have been pushing for an increase in defense budget to 3% of GDP. There is a significant rise in security threats all over the country, and this has prompted defense analysts to push for modernisation of the armed forces and boost their combat capabilities.

Spending and contractual obligations

The defense sector has various contractual obligations with regard to the procurement of military equipment. With the current level of spending, there is a major stress in the sector when it comes to honouring contractual obligations and allocating resources for modernisation of the forces. Another major spending criteria in the defense budget is the salary hike and pension funds provided to military personnel. Following the 7th pay commission, there is a significant increase in salary and pension related spending for the armed forces. Considering these spending requirements, any moderate hike (5% to 10%) in military budget will not fulfill all the expectations of the analysts.

What to expect in Union Budget 2018?

While there is no denying that upgrading the armed forces is the need of the hour, it is safe to assume that there will not be a substantial increase in military budget this year. Even in the previous budgets, revenue expenditure of the government has prevented the government from implementing major changes in the defense budget. The government has to keep the revenue expenditure within the GST collection limit. If the defense budget must be increased, the government must look for revenue sources in other places including direct taxes. Another disadvantage is the weak economic growth of the country in the current fiscal year. It is worth noting that our country's economy is still recovering from the impact of GST and demonetisation. Considering these factors, only a meagre increase can be expected in the upcoming defense budget of the country.

In terms of standing military personnel, India has the third largest military in the world right next to China and the United States. Catering to the demands of this large army is not easy, especially at a time when the country is facing constraints with regard to revenue expenditure. However, with proper utilisation of existing resources, the armed forces can be fully prepared to tackle any inbound threats. Though the defense budget may not be significantly high in Union Budget 2018, there is a great chance of growth in the upcoming years when the country witnesses higher economic growth.