Union Budget 2022-23: Implications for the Defence Sector

In the Union Budget 2022-23, Finance Minister Nirmala Sitharaman allocated a total of ₹ 5.25 lakh crore for the defence sector, which is higher than last year’s budget allocation of ₹ 4.78 lakh crore. This hike reflects the objective of the Government to modernise and to develop the infrastructure of the armed forces. It will also help in achieving the objective of ‘Aatmanirbhar Bharat’ through procurement of weapons and military equipment from indigenous manufacturers. 

Read on to learn the different types of allocations made towards the defence sector in the Union Budget 2022-23.  

Overview of the Defence Sector in India

The Government and its agencies primarily monitor our nation’s defence industry. The key segments of this industry are – Ordnance Factories (Ord Fys), Defence Public Sector Units (DPSUs), and Defence Research and Development Organisation (DRDO). These segments  along with a few private sector companies, operate under the Ministry of Defence. 

India heavily relies on imports for its military hardware. India has achieved significant manufacturing success in fields such as missile development, space technology, information technology, atomic energy and others. However, similar success has not materialised in manufacturing defence equipment. India has the potential to become a world leader in defence manufacturing if the defence industry gets the necessary support. 

In the Union Budget 2022-23, the Government has focused on improving our defence manufacturing capabilities and moving closer towards the goal of creating a self-reliant India.  

Defence Sector in the Union Budget – Key Announcements

Finance Minister Nirmala Sitharaman announced that the Government will focus more on self-reliance in defence manufacturing and reduce its dependability on imports as much as possible. The defence budget has been increased significantly to ₹ 5.25 lakh crore, which is 9.8% higher than the previous year’s budget. 

68% of this budget is kept aside for the procurement of domestic weapons and 25% for defence research and development in collaboration with the private sector. Further allotment of this budget is as follows: 

• ₹ 1,19,696 crore for defence pensions
• ₹ 1,52,369 crore for capital expenditure (₹ 32,015 crores for the Army, ₹ 47,590 crores for the Navy & ₹ 55,586 crores for the Air Force)
• ₹ 2,33,000 crore for revenue expenditure

The Government’s intention to procure domestically will encourage the private sector to invest in the development and design of military equipment and platforms in collaboration with the DRDO and other similar organisations. 

To support the procurement, an independent umbrella nodal body will be set up to meet the comprehensive certification and testing requirements of equipment manufactured by private players. 

Is the Budget Allocation Enough?

Even though the budget allocation for the defence sector has seen a remarkable increase, it might need to be revised, considering the current geo-political scenario and the recent border standoffs. 

To elaborate on the above-mentioned point, China’s economic cooperation with Pakistan in Pakistan-occupied Kashmir and its military operations in eastern Ladakh have rekindled the possibility of a two-front war for India. The combined defence spending of USD 263 billion by Pakistan and China in 2020 is 3.6 times bigger than that of India. The budget allocation may not be enough when one also considers the defence sector’s repetitive reports of experiencing shortages in resource allocations.

Implications of the Union Budget on the Defence Sector

To achieve a modern, self-reliant and advanced defence base, India needs to transform not only its forces but also the associated sectors and organisations such as DRDO, Directorate General of Quality Assurance (DGQA), Defence Accounts Department, DPSUs and Ord Fys. 

The Society of Indian Defence Manufacturers has welcomed the idea of opening up R&D for start-ups and also the capital layout idea to set aside 68% for domestic procurements. Improving development and research for the defence sector will increase India’s ability to achieve self-reliance as well as fuel the initiative of ‘Aatmanirbhar Bharat’.

Final Words

Defence Minister Rajnath Singh has appreciated the initiatives and ideas put forward in the Union Budget 2022-23 and stated that it would stimulate the ‘Make in India’ scheme, giving a boost towards a stronger and more confident India. Overall the Union Budget 2022-23 sets a promising growth roadmap of the defence sector. 

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