Budget 2017: Will Modi govt increase defence allocation?

One of the mainstays of the BJP-led Narendra Modi government has been the defence sector, with stress on improving the nascent domestic defence industry, modernisation of the armed forces and implementation of the One Rank One Pension (OROP) scheme.

Read: Economic Survey 2017 suggests India-China bhai-bhai; FY2017 growth estimates could rip India of fastest-growing economy tag

So, it is natural that many expect a hike in the defence allocation in Budget 2017, slated for Wednesday.

10 percent hike in capital expenditure?

The Economic Times quoted brokerage firms as saying that the Budget 2017 could see a hike of up to 10 percent in defence capital expenditure, which will be used for defence modernisation, technology and equipment procurement and more.

Jane's Defense Budget Report by IHS Markit has says that India will "re-emerge as a key growth market for defence suppliers over the next three years." It further noted, "However, the challenge for the defence ministry is not Budget allocation, but execution."

However, Bloomberg noted that a hike in defence allocation during the time of demonetisation is unlikely, due to the disruptive cash ban.

With several global financial institutions decreasing the Indian growth forecast, Laxman Behera, who has advised the government on military expenditure and a fellow at Institute for Defence Studies and Analyses in New Delhi said, "If growth is down, and there is spillover effect, then it is definitely not a good sign for defence."

According to an annual IHS Jane's Defence Budgets report, India ranks fourth in the list of top 10 defence spenders in the world.

Under-utilisation of defence allocation for procurement

One of the real issues for India is the under-utilisation of the defence capital expenditure, with the defence ministry surrendering about 10 percent of the allotment almost every year, according to Defence ProAc, which the report calls, "real tragedy."

The defence ministry had surrendered about Rs 35,000 crore from its capital allocation for the previous four years, which has been taken cognisance by the Standing Committee in its report. This has put pressure on the government.

Issues like bureaucratic red tape, corruption, cancelling of the tenders and lengthy development timelines from state-owned contractors have also been stumbling blocks to full usage of India's defence budget. Further, there is also the need to balance the immediate combat requirements with that of the current government's "Make in India" plan to boost domestic defence manufacture.

"Defence capex has seen a nine-15 per cent under-utilisation during FY2013-16. We expect more favourable announcements for the MSME sector to encourage participation and widen the defence eco-system in the country," said brokerage India Nivesh in its report.

Filling critical gaps amid increasing geo-political tensions

India needs to fill its critical gaps in modernisation and procurement of weapons and equipment, be it submarines, assault rifles, artillery guns or bulletproof jackets or others.

"From submarines to aircraft and from ammunition to guns, there are critical gaps in practically every field," said Amit Cowshish, a retired financial adviser for acquisitions at the ministry of defence, Bloomberg reported.

Further, the rise of China as an aggressive military power is something India needs to answer. India sees itself as the net-security provider to several countries in the Indian Ocean and detests any influence from Chinese. Then there is Pakistan, which has been testing advanced missiles and building up an advanced force.

Moreover this will be last budget, before the government shifts its focus on getting re-elected.

"This is a make or break budget in my mind, because this is a time when the government can give an additional advantage to defence," said Manmohan Bahadur, a retired Air Vice Marshal in the Indian Air Force.

"Government priorities change in the last year, in any country," he added.

With recent videos of disgruntled soldiers complaining about burnt rotis and bad conditions for soldiers posted in border areas, the government might have no choice but to increase this year's budget.