India allocates $18.48 billion for new procurement in FY2021 budget

India allocated $18.48 billion for weapons procurement in its 2021-2022 defense budget amid an ongoing military standoff with China and financial stress on the national economy due to the coronavirus pandemic.

Excluding pensions, the new defense budget totals $49.6 billion, an increase of more than 3 percent from the previous year’s $47.98 billion. New capital expenditure of $18.48 billion meant for arms procurement witnessed an increase of about 16 percent from the previous year’s $15.91 billion.

This is the highest-ever increase in capital outlay for defense in the last 15 years, according to Indian Defence Minister Rajnath Singh.

An additional $2.84 billion was spent on emergency arms purchases in the summer of 2020 to deal with the ongoing confrontation with China.

The budget’s revenue expenditure meant for maintenance of existing weapons, pay and allowances, and recurring expenses is set at $29.02 billion, compared to $28.75 billion in the previous defense budget.

Officials in India point to the COVID-19 pandemic as disrupting the economy and thus affecting the government’s income and driving spending decisions. Consequently, the defense budget might not be as high as it would’ve been were there not a pandemic, said Amit Cowshish, a former financial adviser for acquisition at the Ministry of Defence.

Cowshish noted that the funds may be inadequate for all the planned acquisitions from abroad and at home to be signed during the upcoming financial year, which begins April 1.

Capital expenditure is essentially defense funding meant for fresh arms procurement and existing liabilities from previously conducted defense contracts. Revenue expenditure is defense spending meant for the pay and allowances of military personnel as well as the maintenance of weapons and other existing inventory items.

The Army will receive $4.9 billion in capital expenditure, which is an increase of 8.17 percent from the previous year’s $4.53 billion. “The service could buy additional military vehicles and upgrade its drones fleet,” a senior Army official said.

The service’s revenue expenditure is set at $20.37 billion, compared to $20.11 billion in the previous budget.

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The Navy will receive $4.55 billion in capital expenditure, which is an increase of nearly 22 percent from previous year’s $3.73 billion. This could pave the way for the service to buy 10 tactical MQ-9 Reaper drones from General Atomics through the U.S. Foreign Military Sales program, an Indian Navy official said.

The revenue expenditure for the Navy is $3.19 billion, which is meant for the maintenance of warships and submarines, compared to $3.13 billion in the previous budget.

The Air Force will receive $7.2 billion in capital expenditure, which is a hike of 19 percent from the previous year’s $6.05 billion. According to a service official, this will go toward a new contract for 83 homemade LCA MK1A Tejas light combat aircraft, an existing commitment to pay for 36 Rafale fighters from France and five units of S-400 missile defense systems from Russia, among other efforts.

The Air Force’s revenue expenditure is $4.19 billion, compared to $4.1 billion in the previous budget.

About $1.55 billion in capital expenditure will go toward the state-owned Defence Research and Development Organisation for new projects, compared to $1.47 billion in the previous budget. DRDO has also been given a revenue expenditure totaling $1.24 billion, compared to $1.2 billion last year.

This year, existing liabilities could eat up to 90 percent of the new capital expenditure, which will impact several new weapons procurement efforts, an MoD official said.

But if that high percentage is accurate, according to Cowshish, there must be a lot of equipment already on contract. The military will have to make do with whatever amount is left over for acquiring new systems, he noted.

“Capability-building and self-reliance … are long-term projects, which are not dependent entirely on the budgetary allocation in a particular year. Hopefully things will improve in the future.”

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