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Military Budget

Union Budget for the financial year 2019-20, presented by the Finance Minister Smt Nirmala Sitharaman in the Parliament 05 July 2019, envisaged a total outlay of Rs27,86,349 crore. Out of this Rs 3,18,931.22 crore has been earmarked for Defence (excluding Defence Pension). The government will spend around $43 billion in the financial year 2019-20 ending in March 2020, in comparison to $41 billion in 2018-19. For Defence Pension, an amount of Rs 1,12,079.57 crore has been provided in Budget Estimate 2019-20. Total Defence Allocation (Rs4,31,010.79 crore), including Defence Pension, accounts for 15.47 per cent of the total Central Government expenditure for the Financial Year 2019-20.

The allocation of Rs 3,18,931.22 crore represents a growth of 7.93 per cent over Budget Estimates (2,95,511.41crore) and 6.87 per cent over Revised Estimates (Rs 2,98,418.72 crore), respectively for the Financial Year 2018-19. In a significant development, import of Defence Equipment not manufactured in India has been exempted from Basic Customs Duty. This will have an impact of augmenting the Defence Budget by approximately Rs 25,000 crore on account of savings in expenditure on Customs Duty over the next five years.

Year Capital Budget (BE) (Rs. in crore)
2016-17 90,209.63
2017-18 91,579.70
2018-19 99,563.86
2019-20 (interim) 1,08,248.80
Replacement of ageing and obsolete defence equipment is part of modernisation of Armed Forces which is a continuous process based on threat perception, operational challenges, technological changes and available resources. The process is based on a 15 year Long Term Integrated Perspective Plan (LTIPP), five year Service Capital Acquisition Plan (SCAP) and Annual Acquisition Plan (AAP).

Government attaches high priority to ensuring that the Armed Forces are adequately equipped and operationally prepared to deal the entire spectrum of security challenges facing the country. In this context, there is a constant endeavour to modernize the Armed Forces through acquisition of contemporary systems, development of new technologies and upgrading of conventional equipment. Allocated budget is optimally utilised to avoid gap between the need and the availability of funds. There has been consistent increase in total Capital Budget of Ministry of Defence.

The current dispensation in New Delhi faced severe criticism from opposition leaders and defense analysts for allocating less than the requisite amount for the modernization of the armed forces. India had outpaced China in its military expenditure in terms of the country's national income, as well as government spending, India's Ministry of Defense said on 25 July 2018. However, the overall defense expenditure of China was more than three times that of India in 2017. "India's military expenditure in 2016 and 2017 was 2.5% of gross national product (GDP) in comparison to 1.9% of China," Nirmala Sitharaman, India's minister of defense, said in Parliament.

The defense minister also provided a comparison of the share of government spending in its military expenditure wherein India once again beats China. The Indian government spends 9.1 percent of its total expenditure on its military in comparison to the 6.1 percent China spends.

Presenting the last full-fledged budget before the general elections of 2019, on 02 February 2018 Finance Minister Arun Jaitley allocated Rs 4,04,365 crore (US $62.8 billion) for the Ministry of Defence (MoD). Of the MoDs total allocations, Rs 2,79,305 crore ($43.4 billion) was earmarked for what is widely considered as Indias defence budget, and the balance was distributed between MoD (Miscellaneous) (Rs 16,206 crore) and Defence Pensions (Rs 1,08,853 crore). Like in the past several years, the defence budget for 2018-19 also grew marginally, with much of the growth being cornered by rising manpower cost.

One analyst estimated that the military had a $400-billion equipment deficit. By this accounting, was no way in which a serious defence can be mounted on less than four percent of GDP (about what the US spends); for a first-class military (though not a super-class military like the US) India would need 6 percent of GDP.

Indian armed forces are managing procurement at low-level budgetary allocations against the projected demand for the services. The budgetary allocations for capital acquisition have declined for the three services not only since 2015-16. Similarly, against a projection of $21.96 billion for the capital budget in 2017-18, only $13 billion have been allocated from annual budget 2017-18 for various Services (Army, Navy, Joint staff, Air force, DGOF, R&D and DGQA). This decline in the allocation for the capital acquisition will definitely affect several procurement proposals and contracts which are to be finalized in 2017-18.

Defence got $51-billion for 2016-17 (US$1=INR66), 2.25 percent of GDP as against $36-billion and 1.75 percent of GDP the previous year. Capital expenditure rose to 48 percent of the budget. According to the Medium Term Fiscal Policy Statement presented by the Finance Minister, During the projection period of 2017-18 and 2018-19 it (revenue budget) is estimated to increase by 10 per cent over previous years. Total Defence expenditure including the Capital component is estimated at about 1.6 percent of GDP in 2017-18 and 2018-19.

The NDA government continuously fell short of utilising its defence allotment over the previous two years. The defence ministry spent less by 13.5 percent (Rs 11,595 crore) of its allocated budget in 2015-16. And in the previous year of 2014-15, it could only spend 85 percent of its allocation.

As a ratio of the projected GDP for FY 2015-16, Indias defence expenditure was pegged at 1.74 per cent vis-a-vis 1.76 per cent in 2014-15. Of the total allocation for defense for 2015, the army will get Rs 1,04,158.95 crore, the navy Rs 15,525.64 crore, the air force Rs 23,000.09 crore, the ordnance factories Rs 2,884.23 crore, the Defence Research and Development Organisations Rs 6,570.09 crore. The remaining amount of Rs 94,588 crore has been allotted on the capital account for the acquisition of modern weapon systems, including initial payments for 126 multi-mission, medium-range combat aircraft, 197 light helicopters and 145 Ultra-light Howitzers, among others. It is well known that India plans to spend approximately US$ 100 billion over 10 years on defence modernisation.

The 10.95 per cent increase of Rs 24,357 crore from Rs 2,22,370 (Revised Estimates for FY 2014-15) to Rs 2,46,727 (US$ 39.8 billion, Budgetary Estimates for FY 2015-16) is inadequate to allow for inflation, which is ruling at about 6.0 to 7.5 per cent. The Rupees steady slide against the US dollar to Rs 62 to a dollar has eroded its purchasing power considerably. Annual inflation in the international prices of weapons, ammunition and defense equipment is generally between 12 to 15 per cent.

India cleared a bulk of defense projects worth $13 billion in a bid to boost the country's national defense preparedness, the Indian Defense Acquisition Council (DAC) said 25 October 2014. The council decided that six submarines will be made indigenously at a cost of about 50,000 crore rupees. It also decided to purchase 8,356 Israeli anti-tank guided missiles at a cost of 3,200 crore rupees for Indian Army. The council finalised purchase of 12 upgraded Dornier surveillance aircraft with improved sensors from Hindustan Aeronautics Limited at a cost of 1,850 crore rupees. The DAC also decided to buy 362 infantry fighting vehicles at a cost of 662 crore rupees. The decision to manufacture the submarines in the country is in line with Prime Minister Narendra Modi's Make in India pitch.

The total allocation under the Defence Services Estimates for India is as under:-


Rs in crores

In billion US $*













*Assuming the current rate of dollar to rupee conversion of Rs.44.36 to a dollar.

The Indian defence budget stood at US $11.8 billion in 2001. On February 17, 2014 Indian Finance Minister P. Chidambaram announced a 10% increase in India's defense budget, taking it to $36.3 billion. In March 2014 China announced a 12.2 percent increase in its defense budget, raising military spending to $132 billion.

India announced plans to boost defense spending in 2014-15 by 12 percent over the previous year, and further opened the domestic weapons industry to foreign investment. The Bharatiya Janata Party had long called for a militarily-strong India to counter potential threats from both China and Pakistan. In July 2014 the new Indian military budget was set at 2.29 trillion Indian rupees ($38.35 billion) for 2014-15, and the foreign investment limit in the domestic defense industry was raised from 26 percent to 49 percent.

Arun Jaitley, who is both the Defence Minister and the Finance Minister in the new BJP government, presented the budget for the year 2014-15 on July 10, 2014. He stated "There can be no compromise with the defence of our country. I therefore propose to allocate an amount of 2,29,000 crore for the current financial year for Defence. ... Modernization of the armed forces is critical to enable them to play their role effectively in the Defence of Indias strategic interests. I, therefore, propose to increase the capital outlay for Defence by 5,000 crore over the amount provided for in the interim Budget. This includes a sum of 1,000 crore for accelerating the development of the Railway system in the border areas. Urgent steps would also be taken to streamline the procurement process to make it speedy and more efficient."

After nearly a decade intense lobbying for the procurement of essential hardware, the absence of which was impacting on defense preparedness, the military finally received some good news in the Defence Ministers assurance, Defence Minister Arun Jaitley said 24 June 2014 the key subject matter of concern appears to be the slow pace of acquisition of whatever equipment and assets are required. hope of the forces is that their requirements should be fulfilled and the process should also be expedited. The effort of the government would be to work in that direction.... There are several decisions in the pipeline and I think there is a good case for these processes to be expedited."

The wish list of the military included 22 Apache helicopters, 50 Chinook helicopters, 197 light utility helicopters, 135 lightweight howitzers, six submarines and 16 multirole helicopters for the Navy.

Indias lethargy in the defense sector had been noted in a report by the Brookings Institution that stated, what suffices for a military modernisation plan is a wish list of weapon systems amounting to as much as $100 billion from the three services and hollow announcements of coming breakthroughs from the Defence Research and Development Organisation (DRDO), the premier agency for military research in India. The process is illustrative. The armed forces propose to acquire certain weapon systems. The political leadership and the civilian bureaucracy, especially the Ministry of Finance, react to these requests, agreeing on some and rejecting others. A number of dysfunctions ensue.

Procurements without policy is seen by several officers as a waste of resources as all answers do not lie in acquisitions. The Brookings report echoes this view when it stated, Indias three services have dramatically different views of what their role in Indias security should be, and there is no political effort to ensure this coordination. Cold Start remains an iffy proposition, Indias nuclear deterrent remains tethered to a single delivery system:fighter aircraft. Meanwhile the Indian Army;s energies are dissipated with counter insurgency duties.

The Indian military faced a moment where it has to choose between fighting the debilitating effects of a slow economy after 2011 versus the pursuit of a largely Pakistan-specific military buildup. With the slowest GDP (3.2% in 2012 and less than 5% in 2013) in a decade, India's military managers faced tough choices. They have to balance a weak Indian rupee with the payment of salaries and pensions and the procurement of enough weapons to project power against neighbors, especially Pakistan and China.

The choices were tough for the country's financial managers as well. The government led by Prime Minister Manmohan Singh, a reformer, chose to give priority to military expenditure over the more task of jumpstarting the Indian economy. Most of the new military budget allocations went to satisfy Indian military's appetite for projection of power in the immediate neighborhood. India did not face any immediate threat from any neighbor beyond border and water disputes with Pakistan and China. But New Delhi all but closed that door with Pakistan and was not showing any particular urgency to resolve disputes with China. To be fair, Islamabad, New Delhi and Beijing increased their military budgets recently with varying proportions.

The Indian government never clearly articulated the strategic priorities that drive its military expansion and modernization program or explained a coherent rationale for its costly investment in military hardware. It is surprising that there has been little public debate in India at this rise and for the country's ambitious military build-up plans.

The Union Budget 2013-14 presented to Parliament on 28 February 2013 hiked the defense allocation by 5.3 per cent to Rs. 2,03,672.1 crore (US$ 37.4 billion). This was quite modest compared to the growth rates of 17.6 per cent and 11.6 per cent in the previous two budgets. While the defense budget 2013-14 was increased by a modest 5.3 percent, the growth rate is a hefty 14.1 percent over the revised estimate for 2012-13, due to the cut of Rs. 14,903.8 crore (or 7.7 per cent) from the actual budget of 2012-13 compared to that originally proposed. But the average inflation rate during the first nine months of 2012-13 was at 7.6 percent.

The Finance Division of the Ministry of Defence is headed by the Secretary (Defence Finance)/Financial Adviser (Defence Services). The SDF/FADS is tasked with the exercising of financial control over the proposals involving expenditure from the Defence Budget and the Ministry of Defence (Civil) estimates, and with the responsibility for internal audit and accounting of the Defense Expenditure and expenditure from the Civil Estimates. In the task of internal audit and accounting, the Controller General of Defence Accounts (CGDA) assists the SDF/FADS.

Defense planners face the task of reviewing programmes in the light of changes, which have taken place at the global level, as well as in the context of specific threats in the region. The endeavor of the defence planners is to balance the minimum requirements of Defence Forces and the need to modernize them, without unduly straining the national economy.

The rules provide that no expenditure which has not been provided for in the Budget or which having been provided, has not been sanctioned shall be authorized without the concurrence of the Finance Division. The strict observance of this rule is automatically ensured as the Controllers of Defence Accounts will not make any disbursement in respect of charges not covered by regulations or Government orders.

Until 1962 defense spending was deliberately limited. In the wake of the war with China, defense spending rose from 2.1 percent of the gross national product in fiscal year 1962 to 4.5 percent in FY 1964. In FY 1994, defense spending was slightly less than 5 percent of gross domestic product. In terms of dollars, FY 1994 total defense services expenditures were projected at US$7.2 billion (but are likely to have been close to US$7.8 billion). Proportionately, based on figures provided by the government, 48.4 percent of expenditures were for the army, 15.7 percent for the air force, 5.9 percent for the navy, and 30 percent for capital outlays for defense services and defense ordnance factories. The latter provide matriel to the armed forces through some thirty-nine ordnance factories and eight public-sector enterprises that build ships, aircraft, and major defense items.

The defense budget for FY 1994 was 6.5 percent higher than the revised estimate for FY 1993. The allocation increased to 14.9 percent of the total central government budget, up from 13 percent in the previous two fiscal years. Nuclear energy and space research are not fully accounted for in the defense budget, but most paramilitary forces fall within the purview of the Ministry of Defence.

After the Kargil war in 1999, the defence forces were spending less than the allocation. During 1999-2000, the defence forces spent Rs 48,504 crore - nearly Rs 3,000 crore more than the allotted sum of Rs 45, 694 crore. In 2000-01, they spent Rs 54,461 crore as against the allocation of Rs 58,587 crore - less than Rs 4,000 crore. In 2001-02, the defence forces are estimated to have spent Rs 57, 000 crore as against the revised allocation of Rs 65, 000 crore - a big gap of Rs 8,000 crore.

(Rs. In crores)


















2000-2001 (RE)



2001-2002 (BE)



The increase in defence allocation for 2002-03 over 2001-02 was modest. The Finance Minister, Mr Yashwant Sinha, proposed a defence budget of Rs 65,000 crore against Rs 62, 000 crore allocated in the fiscal which is coming to an end. A significant development in the current fiscal is that the Defence Ministry will be spending only Rs 57,000 crore out of the allotted Rs 62,000 crore, leaving a shortfall of Rs 5000 crore. Thus, compared with the actual expenditure during the current fiscal, the budget proposes an increase of Rs 8,000 crore. The allocation for the Army has been fixed at Rs 35,368.72 crore, marking an increase of 6.69 per cent. It, in fact, gets reduced to 2.59 per cent while making allowance for inflation. The increase covers a number of sectors ranging from other equipment like tanks, artillery and electronic hardware such as weapon-locating radars, welfare and housing and stores (upgradation of existing assets). The increase on account of other equipment is a huge Rs 1,400 crore, revealing the government's plan to provide the Army with the modern tools of war. The Air Force gets Rs 15, 589 crore, an increase of 30 per cent over the revised estimates. The allocation is expected to take care of the upgrading of the fighter aircraft (MiG-21 BiS), licence payment for manufacturing of SU-30 fighter aircraft and purchase of Jaguars from Hindustan Aeronautics Limited.

 (Rs. in crores)
YearBudget EstimatesRevised EstimatesActual Expenditure
*Provisional, accounts not yet closed.

In July 2004, in order to catch up with the backlog of expenditure that had not been provided for, the Government increased the allocation for Defence to Rs.77,000 crore. After a gap, defence expenditure in 2004-05 has matched the Budget Estimates. It was proposed to increase the allocation for Defence in 2005-06 to Rs.83,000 crore, which included an allocation of Rs.34,375 crore for capital expenditure.

The Defence and Defence related Expenditure is about Rs.95,922 crores (2004-05), including the Civil Estimates of around Rs.16,000 crores comprising about Rs.11,000 crores towards Defense Pensions. The outlay for defence services in the Budget 2004-05 is Rs 77000 Cr. This consists of Rs 43,517.15 Cr for revenue expenditure and Rs 33.482.85 Cr for capital expenditure. The allocation is 17.92 per cent more compared to 2003-04 Budget. The increased outlay, particularly for capital expenditure, is a reflection of the Government's keenness to ensure speedy modernisation of the Armed Forces.

Service-wise allocation for 2004-05 vis-a-vis Budget 2003-04 is as follows:

2003-04 Budget 2004-05 Budget
Air Force15419.3223270.53
Total $US$14.74 billion $17.38 billion

The budget estimates 2004-05 cater to increased allocation for each of the services and research and development activities. An attempt is made to provide funds to meet the Service commitments both for meeting their maintenance requirements and modernisation. In addition to the above, one new feature in this year's Budget is exempting from income tax the family pension received by widows, children and nominated heirs of members of the Armed Forces and the para military forces killed in the course of operational duties.

:Non-Plan Expenditure for Defence Services: (net of recoveries and revenue receipts in Rs. Crores)





% Change
over budget
of 2004-05

(A) Revenue
(B) Capital










The Union Budget for 2005-06 was presented to the parliament by the Finance Minister, Mr. P. Chidambaram on the 28th of February, 2005. In this, the allocation for Defence has been increased by about eight per cent over that of the last year from Rs.77,000 crore to Rs. 83,000 crore, or about $18.5 billion at current exchange rates.

Purchasing Power Parity [PPP] is an indicator of the real conversion factor that should be used when comparing dollar and rupee costs. Prior to the the switchover to a flexible exchange rate arrangement in India in 1993, by one estimate the PPP ratio was about three. In the period after the float, by this analysis the market rate was close to the PPP value. [SOURCE] Another observer suggested that by 2003 the PPP was around six, that is, a salary of Rs 6 lakh in India is equivalent to a salary of one lakh dollars in the US. By 2004 the PPP was estimated at about five, or perhaps somewhere between six and eight. The precise PPP would depend on the basket of good --- that is, in principle there is a PPP that is specific to military spending, which would be different from that for the economy in general. Factoring in PPP, India's military budget might thus be estimated as the equivalent of about $100 billion.

The allocation for defence for the year 2005-06 is well in tune with the policy of the government to give this core sector its due. The defence expenditure pegged at Rs 83,000 crore for the year amounts to an increase of Rs 6,000 crore or 7.79 per cent over the current year (2004-05). The revised estimate for the new fiscal has been kept at the level of Rs 77,000 crore, the same as in the budgetary estimate (BE) of the current one. The provision for revenue expenditure in the forthcoming fiscal is Rs 48,624.86 crore. The allocation for capital is Rs 34,375.14 crore which includes Rs 2,541.86 crore for research and development and Rs 1,364 crore for married accommodation project.

The proposed increase in defence expenditure should take care of the normal growth in pay and allowances, inflation and other specific requirements. The bulk of the capital outlay goes to meet the requirements for the ongoing acquisition projects. The allocation for capital will be providing over Rs 7,000 crore for new projects for modernisation of the forces.

India has to make up for what has been known as the lost decade of defence modernisation. In 2002-03 alone, it surrendered Rs 9,000 crore (Rs 90 billion). In view of this, last year the Budget had Rs 33,483 crore earmarked for capital purchases. But that was hardly sufficient for the whole purpose. The government decided to buy Mirage jets as well as Hawk trainer fighters. For the Navy, India had decided to go in for the aircraft carrier Admiral Gorshkov along with its MiG-29 fighters. Payments had to be made to honour contracts for airborne warning and control system (AWACS). The previous Government had signed these contracts but made no allocation for the same. Besides, New Delhi has had plans to purchase submarines, more multi-role fighter aircraft, multiple-rocket launchers, plane-based radar systems, light helicopters and artillery guns and many other sophisticated equipment for the three Services. The multi-role fighters and submarines alone are estimated to cost over Rs 20,000 crore. In other words, the last year's capital outlay left little for any fresh defence acquisition. No wonder, immediately after the Budget was presented last year, Defence Minister indicated that the amount earmarked for capital purchases might not be enough for other necessary fresh contracts and he might have to seek additional funds from the Union Finance Ministry. The proposed capital expenditure has to be assessed in this context.

It is, however, expected that the new allocation would enable the Services to move forward in the direction of their fresh acquisitions. Pertinently, in the new budget the revised estimate (RE) of the defence expenditure (DE) is the same as the budgeted estimate (BE). It means that the amount allocated at the beginning of the current fiscal has been fully spent. One can hope the trend to use the capital outlay would continue. The capital outlay for research and development has been increased from Rs 1,657.78 crore in the current fiscal to Rs 2,541.86 crore in the new one. This should help the DRDO in giving a momentum to some of its ongoing programmes. India has already started deploying its short range 700 kms Agni-I and intermediate range 2,000 kms plus Agni II surface-to-surface missiles. The DRDO is all set to carry forward the process of missile research and development programme so crucial for the country's doctrine of 'credible nuclear deterrence' and triad. There has ,of late, been an increasing interface between the designer engineers and user agencies so as to determine what exactly is needed by the Services.

The DRDO is developing a contemporary weapon locating radar for the Army. It is speeding up the manufacture of the main battle tank (MBT) Arjun to ensure its supply to the Army by due date. It has also been working on several naval projects. There are some analysts who argue that there is no fair increase in capital allocation this year. According to them, the provision for Defence Services Estimates in the Budget Estimates-2004-05 was Rs 77,000 crore. This had Rs 43,517.15 crore for Revenue Expenditure and Rs 33,482.85 crore for Capital Expenditure. The allocation of Rs 77,000 crore was an increase of 17.92 per cent over the provision of Rs 65,300 crore made in Budget Estimates of 2003-04. The capital outlay of the DE in 2004-05 increased by an almost 100 per cent from Rs 16,863 crore to Rs 33,483 crore. In contrast, in the fiscal year 2005-06, the capital outlay has increased marginally by 2.66 per cent from Rs 33,483 crore to Rs 34,375 crore.

In the Interim Budget 2009-10, the allocation for Defence was increased to Rs.1,41,703 crore (US $29 billion), about 35 percent increase in current prices from the previous year's revised estimates. The total revised expenditure for 2008-09 was Rs.1,14,600 crore. The Plan expenditure will be to the tune of Rs.86,879 crore against Rs.73,600 crore and will include Rs. 54,824 crore for capital expenditure as against Rs.41,000 crore in the RE for 2008-09. The raise has been made "to strengthen the security in view of the recent terror attacks." The Interim Budget 2009-2010 was presented to the Parliament on Feb 16, 2009 by Shri. Pranab Mukherjee, Hon. Min. of Finance and External Affairs, Govt. of India.

By 2012 Indias defense budget was growing by between 13 and 19 percent, depending interpretation of the numbers, against a forecast GDP growth of 7.6 percent. There are basically two opinions about how to deal with China's military pressure. One emphasizes clinging to a defensive position on the land while taking advantages of India's superiority in navy and on the Indian Ocean to potentially threaten China's energy-importing and trade passages. Proponents for this strategy call for boosting the development of naval and air forces. The other opinion reiterates the importance of land forces, believing India should strengthen military building and infrastructure construction in the China-India border area so that it's capable of a strong counterattack in the event of armed conflict. Supporters of this opinion include the land forces as well as the Ministry of Home Affairs which exerts certain controls over border management.

In the new century, India's defense budget has favored the air and marine forces, which causes a soaring demand for increasing the ground force at the frontier. After the "tent confrontation" between the Indian and Chinese militaries in May 2013, the Indian Ministry of Finance was reported to have agreed to appropriate around 650 billion Indian rupees ($9.94 billion) for the creation of a mountain strike corps.

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