Union Budget 2018: Six key insights for India’s defence and manufacturing sectors

The Modi government in India recently went public with its latest Union Budget. Here are some implications for the defence sector, based on the address of the Finance Minister, Mr. Arun Jaitley.

  1. The Government of India raised the defence budget by 7.81% over last year, and it now stands at Rupees 2.95 lakh crore. Out of this entire amount, Rupees 99,947 crore has been set aside for capital expenditure for the defence services and departments under the ministry.

  2. This capital outlay will be used to modernise defence equipment and will allow the country to purchase new weapons, aircraft, warships and other military hardware. Recently, these funds have been diverted to procure 36 Rafale fighters, six C-130J transport aircraft, AH-64 attack helicopters, CH-47 Chinook helicopters, M-777 Ultra-Light Howitzers, in ongoing deals. In addition, the Navy and Air Force have lined up multi-billion defence deals for procurement of submarines, single-engine fighter aircraft and hundreds of helicopters among others to be procured under the strategic partnership policy.

  3. In his budget speech, Mr. Jaitley said that a lot of emphases had been laid on modernising and enhancing the operational capability of the defence forces in the last three-and-a-half years. Adding that, “a number of initiatives have been taken to develop and nurture intrinsic defence production capability to make the nation self-reliant for meeting our defence needs. Ensuring adequate budgetary support will be our priority”.

  4. While there has been some criticism that the budgetary allocation is too little to meet India’s growing needs to modernise its equipment and safeguard against the very real threat of cross-border terrorism, Mr. Jaitley sounded optimistic when he said that “the government will also bring out an industry-friendly Defence Production Policy 2018 to promote domestic production by public sector, private sector, and MSMEs.”

  5. The other major new development includes an emphasis on building roads, and improving infrastructure to connect far-flung border areas - in Arunachal Pradesh, near Tawang, and Ladakh in the North - to improve preparedness in these remote locations. The finance minister also announced a move to create two new defence industrial production corridors in the country.

  6. Defence Minister Ms. Nirmala Sitharaman later elaborated on this announcement and said that the first defence corridor will be established in Tamil Nadu, linking Chennai and Bangalore, pointing out that there are a number of SMEs located between both large cities which will stand to gain from this move. No details about the second defence corridor have been revealed yet, but Ms. Sitharaman spoke about the proposed Chennai and Bangalore corridor in the South saying that the Secretary of Defence Production had travelled across the country to see find a suitable location where this corridor could be planned. She added that they chose the location because a strong ecosystem already exists between Chennai and Bangalore, owing to the presence of a Tier-1 industry - an ordnance factory, the Awadi tank factory in Coimbatore - and multiple units supplying to the army and the Indian Air Force. This contributed to this area being identified for the first defence corridor because a robust ecosystem exists, and it will take less time to action new plans.

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Preeti Prakash | Journalist

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