Indian Finance Minister, Nirmala Sitharaman in the Budget for the financial year 2024-25, has allocated Rs 6.21 lakh crore to the Ministry of Defence (MoD). The allocation is higher by approximately 4.79% percent or ~ Rs 6,21,941 crore as compared to 2023-24’s budget. Defence Minister Rajnath Singh said the capital outlay of Rs 1,72,000 crore will further strengthen the Armed Forces’ capabilities. Addressing the media in New Delhi, Rajnath Singh congratulated the finance minister for presenting a budget fulfilling the Prime Minister’s resolve of a Viksit Bharat.
Out of the total allocation, Rs 1,80,000 crore i.e. 26.43% of total allocation will be spent on Capital Outlay on Defence Services. On Revenue Head, allocation for the Armed Forces stands at Rs 3,11,732.30 crore which is 45.76% of total allocation.
Yet, the demand by the country’s Armed forces to increase the budget allocation to 2% of the GDP, which has not been met, as the present budget has pegged it at 1.5%, though a difference of 0.5% may seem insignificant, but in monetary terms, it translates into a much significant amount.
FM Nirmala Sitharaman in the Budget for the financial year 2024-25, has allocated Rs 6.21 lakh crore to the Ministry of Defence (MoD). The allocation is higher by approximately 4.79% percent or ~ Rs 6,21,941 crore as compared to 2023-24’s budget
Let’s have a look at how the Defence Budget will be allocated to different expenditure heads:
- Rs 1.05 lakh crore (Rs 1,05,518 crore) has been earmarked for domestic capital procurement
- Border infrastructure will be further accelerated with the allocation of Rs 6,500 Crore to BRO. The allocation is 30 percent higher than the allocation for FY 2023-24 and 160 percent higher than the allocation for FY 21-22
- Rs 92,088 crore has been allocated for sustenance and operational readiness
- Rs 7,651.80 crore was allocated for the Indian Coast Guard (ICG), which is 6.31% higher than the allocation of FY 2023-24, said MoD.
In percentage terms, the change will be visible as:
- 66 percent will be for planned Capital acquisitions
- 82 percent will be for Revenue expenditure (on sustenance and operational preparedness)
- 66 percent will be for Pay and Allowances
- 70 percent will be for Defence pensions
- 17 percent will be for civil organisations under the MoD.
Yet, the demand by the country’s Armed forces to increase the budget allocation to 2% of the GDP, which has not been met, as the present budget has pegged it at 1.5%, though a difference of 0.5% may seem insignificant, but in monetary terms, it translates into a much significant amount
However, industry experts feel that the defence budget has not really changed the earlier picture, Gaurav Mehndiratta, Partner and Head, Aerospace and Defence, KPMG in India said, “Overall Defence Budget 2025 witnesses an ~10% increase with an allocation of Rs 6.8 lakh crore (~USD 79 Bn). However, capex allocation at Rs 1.8 lakh crore (~USD 21 Bn) gets a modest 5% increase against the budget estimate of 2024, and 13% increase against the revised estimate of 2024. For the modernisation and Aatmanirbharta vision capex budget misses expectations.”
The MoD has taken a decision to observe 2025-26 as ‘Year of Reforms’ which will further strengthen the resolve of the Government for modernisation of the Armed Forces and is aimed for simplification in the Defence Procurement Procedure to ensure optimum utilisation of the allocation, which sometime back the Defence Secretary had described as completely broken, and which needed to be given a fresh look, but since then no noteworthy initiative has been taken in that regard too.
Indian Defence Budget as Compared to Its Neighbours
The Government of India allocated a 12.9 per cent share of the total budget for defence. But where does India stand against China and Pakistan in terms of its Defence Budget? And how does the budget will cater to the three services in the next financial year, needs to be examined.
Increasing conflicts around the world and border skirmishes are prompting governments to increase their budget allocation for the defence sector, primarily to obtain advanced equipment and develop infrastructure to face unforeseen situations, but that seems to be missing from the present budget.
When we talk about our neighbours, then China in year 2024, had increased its defence budget by 7.2 percent compared to 2023. In March, China announced a defence budget draft worth 1.66554 trillion yuan ($231.36 billion). China has seen an increase in defence budget for nine consecutive years since 2015, despite slowdown in its economy.
The MoD has taken a decision to observe 2025-26 as ‘Year of Reforms’ which will further strengthen the resolve of the Government for modernisation of the Armed Forces and is aimed for simplification in the Defence Procurement Procedure to ensure optimum utilisation of the allocation, which sometime back the defence Secretary had described as completely broken, and which needed to be given a fresh look, but since then no noteworthy initiative has been taken in that regard too
On the other hand, Pakistan in its last Budget for 2024-25, had earmarked Rs 2,122 billion for the armed forces in 2024, an increase of 17.6 percent compared to the 2023’s budget. A report said that the boost in defence spending was the second-largest in six years.
In comparison, India’s Defence Budget seems really low when compared with China, though in monetary terms it is greater than Pakistan’s, though in Pakistan the real defence budget for latest missiles and nuclear weapons in is hidden under other different heads, as per a report of Pakistan’s Dawn News.
However, the planners have done well by increasing the BRO’s budget, as it is that selfless and unglorified arm of the country’s defence structure, which ensures that roads and bridges in the eastern sector are maintained as immaculately as possible to ensure a smooth journey for the army’s transport sector to transport required men, machinery, and ammunitions to the highest areas of the border.
The infrastructure build-up picked pace with the May 2020 standoff with China in Eastern Ladakh and it continues to be in focus. That is why, the Border Roads Organisation has been allocated Rs 7,134 crore against Rs 6,500 crore.
However, the planners have done well by increasing the BRO’s budget, as it is that selfless and unglorified arm of the country’s defence structure, which ensures that roads and bridges in the eastern sector are maintained as immaculately as possible to ensure a smooth journey for the army’s transport sector to transport required men, machinery, and ammunitions to the highest areas of the border
Defence Budget, How Will it be Used?
According to Ministry of Defence, the enhanced budgetary allocation will fulfil the requirement of annual cash outgo on planned capital acquisitions aimed at equipping the armed forces with state-of-the-art niche technology, lethal weapons, fighter aircraft, ships, submarines, platforms, unmanned aerial vehicles, drones, specialist vehicles etc.
This, the Capital Budget has been increased by 4.65 percent over the budgetary allocation for capital expenditure in FY 24-25, when it was Rs 1.72 lakh crore.
The Defence Research and Development Organisation (DRDO) has got Rs 14,923 crore for its research and development works. Allocation for aircraft and aero engines, Rs 48,614 crore has been earmarked for this financial year against Rs 46,591 crore last year.
The seven public enterprises, corporatised from Defence Ordnance Factories, have been given a total of Rs 1494 crore.
Meanwhile, the budget seems to have given a little incentive to MSMEs and startups, which has been received well by the industry, besides the aero industry. Amey Belorkar, Fund Manager – Maharashtra and Aerospace Venture Fund at IDBI Capital Markets & Securities Limited said, “The Budget has focused on strengthening India’s MSME and Startup ecosystem through enhanced credit access by way of expanded fund-of-funds (FOF) of Rs 10,000 crores as well as a proposal for setting up a Deep Tech FOF. Further the investment limits for MSME classification have been increased by 2.5 times which means that businesses can now invest significantly more while still qualifying as MSMEs. Also startups are benefited with the increase in Incorporation period by 5 years. The allocation of Rs 500 crore for MRO sector and the establishment of a Rs 25,000 crore corpus for shipbuilding shows India’s commitment to promote India’s self-reliance.”
The defence budget seems to have given a little incentive to MSMEs and startups, which has been received well by the industry, besides the aero industry
Same sentiments were expressed by Girish Nair, Partner and Head – Aviation, KPMG in India, when he told Raksha Anirveda, “The Union Budget 2025 strengthens India’s aviation sector with a modified UDAN (Ude Desh ka Aam Naagrik) scheme, aimed at enhancing regional air connectivity. Under this initiative: 120 new destinations will be added, boosting accessibility across the country, the scheme will facilitate air travel for an additional 4 crore passengers over the next decade, helipads and smaller airports will be developed in hilly regions, aspirational districts, and the Northeast to improve last-mile connectivity, and new greenfield airports in Bihar are planned to meet the state’s growing aviation needs.”
Nair further said, “Investments to strengthen 50 top tourism destinations and medical tourism will boost leisure travel. Air Cargo gets a significant boost through infrastructure announcements and policy support which will drive efficiency in logistics and trade growth. With a clear focus on connectivity, affordability, manufacturing, and supply chain resilience this budget ensures a more dynamic and competitive aviation ecosystem for India. This balanced focus on economic growth, employment, MSMEs, and infrastructure, ensures that air travel remains a key driver of connectivity, accessibility, and national development.”
Overall, the focus of the budget seems to enhance the capacity of the DRDO, focus on financing the earlier purchases but with no fresh purchase big ticket items identified. Instead, the budget seems to have given more wings to the PSUs and the private sector to focus on enhancing the country’s aerial power, which to a certain extent has been delivered beyond expectations till now.
Overall, the focus of the budget seems to enhance the capacity of the DRDO, focus on financing the earlier purchases but with no fresh purchase big ticket items identified. Instead, the budget seems to have given more wings to the PSUs and the private sector to focus on enhancing the country’s aerial power, which to a certain extent has been delivered beyond expectations till now
However, the fact that the Defence Ministry is expected to return Rs 12,500 crore from its 2024-25 budget due to delays in the procurement process, is a cause of concern and casts a shadow on the working system of our defence procurement process and this needs to be addressed at the earliest.
Cdr Gautam Nanda, Associate Partner, Aerospace & Defence, KPMG India, said, “The capital budget outlay for defence research and technology development has been increased by about 13%, which emphasises the government’s continued focus towards the bolstering the nation’s R&D output. In addition, 400% increase in the allocation for the Make projects over the revised estimates highlights the government’s intent for a significant push towards funding of prototype developments, indigenisation efforts and domestic defence design work. However, revised estimates indicate under-utilisation of the overall capital outlay by 7%. We expect it to be fully utilised in FY2025-26 i.e. the ‘Year of Reforms’.”
In the given situation, instead of returning the money the MoD is expected to always spend more judiciously, so as to inspire confidence amongst the common Indian as regards to the country’s defence preparedness.
-The writer is a New Delhi-based senior commentator on international and strategic affairs, environmental issues, an interfaith practitioner, and a media consultant. The views expressed are personal and do not necessarily carry the views of Raksha Anirveda
