Union Finance Minister Nirmala Sitharaman said on February 1 said that 68 percent of the defence procurement budget in FY23 would be earmarked for domestic equipment, up 10 percentage points from FY22.
According to Budget documents, the capital expenditure outlay for the defence sector has increased significantly, by 13%, in FY23 to Rs 1.52 trillion from Rs 1.35 trillion in FY22 while revenue and pension expenditure have remained stable. In total, the Budgetary allocation to the Ministry of Defence has risen 9% year-on-year to Rs 5.25 trillion in FY23 from Rs 4.7 trillion in FY22.
The FM pushed for more “atmanirbharta” (self-reliance) in defence and said she wanted to encourage research and development by private corporations, start-ups and academia into defence research and equipment development.
"Our Government is committed to reducing imports and promoting Atmanirbharta in equipment for the Armed Forces. 68 per cent of the capital procurement budget will be earmarked for the domestic industry in 2022-23, up from 58 per cent in 2021-22," Finance Minister Nirmala Sitharaman said in her Budget speech in Parliament on Tuesday.
"Artificial intelligence, geospatial systems and drones, semiconductors and its ecosystem, space economy, genomics and pharmaceuticals, green energy, and clean mobility systems have immense potential to assist sustainable development at scale and modernize the country," the minister added.
"Supportive policies, light-touch regulations, facilitative actions to build domestic capacities, and promotion of research and development will guide the government’s approach. For R&D in these sunrise opportunities, in addition to efforts of collaboration among academia, industry and public institutions, government contribution will be provided," she said.
The private sector can also now develop military platforms in collaboration with the government-owned Defence Research and Development Organisation. The defence budget consists primarily of a large capital outlay, revenue expenditure (for small acquisitions and spares) and defence pensions.
In FY22, the ministry’s capital outlay was Rs 1.35 trillion, a jump of almost 19 percent over FY21, with the bulk targeted at new acquisitions and military modernisation.
The revenue outlay had marginally increased to about Rs 2.12 trillion while the defence pensions outlay reduced year-on-year to about Rs 1.16 trillion.
Despite only a modest increase in outlay last year, News18 reported that the defence services had been unusually slow in spending their capital budgets this fiscal, with the army spending only about 40 percent of its allocation, while the Indian Air Force (IAF) has spent about 70 percent. The navy spent 90 percent of its capital outlay for the fiscal.
The report quoted unnamed sources as saying that Defence Minister Rajnath Singh had asked senior military officials to expedite spending of their capital budgets by the end of the financial year.
To enhance the functional autonomy and efficiency of defence-related manufacturing operations, in October 2021 the government carved out seven new defence companies out of the government department Ordnance Factory Board.These fully-owned government companies are Munitions India Ltd, Armoured Vehicles Nigam Ltd, Advanced Weapons and Equipment India Ltd, Troop Comforts Ltd, Yantra India Ltd and India Optel Ltd and Gliders India Ltd.