Finance Minister announces steps to boost domestic defense manufacturing, reduce imports
Taking Make in India further in defence, the central government on Tuesday announced additional measures to boost domestic manufacturing and reduce imports. The overall allocation for defense in the budget has gone up marginally to ₹5.25 lakh crore. This is 4.43% higher than last year’s Revised Estimates and 9.8% higher than last year’s Budget Estimates.
Finance Minister Nirmala Sitharaman announced that Defense Research and Development (R&D) will be opened to industry, start-ups and academia, with 25% of the R&D budget being earmarked for them.
special purpose vehicle model
“The private sector will be encouraged to design and develop military platforms and equipment in collaboration with DRDO and other organizations under the Special Purpose Vehicle (SPV) model,” Ms Sitharaman said in her budget speech. “An independent nodal umbrella body will be established to meet the comprehensive testing and certification requirements,” it announced.
Out of ₹5.25 lakh crore for defense this year, revenue allocation is ₹2.33 lakh crore, capital allocation is ₹1.52 lakh crore and defense pension is ₹1.19 lakh crore.
Within this, of the ₹1.52 lakh crore capital allocation which is for fresh purchases and payment of previous purchases, 68% will be reserved for procurement from domestic industry, Ms Sitharaman said. In last year’s budget, ₹70,221 crore of capital allocation, which is about 63%, was reserved for the domestic industry.
Last year, eastern Ladakh saw a major increase in defense budget in the backdrop of standoff with China. Services also made several emergency purchases in the second half of 2020.
In contrast, the budget data shows that for 2021-22, the Army returned around ₹11,100 crore, while the Navy got an additional allocation of ₹12,767.99 crore over the budget estimates of the Revised Estimates.
Overall, the capital allocation witnessed an increase of 12% over the last year’s budget estimates and 9.7% in respect of the revised estimates.
As part of major reforms to boost domestic manufacturing, in 2020, the government announced separate budgetary provision for procurement from domestic industry within the defense budget and a negative import list for weapons and military platforms.
SIDM appreciated the announcements
Welcoming the announcements, industry body Society of Indian Defense Manufacturers (SIDM) said setting aside 68% of the capital outlay for the domestic industry would sustain investment and attract new capacity building. “The creation of a nodal body to set up testing and certification requirements of defense systems and platforms will help the domestic industry through faster processes and cost-efficiency,” SIDM President SP Shukla said. “The allocation of 25% of the Defense R&D budget to start-ups, academia and private industry is a much-needed reform,” he said.
Welcoming the move to open up R&D for start-ups, Vice Admiral Paras Nath (Retd.), Group President, Defense Engineering Division, Crown Group, said that it is “specially designed for Start-ups and Micro, Small and Medium Enterprises”. would be a positive step. Enterprises (MSMEs) for its internal R&D.
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