Budget 2022: Will 68% earmarking boost indigenous defence manufacturing?

The allocation for defence in the Union Budget is 4.43 per cent higher than the revised estimates of last year and 9.8 percent higher than the budget estimates of last year. There was also what appeared to be a big push for Make in India in defence, which could bring some cheer to India Inc.
 
Before we delve into the details, let's understand the breakup of this Budget's defence allocation. Of the 5.25 trillion rupees allocated for defence, the revenue allocation takes up 2.33 trillion rupees, while the capital allocation stands at 1.52 trillion rupees and defence pensions at 1.19 trillion rupees. 
 
Capital allocation is meant to cover both new purchases as well as payments for past procurements. What is important is that, of the 1.52 trillion rupees in capital allocation, 68 per cent will be reserved for procurement from Indian industry. In Budget 2021, 70,221 crore rupees, or about 63 per cent, of the defence capital allocation was reserved for Indian industry.
 
Meanwhile, 58% of the defence capital allocation was reserved for Indian industry in 2020-21, when such a component was set aside for domestic defence firms for the first time.
 
In her Budget speech, Finance Minister Nirmala Sitharaman said that the private industry would be encouraged to take up design and development of military platforms and equipment in collaboration with DRDO and other organisations through SPV model. The finance minister added that an independent nodal umbrella body would be set up for meeting wide-ranging testing and certification requirements. 
 
The finance minister also said that a quarter of the research and development (R&D) budget of the Ministry of Defence will be set aside for private players, including start-ups and academia.
 
On the face of it, such steps will definitely lead to the country’s armed forces sourcing a greater share of their arms and equipment from the domestic industry. But, will these items truly be of indigenous origin? Will they be designed and developed by the domestic industry? Or, as has happened often, will they be products designed by foreign original equipment manufacturers that Indian firms simply produce under a license?
 
Defence expert and Business Standard columnist Ajai Shukla said:

•  Having a quota for domestic industry is a positive step
• However, orders placed under this quota might have sub-orders placed with foreign companies
• Mechanism to monitor details of orders placed under such quota required

Rahul Chaudhry, Principal & CMD GTM Consulting; Chair of National Committee on Home Land Security, FICCI; and former CEO of Tata Power SED; said:

• Many DPSUs and Indian defence manufacturers are engaged in license production
• Therefore, we must keep track of two things –
  • How much of a defence order is made up of imported sub-components
  • How much actual value addition is being done by Indian industry
• Design, development and engineering of defence equipment must take place in the country)

Hopefully, the government will take cognisance of these issues and accordingly adjust its strategy and policies for the domestic defence industry. Time alone will tell whether India will succeed in setting up an independent and self-reliant military-industrial complex that can meet the ever-growing and changing vital needs of its armed forces.

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