Historic rise in DRDO budget, no additional funds for Rafale

By Ajai Shukla

(Edited version in Business Standard)

11 July 14

Signalling decisively that India would place greater focus on building, not just buying, defence equipment, Finance Minister Arun Jaitley has massively boosted funding to the Defence Research & Development Organisation. The DRDO’s capital allocation of Rs 5,975 crore, provided in February in the United Progressive Alliance’s interim budget, has been hiked by almost 60 per cent to Rs 9,298 crore, the largest-ever raise in the DRDO’s history.

Coming on top of the DRDO’s revenue allocation of Rs 5,985 crore, the R&D budget totals up to Rs 15,283 crore, which is almost 7 per cent of the Rs 2,29,000 crore defence budget. The DRDO, which has been receiving about 5 per cent of the defence budget has long pleaded for 7-8 per cent.

Simultaneously, Mr Jaitley more than doubled the capital allocation for the Ordnance Factory Board (OFB), which will be used to modernise the defence ministry’s network of 41 factories that manufactures arms, ammunition and equipment for the military. The OFB’s allocation of Rs 530 crore has been raised to Rs 1,207 crore.

Meanwhile, the army, navy and air force capital budgets remained pegged at the same or less than what was allocated in February. The army will have Rs 20,665 crore for modernisation, the navy Rs 22,312 crore and the air force will have Rs 31,818 crore for new equipment.

Given that approximately 90 per cent of the military’s capital allocation is pre-committed towards instalments for equipment purchased during preceding years, there is unlikely to be any funding for big-bang purchases. The contract for 126 Rafale medium fighter aircraft, for example, would require Rs 10-15,000 crore as the signing advance. It is unclear where the IAF would find that money.

Mr Jaitley’s focus on indigenisation was evident from his budget speech in which he noted: “India today is the largest buyer of defence equipment in the world. Our domestic manufacturing capacities are still at a nascent stage… Companies controlled by foreign governments and foreign private sector are supplying our defence requirements to us at a considerable outflow of foreign exchange.”

The entire defence allocation hike of Rs 5,000 crore is accounted for in the capital budget, which has been raised from Rs 89,588 crore in February to Rs 94,588 crore on Thursday. The revenue budget remains pegged at the same level of Rs 1,34,412 crore as in the interim budget of February.

Besides big raises for the DRDO and OFB, another beneficiary is a new project for building a “defence rail network” in the border areas, which has been allocated Rs 1,000 crore. This rail network is meant to facilitate the quick move of heavy equipment from cantonments in the interior to border areas. A number of metre gauge lines will be upgraded to broad gauge under this project.

The tri-service “joint staff” headquarters is the other beneficiary of this budget, with its allocation raised to Rs 1029 crore from 829 crore in February. Defence analysts are wondering whether this will be followed up by the appointment of a tri-service commander.

Capital budget breakdown: More for indigenization

Figs in Rs crore (One crore = 10 million)

Capital	2013-14 (RE)	2014-15 (Interim)	2014-15 (Final)
Army	10749	20661	20665
Navy	19600	22592	22312
IAF	36017	31818	31818
R&D (DRDO)	5258	5975	9298
Ordnance factories	466	530	1207
Joint Staff	619	829	1029
Defence Rail Network	-	-	1000
Land & Works, Married Accommodation	6054	6872	6952
Miscellaneous	109	311	307
Total capital budget	78872	89588	94588
Total revenue budget	124800	134412	134412
Total defence budget	203672	224000	229000