Craig Caffrey, Principal Analyst, IHS Jane’s
While the limited growth seen in the defence budget will likely prove a disappointment for both the Indian military and the defence sector, the continuation of the trend for downward revisions to capital allocations will be of particular concern. Assuming capital expenditure drops to as projected INR717.0 billion for 2016-17, related spending will have fallen to its lowest level since 2012-13. It will also be its lowest as a share of overall defence spending since 2003.
Furthermore, the upward revisions to the revenue and pensions allocations suggest the emergence of unexpected costs. With the Medium Term Fiscal Policy Statement release alongside the 2017-18 budget suggesting that defence revenue spending will increase by around 8% in 2018-19 and 11% in 2019-20 it would appear that capital spending will continue to have to compete with rising operational and personnel costs.
The Indian government has announced a core defence budget of INR2.74 trillion (USD40.6 billion) for 2017-18. The new budget allocation represents a nominal increase of 5.6% against the revised budget for 2016-17, the lowest rate of increase for a decade.
Capital expenditure will account for INR864.9 billion of the defence budget, representing a 20.6% increase over the revised capital budget for 2016-17 and a record high. However budgetary documentation suggests that spending on research and development and Defence Ordnance Factories has been shifted from the Ministry of Defence budget allocation to the capital budget, thereby distorting the comparison slightly. When this shift is factored in capital spending has increased by around 8.4%.
Official figures also indicate that capital spending for 2016-17 is expected to amount to around INR717.0 billion, 8.8% lower than projected in the initial budget for the fiscal year. Revenue and pensions spending meanwhile are expected to increase by 3.6% and 4.0% respectively compared with the initial 2016-17 budget.
Aero India 2017 – Availability Alert
The following IHS Jane’s analysts will be attending Aero India from 14-18 February and are available for comment around big announcements from the show.
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- Rahul Bedi, India Correspondent, Jane’s Defence Weekly
- Caron Natasha Tauro, South Asia Military Analyst
- Daksh Nakra, Senior Defence Analyst