Initiatives to bolster India’s position as a major aerospace and defence power are expected to push Indias gross defence budget higher to $112 billion by FY27, revealed an Assocham-KPMG joint study.
According to the joint study report, India’s gross defence budget is expected to reach “$112 billion by FY27 from $45 bn announced by the government of India in 2018-19, owing to significant steps been taken by the centre to bolster the country’s position as a major aerospace and defence power”.
The study noted that while the 2018-19 budgetary increase was “a meagre 7.8 per cent over the previous year”, it is expected to clock an estimated compound annual growth rate (CAGR) of about 11 per cent until FY27.
However, the report raised concerns that about 10 per cent of the defence budget is surrendered “to Ministry of Defence (MoD) at the end of each financial year owing to underutilisation as the reserved budget is not mapped with capital acquisition”.
Besides, the report pointed out that the country’s capital expenditure for defence procurement is expected to exceed $250 bn over the next 10 years, primarily to replace the Soviet-era vintage equipment and meet the growing modernisation needs of the Indian armed forces.
“However, out of this the domestic industry would only be able to manufacture defence equipment worth just about $80 bn while the rest of it would have to be imported,” the report said.
“Thus, the study suggested the government to incentivise private enterprises for developing large scale research and development (R&D) and manufacturing capabilities.”
The joint study added that “a vibrant domestic manufacturing ecosystem that includes both public and private defence manufacturing entities is essential for success of ‘Make in India,’ in the defence sector”.