Defence Budget 2006-07

The Indian defence budget for FY 2006-07 is Rs 89, 000 crore (cr). This is 7.23 per cent more than the budget in FY 2004-05. As a percentage of GDP, the budget is 2.29 per cent as against 2.39 per cent in the previous year. Taking the revised allocation of Rs 81, 700 at RE (Revised Estimate) stage in FY 2004-05, the increase is 8.94 per cent.

The revenue budget at Rs 51, 542 cr is Rs 2, 917 cr (or six per cent) more than the in previous year. The capital budget is Rs 37, 458 cr, i.e. an increase of Rs 3, 083 cr (8.97 per cent), though during the previous year it had been reduced at the RE stage by Rs 1,300 cr. So in effect the increase is of Rs 4, 383 cr, that is 13.25 per cent. The revenue budget is 57.91 per cent of the total (58.58 per cent last year), while the capital budget is 42.09 percent (41.42 per cent last year).

Service-wise, the Army has an increase of 2.79 per cent, the Navy 13.13 per cent and the Air Force 9.48 per cent in the revenue budget. The capital budget has been increased by 10.01 per cent for the Army, 3.34 per cent for the Navy and 17.20 per cent for the Air Force. The total increase is 4.49 per cent for the Army, 7.16 per cent for the Navy and 14.01 per cent for the Air Force.

The modernisation budget of the services has been enhanced by Rs 3, 222 cr (11.49 per cent) over the budget allocation last year and 3, 845 cr (14.03 per cent) over the revised allocation. The Air Force has the maximum increase of Rs 2, 175 cr (17.58 per cent), while the Army has been granted Rs 818 cr (11.54 per cent) and the Navy Rs 229 cr (2.67 per cent).

The budget enhancement of Ordnance Factories is 53.81 per cent and that of the DRDO is 1.82 per cent.

In spite of the PM giving an assurance earlier that defence allocations could be increased to 3 per cent of the GDP if economic growth rate were to reach 8 per cent, there has actually been a fall in the budget in terms of percentage of GDP though economic growth is around 8 per cent now.

While there was no surrender of funds at RE stage in FY 2004-05, FY 2005-06 again saw a surrender of Rs 1, 700 cr at the RE stage out of the total allocation of Rs 83, 000 cr. The surrenders have been from the capital budget, out of which Rs 623 cr are from the modernisation budget. Once again the defence forces were not able to utilise the entire allotted modernisation budget, presumably by foregoing some planned acquisition contracts. In the forthcoming year, the modernisation budget is 35.12 per cent of the total budget as against 33.78 per cent in the previous year. The Air Force and the Army have a substantial increase in the modernisation budget. The Air Force is likely to go for the acquisition of 126 multirole combat aircraft, termed the ‘mother of all acquisitions’, and the Army for the much awaited 155 mm guns. Along with these, payment also have to made for the aircraft carrier ‘Gorshkov’ from Russia, the Advanced Jet Trainers from the UK and ‘Scorpene’ submarines from France.

The Service-wise share of the defence budget is as follows: –

        2006-07         2005-06
Army    46.72%    47.95%
Navy    17.32%    17.33%
Air Force  27.94%    26.28%

Surprisingly the ‘research and development’ budget has been increased by only 1.82 per cent and is 6.13 per cent of the total defence budget.

Comparing the defence allocations of China and Pakistan in terms of percentages of GDP, the Indian defence budget is far below the Chinese and Pakistani defence budgets, which remain above four per cent of their respective GDPs.

Keeping in view the improvement of relations with China and the ongoing peace process with Pakistan, it may be reasonable to assess that India’s defence allocations in 2006-07 will be adequate to meet the security needs of the country with particular reference to the ‘modernisation’ programme.