Jan 28, 2011
Neelam Mathews

India increases defense spend

India has allocated $44.4 billion for its defense spending (services and civil) for its financial year starting April 2011- March 2012, up by 8.4% from the previous financial year. Of this, set aside for defense services is around $35.74 billion (including capital procurement of $15.04billion- an increase of 13.75% over last year).

The contribution of defense spending (services and civil) is now about 2.72% of the GDP- up from last year’s 2.41%.

The budget was announced by the Finance Minister in the Indian parliament today (February 28).

Post Mumbai attacks of Dec 2008, there has been increased concern on the homeland security front with budgets steadily increasing for the police and paramilitary forces for border and coastal surveillance. As a result, the budget allocated to the homeland security sector is $10.17billion, up from $8.75 billion from the last year. 

“There is no limit to the homeland security budget. Whatever is asked for, it is given,” an official had said a few months ago.

India’s procurement plans have been increasing following the need for upgradation in equipment and technology. “The total defense budget accounts for about 13.07% of the total Central Government expenditure. If the scope of national defense is enlarged to national security, it would include expenses for civil defense, security aspects of the Department of Space, expenditure of the Ministry of Home Affairs, research and development, which roughly account for about 21.03% of total Government budget,” says Nidhi Goyal Director, Deloitte in India.

The total defense services spending in India in the period from 2001 to 2011 has been increasing by a nominal Compound Average Growth Rate (CAGR) of about 11.37 % per year, Goyal adds.

However, the budget falls short of reaching at least 3% of the GDP that many were expecting with big ticket deals in the offing. Investment in the sector too, has lagged as a result of the limited foreign direct investment that remains at 26%.

The budget has also not focused on the Small & Medium Enterprises (SME). “Besides increase of budget allocation, the Government should provide support to SMEs in terms of investment and level playing field with (Government-owned) public sector undertakings….there is no announcement of a research and development fund in the budget as was envisaged in the Defense Production Policy 2011,” says Goyal.