India Proposes 10% Budget Increase in defence spending; 3.3% Boost for Procurement

India has proposed a 10 percent increase in defense spending for the financial year beginning April 1, but the plan includes a boost of only 3.28 percent for new weapon procurement compared with a jump of 9 percent the previous year.

Indian Finance Minister Palaniappan Chidambaram announced in Parliament Feb. 17 that defense spending for 2014-2015 would be 2.24 trillion rupees (US $36.3 billion) compared with 2.36 trillion rupees in 2013-2014. Because the rupee was weaker at that time, the defense budget was worth only US $33.95 billion.

For weapon and equipment purchases, the equivalent of US $14.93 billion has been allocated for the next fiscal year, compared with US $14.56 billion for the current year.

The budget allocations proposed by Chidambaram could change, however, when the new government announces its budget after general elections slotted before May. Chidambaram presented an interim budget, which would govern spending only for the next four months.

“The budget proposals are subject to change by the new government after the general elections. As such the latest proposals only give adirection of the defense spending in the year 2014-15, because these figures can be changed by the new government,” said Nitin Mehta, defense analyst.

Resources available to buy new arms over the past year shrunk sharply because of a decline of more than 10 percent in the value of the rupee against the US dollar, and because funds for weapons were diverted for other purposes.

The Indian defense minister diverted US $1.3 billion from the Capital Head of the budget, which was intended for new weapons andequipment, to the Revenue Head, which is largely used to pay salaries, pensions and other day-to-day equipment for the troops, said a Defence Ministry source.

The fund diversion affected the inking of several defense projects, including the purchase of Boeing AH-64-D Apache helicopters worth US $1.16 billion, Boeing Chinook heavy-lift helicopters worth US $833 million, and the purchase of 145 light howitzers from the US subsidiary of BAE Systems for US $583 million.

The fate of defense projects in the pipeline will only be decided by the next government, scheduled to take over in June.

“If the failure to spend [US $1.66 billion] in 2012-13 is also taken into account with the falling rupee and diversion of funds, then the picture is a clear starvation of fresh contracts by the government in the last two years and the trend looks the same given the small increase in money for weapons and equipment,” said Mehta.