MoD spends 65% of this year's defence capital budget on domestic procurement - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Wednesday 20 April 2022

MoD spends 65% of this year's defence capital budget on domestic procurement

 No surrender of funds: 99.5% of defence budget utilised


By Ajai Shukla

Business Standard, 21st Apr 22


The Ministry of Defence (MoD) announced on Wednesday that it had exceeded its target of spending 64 per cent of the capital acquisition budget on domestic industry in Financial Year (FY) 2021-22.


“At the end of FY 2021-22, MoD has been able to over achieve (sic) this target and has utilised 65.5 per cent of capital acquisition budget on indigenous procurements through Indian industry to achieve Prime Minister Shri Narendra Modi’s vision of 'Aatmanirbhar Bharat'(self-reliant India),” stated an MoD press release. 


“Further, as per preliminary expenditure report of March 2022, MoD has been able to utilise 99.5 per cent of the defence services Budget in FY 2021-22,” said the MoD.


In fact, Finance Minister Nirmala Sitharaman had, on February 01, committed the government to a lower spending figure in the current year. Presenting the budget in Parliament she said: “Our government is committed to reducing imports and promoting AtmaNirbhartain equipment for the armed forces. 68 per cent of the capital procurement budget will be earmarked for domestic industry in 2022-23, up from 58 per cent in 2021-22.”


In effect, the government has spent over 65.5 per cent on domestic capital procurement, slightly more than the 64 per cent it had targeted. Its target for capital spending on domestic industry in FY 2022-23 remains 68 per cent.


In her budget speech in Parliament, Sitharaman had stated: “Defence R&D will be opened up for industry, startups and academia with 25 per cent of defence R&D budget earmarked.”


She had also promised: “Private industry will be encouraged to take up design and development of military platforms and equipment in collaboration with Defence R&D Organisation (DRDO) and other organizations through SPV model. An independent nodal umbrella body will be set up for meeting wide ranging testing and certification requirements.”


However, it remains unclear how exactly the percentage of indigenous content in a particular defence equipment would be calculated. If it is based only on the entity on which an order is placed, there is likely to be an over-estimation of indigenous content.


For example, an order for, say, Arjun tanks, placed on the Heavy Vehicles Factory in Avadi (HVF), superficially contains a high indigenous content, since the tanks are being manufactured in India. However, it would need to be taken into account that several systems and sub-systems in the tank would be bought over-the-counter by HVF from global vendors. It would be misleading to add the cost of those parts to the indigenous content of the tank.

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