Union Budget 2024-25: Explaining India’s Defence Budget of Over Rs 4.32 Lakh Crore

The defence is always one of the key focus area in India's budget. Finance Minister Nirmala Sitharaman will present the vote of account for the current financial year on February 1 during the Budget session of the Parliament in New Delhi. Krishnanand explains the intricacies of India's defence expenditure.

New Delhi: One of the key focus areas in this year's budget will be the defence sector as the world's most populous country and a major military power, India’s defence expenditure is not only of interest to the general public and policy makers but defence and strategic experts across the world take note of it.

India is surrounded by two hostile neighbours Pakistan and China and has fought several wars with them since independence in 1947, including the last major border skirmish with its northern neighbour China in May-June 2020 in Ladakh region in which 20 Indian Army personnel were killed.

The country also grapples with internal security challenges in the border states and central India where left wing extremists are active. All these factors require the Centre to spend huge sums of money on securing the country's borders, its exclusive economic zones and also on maintenance of internal peace and security.

As a result, India's defence budget has seen consistent rise over the years. For example, India's defence budget was over Rs 3.66 lakh crore in the financial year 2021-22 and Finance Minister Nirmala Sitharaman, who was defence minister during the Prime Minister Narendra Modi’s first tenure, allocated over Rs 3.85 lakh crore for the last financial year (FY 2022-23). However, as per the revised estimates presented last year, India's defence budget touched a record Rs 4.10 lakh crore.

Similarly, for the current financial year, given India's unique security challenges, Nirmala Sitharaman increased the allocation for defence budget from Rs 3.85 lakh crore to nearly Rs 4.33 lakh crore. However, as per the revised estimates, this figure is also expected to register an increase when Finance Minister Nirmala Sitharaman presents the vote on account for the current financial year on February 1.

Decoding India’s defence budget

India's defence budget has been organised in four categories – Ministry of Defence’s civil expenditure, defence services (revenue) expenditure, capital outlay on defence services or capital expenditure on defence sector and defence pensions. The Ministry of Defence’s (civil) expenditure for the current financial year (FY 2023-24) has been estimated at nearly Rs 46,000 crore, the capital expenditure under this category has been pegged at around Rs 8,850 crore, over Rs 37,000 crore will be spent as revenue expenditure.

The biggest component of over Rs 4.3 lakh crore defence budget in the current financial year would be spent as revenue expenditure (defence services revenue), which entails salary and wages, establishment cost and other operational expenditure of Indian Armed Forces.

As per the budget estimates for the current financial year, this segment alone accounts for nearly two third (63.4 percent) of the total defence budget of Rs 4.37 lakh crore for the current financial year.

The second biggest component in India’s defence budget is the capital expenditure (capital outlay on defence services). India's actual capital expenditure on defence sector was around Rs 1.38 lakh crore in the financial year 2021-22 which was increased to Rs 1.5 lakh crore in the next financial year as per the revised estimates for FY 2022-23.

Finance minister Nirmala Sitharaman allocated a record Rs 1,62,000 crore for capital expenditure in the defence budget for the country for the current financial year.

Capital expenditure of the defence budget is the sum of the money that the government spends on acquiring new weapon systems or creation of new defence facilities for Armed Forces such as buying battle tanks and combat jets, warships and submarines. This amount also includes money spent on creation of new facilities such as establishment for new airstrips or airports or sea ports for the Indian military.

In addition to revenue and capital expenditure, the Centre spends huge sums of money on payment of pensions to ex-servicemen. The budget data showed that India's defence pension bill increased from around Rs 1.17 lakh crore in the financial year 2021-22 to Rs 1.53 lakh crore in the next financial year.

This year, India is expected to spend over Rs 1.38 lakh crore on payment of pensions to ex-service men which includes retirees of Indian Army, Indian Navy, Indian Air Force and other central forces under the Ministry of Defence such as Indian Coast Guard.

Agnipath scheme to cut the defence pension budget

In order to reduce the pension bill of India’s defence budget, which accounts for over 30 per cent of the overall defence budget of the country in the current financial year, the Centre introduced a short-term tour of duty scheme known as 'Agnipath' scheme.

Indian Armed Forces personnel recruited under this scheme are known as 'Agniveer'. The soldiers, sailors and airmen recruited under this scheme enrolled in Indian military for a fixed period of four years and only upto one-fourth of the Agniveers will be shortlisted for regular cadre in Indian forces. The scheme was aimed at meeting the shortfall of manpower in the Indian military without incurring the recurring expenditure on pensions.