The fact is that while the FDI confidence index of the country is very high, that in the defence sector is extremely low. It is imperative that all stakeholders be integrated in reforming the Defence Procurement Policy and procedures, without which raising the FDI limit is unlikely to provide significant dividends.

The Finance Minister has announced the defence budget amounting to Rs. 2,29,000 crore ($38.5 billion) for financial Year 2014-15. The defence spending was boosted by 12 per cent over the previous year (defence expenditure for 2013-14 was kept at Rs. 2,04,000 crore) and a Rs. 5,000-crore increase over what the previous government had announced as part of the interim budget earlier this year.

While announcing the defence budget, the Finance Minister said, “Modernisation of the armed forces is critical to enable them to play their role selectively in the defence of India’s strategic interests.” The additional sum of Rs. 5,000 crore has also been set aside for defence outlay over and above the amount provided under the interim budget to give a boost to the modernisation of the armed forces. However, this includes a sum of Rs. 1,000 crore for accelerating the development of railway system in border areas.

Earlier, in June 2014, a Pentagon report had stated that India’s annual defence budget is just one-third of that of China despite the tensions that remain along their shared border. That situation remains unchanged as the newly announced budget is still less than a third of China’s $145 billion expenditure last year. Actual figures Chinese defence expenditure have always been much more and shrouded in ambiguity because of the enormous business concerns of the People’s Liberation Army (PLA). But considering the downward spiral of our economy under the previous government, it would have been too optimistic to expect a greater hike in the defnce budget. However, what should be of serious concern to us is making up of the existing voids, which as per some estimates are to the tune of Rs. 2,70,000 crore in the Army alone, leaving that much less for modernisation.

Major deals like the 126 medium multi-role combat aircraft (MMRCA) aircraft contract are pending, which is expected to be worth over Rs. 60,000 crore. The other major acquisitions expected to be finalised in next few weeks include the deals for 22 Apache combat helicopters, 15 Chinook heavy-lift helicopters and six mid-air refuelling aircraft. The 155mm gun howitzer deal ex BAE Systems of US appears to be off in view of development of the indigenous ‘Dhanush’ but the question is how many years will it require to complete the voids of the artillery, argument of procurement of additional 130mm guns cutting no ice. As for border infrastructure, while Rs. 1,000 crore have been allotted for the strategic railway lines, what about the balance infrastructure and how much will be required for this from the current defence budget?

Of the overall 73 strategic roads planned, only 17 have been completed to date. There is little change to the shocking revelations made by the Standing Committee of Defence in February 2014: only one out of 27 ITBP roads have been completed; detailed project report for 18 roads have not even been reportedly prepared although deadline for completion of all 27 roads range from March to October 2014; 14 strategic railway lines proposed by the Ministry of Defence (MoD) in 2010 and 2012 along the China border are still on paper; after a three-year delay, contracts for six Advanced Landing Grounds in Arunachal Pradesh have reportedly not been awarded yet. Allotment of the Rs. 100 crore Technology Development Fund is a welcome step but it must be used judiciously and we must have a proper road map for leapfrogging technology including adapt to the art of reverse engineering, as is being practised by China.

Similarly, hiking FDI in the defence sector is a welcome step but much work is required to streamline procedures and make the system attractive and practical for investors. The 26 per cent FDI had barely attracted less than $5 million foreign investment; just 4.94 per cent in last 14 years. The fact is that while the FDI confidence Index of the country is very high, that in the defence sector is extremely low. This cannot be rectified by the MoD by themselves, which they have failed to do over the years. It is imperative that all stakeholders be integrated in reforming the Defence Procurement Policy and procedures, without which raising the FDI limit is unlikely to provide significant dividends.