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India could look at issuing bonds to plug shortfall in defence funding

REPORT-3-ENG-25-08-2020-India

The National Democratic Alliance (NDA) government of India could issue bonds to meet any shortfall in resources for the defence budget, which has been shrinking over the years, a former ministry official has suggested.

The capital budget should be made non-lapsable so that there is certainty about the availability of funds for ongoing schemes, G. Mohan Kumar, who was defence secretary in 2015-17, said in an interview.

“The defence budget is going to be a limiting factor. The capital budget always increases marginally and budget cuts further introduce uncertainties," Kumar said.

“In the current situation, when the government’s revenue is under severe stress, increasing the budget may look nearly impossible," he said. “The capital budget should be made non-lapsable so that there is certainty about the availability of funds for ongoing schemes. The government could even think of floating national defence bonds to augment resources," he said.

India needs to get “a firm foothold in hi-tech areas" to achieve self-reliance, said Kumar, who also spoke about the defence ministry recently announcing a list of 101 weapons and platforms that should be procured from domestic companies under the Atmanirbhar Bharat programme.

“We should have planned for self-reliance long ago by adopting a multi-pronged strategy. It is one thing to manufacture bullet-proof vests or electronic fuses but another thing to manufacture high-tech systems. The critical requisites are technology and ecosystem building. Till recently, even state-run Hindustan Aeronautics Ltd did not think seriously about an ecosystem," Kumar said.

“The fundamental mistake was that we neglected the private sector," Kumar said.

The Centre announced a slew of reforms in May, which included raising the foreign direct investment cap in the defence sector, as part of an ambitious plan to ensure India returns to a high growth path after the lockdown.

The plan also included a pledge to buy more weapons and platforms made locally to boost domestic manufacturing.

Earlier this month, the defence ministry outlined a list of 101 systems, including advanced hardware such as submarines that it said it would stop importing. The ministry estimates that contracts worth almost Rs.4 trillion will be given to domestic industry in the next five to seven years. It has also bifurcated capital procurement budget for 2020-21 between domestic and foreign capital procurement routes. A separate budget head has been created with about Rs.52,000 crore for procurement from domestic firms this year, a move that was hailed by India Inc.

However, a major worry has been the shrinking defence budget. The annual budget unveiled in February earmarked Rs.4.71 trillion.

“In the past seven years, the gap between resource requirement and allocation of the defence ministry, which briefly narrowed from 27% in 2013-14 to 14% in 2015-16, has increased to 25% in 2019-20," said Laxman Kumar Behera, an analyst at the Institute of Defence Stu-dies and Analyses, New Delhi.