Defence Outlay for Upcoming Budget in July 2024

Interim Union Budget for 2024-25

The Interim Union Budget for 2024-25, presented on February 1, 2024, by Finance Minister Nirmala Sitharaman, allocated a record Rs 6.21 lakh crore to the Ministry of Defence. This figure represents a 4.72% increase over the previous fiscal year, showcasing the government’s commitment to strengthening India’s defence capabilities. As we approach the upcoming full budget in July 2024, this comprehensive analysis provides insights into how this increased allocation will influence the defence sector and what it signifies for future fiscal policies.

A significant portion of the defence budget, Rs 1.72 lakh crore or 27.67%, has been earmarked for capital acquisitions. This allocation is crucial for modernising the armed forces, including the procurement of advanced weapon systems, fighter aircraft, ships, unmanned aerial vehicles, and specialist vehicles.

For the fiscal year 2024-25, Rs 92,088 crore has been allocated for revenue expenditure other than salary, which is 48% higher than the budgetary allocation for FY 2022-23. This allocation ensures the sustenance and operational readiness of the armed forces, covering maintenance facilities, ammunition procurement, resource mobility, and day-to-day operational costs.

The budgetary allocation for defence pensions has increased to Rs 1.41 lakh crore, reflecting a 2.17% rise from the previous fiscal year. This amount will cover monthly pensions for approximately 32 lakh pensioners through the SPARSH system and other pension disbursing authorities. Additionally, the Ex-Servicemen Welfare Scheme has seen a 28% increase in allocation, reaching Rs 6,968 crore.

Overview of defence allocation and percentage change over previous budgets

India to strengthen maritime security and defence industry

The Indian government’s unwavering commitment to bolstering national security is driving significant developments in both the country’s defence strategy and its domestic defence industry. This focus, as recently emphasized by Defence Minister Rajnath Singh, is translating into a positive outlook for defence stocks in India.

Singh’s visit to the Eastern Naval Command in Visakhapatnam marked his first outstation visit after assuming office for a second term. During the visit, he underscored the government’s resolve to further strengthen maritime security and solidify India’s naval presence in the Indian Ocean Region (IOR). This renewed emphasis on maritime security comes alongside increased budgetary allocations and policy measures aimed at propelling the domestic defence industry forward.

This focus on domestic production aligns perfectly with the recent rally witnessed in defence stocks. The past three days have seen a surge in defence stocks, with companies like Paras Defence and GRSE experiencing significant gains. This rally can be partly attributed to the Ministry of Defence issuing a request for proposal to procure Light Combat Helicopters from Hindustan Aeronautics Limited (HAL) – a move valued at a staggering Rs 50,000 crore. This hefty order, the largest single helicopter order placed with an Indian company, signifies the government’s commitment to the “Make in India” initiative for defence production.

Minister Singh’s ambitious target of generating Rs 50,000 crore worth of military exports annually by 2028-2029 further fueled the positive sentiment in the defence sector. This target, coupled with the record-breaking Rs 21,083 crore of defence exports achieved in the previous financial year, paints a promising picture for the future of India’s defence industry.

Expectations for the Upcoming Budget

While the details of the upcoming July 2024 budget are yet to be announced, the trends observed in the February 2024 interim budget and pronouncements from Defence Minister Rajnath Singh provide valuable insights. We can expect the upcoming budget to continue prioritizing:

• Increased allocation for capital expenditure to modernize the armed forces.
• Continued support for domestic defence production under the “Make in India” initiative.
• Investment in critical border infrastructure development.
• Strengthening the Indian Navy and Coast Guard capabilities.
• Promoting innovation and self-reliance in defence research and development.

As we await the full budget in July 2024, these allocations set the stage for continued investment in defence, aligning with the government’s vision of a confident and strong India. The positive response from the stock market and the focus on defence exports further highlight the potential economic impact of these investments, positioning India as a reliable global defence equipment supplier.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. The information is based on various secondary sources on the internet and is subject to change. Please consult with a financial expert before making investment decisions.