Unveiling the Defence Sector’s Expectations in Budget 2024-25

Anticipating Budget 2024

The Indian defence sector stands at a crucial juncture. With geopolitical tensions simmering and the need for self-reliance in strategic technology intensifying, all eyes are on the upcoming Union Budget 2024. While details remain under wraps, industry experts and stakeholders have voiced their expectations for the crucial allocation.

As the fiscal year 2024-2025 looms, expectations within the Defence Sector are nuanced, with minor fund allocation adjustments anticipated. The government is poised to continue existing procurement plans, with significant nods to key initiatives like the second indigenous aircraft carrier and the procurement of 97 Tejas Mark-1A aircraft. Experts project a 5-7% increase in capital outlay, indicating a focused approach to bolstering the nation’s defence capabilities.

Comparative Budget Analysis: 2023 vs. Projected 2024

The Defence Sector, vital for national security, is set for a substantial boost as the projected budget for 2024-2025 indicates a noteworthy increase from 5% to an estimated 7%. The total allocation is expected to reach a substantial Rs 6,35,085.27 crore (7% increase), showcasing the government’s unwavering commitment to strengthen the country’s defence capabilities.

Here’s a snapshot of the budget allocation trend for the Defence Sector over the past years:

The median growth rate for 2024 is anticipated to be around 8.93%, indicating a consistent upward trajectory in defence budget allocations. This reaffirms the government’s focus on ensuring a robust and well-equipped national defence infrastructure.

Budget 2023: Strengthening the Arsenal 

The 2023 Budget carried a total outlay of Rs 45,03,097 crore, allocating Rs 5,93,537.64 crore to the Defence Ministry. This substantial sum, a 13.18% share of the total budget, aimed at closing critical gaps in combat capabilities. The Defence Pension received a significant allocation of Rs 1,38,205 crore, contributing to the total enhancement of Rs 68,371.49 crore (13%) over the 2022-23 budget. The Defence Research and Development Organization (DRDO) saw a notable 9% increase in allocation, reaching Rs 23,264 crore.

Financial Performance Snapshot: Defence Sector 2023 

The financial year 2022-23 witnessed a historic achievement as defence production surpassed Rs one lakh crore, displaying consistent growth from the previous year’s Rs 95,000 crore. Strategic policy reforms, particularly the integration of Micro, Small, and Medium Enterprises (MSMEs) and start-ups into the supply chain, led to a significant uptick, with defence licenses witnessing an impressive almost 200% increase over the last 7-8 years.

Notably, defence exports surged to an unprecedented Rs 16,000 crore, showcasing a remarkable tenfold rise since 2016-17. This stellar performance reflected in the Nifty India Defence Index, which delivered a remarkable 91% total return Year-to-Date (YTD) by the year-end on December 29, 2023, underlining the sector’s robustness and investor confidence.

Defence Stock Rally in 2023 

Addressing Challenges and Aspirations 

In the upcoming 2024-2025 Budget, the Indian Government might strategically tackle key defence challenges. Recognizing heavy dependence on imported defence tech, the budget could incentivize local production, reducing risks from disruptions and geopolitical pressures. Acknowledging infrastructure gaps, investments in testing, production, and workforce training may be prioritized for efficiency and cost reduction. A potential scheme may encourage private sector involvement in defence tech innovation. Plans for divesting Bharat Earth Movers and shipbuilding PSUs could optimize resources.

Expectations include substantial growth in defence production, targeting over Rs 1.5 lakh crore and aiming for Rs 1.75 lakh crore, with efforts to boost exports beyond Rs 20,000 crore. Ongoing collaborations like General Electric-Hindustan Aeronautics and the S400 air defence system may be expressed with confidence in smooth progress.

Conclusion 

In anticipation of Budget 2024-2025, the Defence Sector expects a 7% budget increase to approx. Rs 6.35 lakh crore, reinforcing commitment to national security as the trajectory remains upward. The stellar 2023 performance highlights resilience, reflected in a 91% return in the Nifty India Defence Index. As India aims for self-reliance, the sector charts a promising course. The Defence Sector charts a promising course, aligning with India’s aspirations for self-reliance and strategic strength.

Disclaimer: This blog has been written exclusively for educational purposes. The securities mentioned are only examples and not recommendations. It is based on several secondary sources on the internet and is subject to changes. Please consult an expert before making related decisions.