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India on Wednesday set aside 5.94 trillion for defence spending in this year’s budget, including a capital outlay of 1.62 trillion for the military’s modernization, with the allocation 13% higher than that in last year’s budget estimates, and about 2% more compared to that in the revised estimates for 2022-23, documents showed.

The budget includes a revenue expenditure of 2.7 trillion and pension outlay of 1.38 trillion.

This year’s defence budget accounts for 2% of the country’s projected gross domestic product (GDP) for 2023-24.

It forms 13% of the total government budget.

The enhanced allocation comes at a time when India is locked in a border row with China and pursuing a raft of modernization programmes with a sharp focus on deploying locally produced weapons and systems.

This year’s capital outlay is about 6% higher than that in last year’s budget estimates and about 8% more compared to that in the revised estimates for 2022-23.

The capital allocation will power the purchase of fighter aircraft, helicopters, warships, missiles and several land systems, including tanks and artillery guns.

“This expenditure will close critical gaps in the combat capabilities and equip the Forces in terms of ammunition, sustenance of weapons & assets, military reserves etc," defence minister Rajnath Singh wrote on Twitter.

The increase in outlay will enable more local collaborations, critical technology development and transfers as well as development of skills in the country, said Ashish Saraf, country director, India-Thales.

“This will further support the government’s objective of developing India as a global manufacturing hub to aid defence exports, and the vision of ‘Aatmanirbhar Bharat’ (self-reliant India)," he added.

However, some experts believe the government could have set aside more funds under the capital head.

“We believe capex allocation misses a commensurate reflection of the government’s impetus on defence manufacturing," said Gaurav Mehndiratta, head, aerospace and defence, KPMG India.

Revised estimates in the budget documents show that the armed forces were unable to spend 2,369 crore out of last year’s capital outlay of 1.52 trillion.

Last year, the armed forces spent around 21,000 crore on top of the previous year’s budget allocation, amid the lingering border row with China that saw India make a raft of emergency purchases and sharpen its focus on building infrastructure in forward areas.

The defence ministry spent 1.53 trillion on pensions last year (revised estimates) compared to 1.19 trillion (budget estimates).

The enhanced spending was largely on account of revised pensions under the One Rank, One Pension (OROP) scheme for veterans.

In December, the Union Cabinet, headed by Prime Minister Narendra Modi, approved the revision of pension of ex-servicemen and family pensioners under the scheme, with more than 2.5 million defence pensioners to be paid arrears amounting to 23,638 crore.

The defence minister said the government was committed to strengthening infrastructure in the border areas, particularly the northern borders with China.

“The capital budget of the Border Roads Organisation (BRO) has increased by 43% to 5,000 crore in FY 2023-24 as against 3,500 crore in FY 2022-23," he said.

India allocated 5.25 trillion for military spending in last year’s budget, 4.78 trillion in 2021-22, and 4.71 trillion the year before.

The payment received from the Agniveer corpus fund by Agniveers is proposed to be exempt from taxes, according to the budget documents.

“Deduction in the computation of total income is proposed to be allowed to the Agniveer on the contribution made by him or the central government to his Seva Nidhi account."

The Agnipath model for short-term induction of soldiers into the three services is a major departure from the military’s decades-old recruitment system that was discontinued when the government announced the new scheme in 2022.

It seeks to recruit soldiers for only four years, with a provision to retain 25% of them in regular service.

Those released after four years will get 11.71 lakh as Seva Nidhi severance package, including 5.02 lakh contributed by them during their service.

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