Defence budget allocation likely to see minimum 10 per cent hike

The Union Budget this year will come in the wake of government's acceptance and implementation of the Seventh Pay Commission (including OROP). The heavy toll on expense would somewhat be softened by the sustained low prices of crude oil. My expectations from the Budget (defence allocation) are as under:

1. The defence allocation in Union Budget will be enhanced by minimum 10 per cent over last year's allocation. This is considering the big ticket expenses of Seventh Pay Commission (including OROP), purchase of 36 Rafale aircraft and the DPP 2016.

2. The substantial operational expenses on account of OROP and Pay Commission will deplete/stagnate share of capital expenses to 40 per cent of the Budget or lesser. This may impact the modernisation process to a certain extent.

3. The share of IAF in capital acquisition should see a substantial increase. This is on account of likely purchase of Rafale aircraft and will have an impact on modernisation of the Army.

4. The huge expectations from 'Make in India' and DPP 2016 will make defence budget predisposed towards Indian industry. I expect a thrust towards 'Make' component of DPP and towards 'skilling' by industry. One can expect allocation for 'Make' projects to be enhanced by 200-300 per cent over the previous year's allocation of approximately Rs 145 crore. Government may include sops of Rs 100-200 crore to encourage skilling.

5. Defence R&D will benefit most due to the anticipation over DPP 2016 and the enthusiasm of the government to indigenise defence production. I expect the 'Defence Technology Fund' to be generously enhanced to Rs 1,000 crore, ceding to the long-standing demand of the industry. This will enable SMEs to carry out design and development efforts. I also expect the government may go in for setting up of a Sec 25 Company on lines of erstwhile Global Innovation and Technology Alliance (GITA) with a small corpus to kick-start innovation in private sector.

Overall, I feel the defence budget would aspire to build a 'feel good factor' in the private sector and underline the fact that best innovation is carried out by nimble and swift SMEs, rather than the monolithic primes.

(Col. Rajiv Bhargava is an alumnus of ISB and is currently serving as Associate Director with the Munjal Institute for Global Manufacturing at ISB. Views expressed here are personal.)