With Budget Crunch, Navy Needs To Adopt An Innovative Approach For Financing Shipbuilding Programs
While the Navy was the first service which took up the indigenisation program long before, the share of the Navy as a percentage of total defence budget shows a decline in the Navy share from 18.12 % to 14.55%. So, the resources from budgetary sources will not be able to keep pace with the requirements of the Defence forces. GoI must look into the navy budget. Navy also needs to adopt an innovative approach for financing its shipbuilding programs.
Photo Credit : IN,
The budget allocation for the Navy in FY 2020-21 is Rs 49,623 crores consisting of a revenue component of Rs.22,935 crores and capital of Rs.26,688 crores. The percentage share of the Navy allocation (including Joint Staff) out of a total defence budget of Rs.3,23,053 crores, works out to 15.34%.
Data from the XII Plan indicates that there have been no major spikes in the allocations, which have by and large remained static. On the other hand, the share of the Navy as a percentage of total defence budget shows a decline in the Navy share from 18.12 % to 14.55% during the plan period.
The allocations to the Indian Navy from 2017-2018 onwards indicate that in absolute terms the allocations increased from 2018-19, but its share in the overall defence budget has however remained at practically the same level.
Revenue Capital Ratios
The revenue to capital ratios of allocations in FY 2020-21, for the three services brings out that for the Navy the ratio is 46 : 54. Incidentally, the revenue allocation of Rs 22,935 crs for the navy comprises a salary component of Rs.10,526 Crores and a non salary component of Rs.12,409 Crores. An analysis of the breakup between salary and non-salary component of the Revenue allocations between the three services shows that the allocation for salary is 70% for Army, 60% for Air Force and 46% for Navy.
The Navy allocations, therefore, have a more equitable distribution between the salary and non-salary components and is a pointer to the fact that there is less scope for manpower reduction in the Navy. Further, the Navy has optimised the service to civilian manpower ratio by allocating salaries to civilians of Rs 3094 crores and to naval personnel Rs 7432 crores.
Revenue and Capital Expenditure of Army, Navy and Air Force, 2020-21
Source IDSA Issue Brief and DSE
Navy was the first service which took up the indigenisation program long before it became a buzz word. The Indian Navy transformed from a ‘Buyers Navy’ into a ‘Builders Navy’, and a range of platforms from indigenous aircraft carrier, destroyers, stealth frigates, corvettes, submarines and other minor war vessels are being manufactured in the country.
According to information provided to the Standing Committee on Defence the Navy incurred an expenditure of Rs. 43,296 crores during XI Plan and Rs. 54,540 crores during XII Plan on indigenous acquisitions.
The initiative of indigenisation has had a very positive impact on the Indian industry and resulted in the involvement of a number of MSMEs in the projects of the Navy. Apart from creation of jobs in the country it also promoted skill development in the workforce.
New Financing Options
It is evident that the resources from budgetary sources will not be able to keep pace with the requirements of the Defence forces and the gap between resource requirements and allocations in the current FY is in the range of 25%.Therefore it is imperative to look beyond the traditional approach to building a defence capability.
Once again Navy has shown that it is willing to find out of the box solutions and it was the first service to implement the Leasing provisions which have been recently incorporated in the new DAP 2020.According to reports Indian Navy has inducted two Sea Guardian unarmed drones on lease from the USA for surveillance in the IOR.
Navy also needs to adopt an innovative approach for financing its shipbuilding programs with models like a Finance Corporation which will raise money from the market through bonds and provide resources. At the same time the duplication of resources with four public sector shipyards for Defence needs to be rationalised.
The author is Former Secretary Defence Finance, Ministry of Defence and also the Founder Member and Co-chairperson of Society for Aerospace Maritime and Defence Studies (SAMDeS).