The Telegraph
Friday , July 11 , 2014
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Funds and FDI cap up for defence

New Delhi, July 10: The Modi government has indicated its priority for the armed forces with Arun Jaitley hiking allocation by Rs 5,000 crore over the interim budget for purchase of hardware to a total of Rs 2,29,000 crore, nearly twice the allocations for health and education combined.

But Jaitley — who is both finance and defence minister — has not really been complimented on his announcement of a revised policy to raise the cap on foreign direct investment in defence manufacturing from 26 per cent to 49 per cent.

Industry spokespersons want the cap to be at 51 per cent with control vested in the investors. It has angered critics of the government — among them former defence minister A.K. Antony — who have called it “a threat to national security”.

“It is dangerous,” said Antony in a rare comment on the current government’s policy.

The policy is not a vast change from the regime of Antony who had retained the cap at 26 per cent but was willing to raise it on a case-by-case basis if new projects brought in state-of-the art technology.

There is only one major defence venture in the country with FDI since the policy started being discussed in 2002: BrahMos, the India-Russia missile venture, in which the governments of the two countries hold 50 per cent stake each.

The raising of the cap to 49 per cent “is irrelevant, it means nothing, no difference between 26 per cent and 49 per cent with full Indian control”, says Major General (retired) Mrinal Suman, who heads CII’s defence technical assessment and advisory group.

“I don’t think the situation will change. It is making a fool of the people. Will any investor give exclusive technology in defence unless he has control? The only difference is that the quantum of repatriable dividend has been increased. Unless you allow FDI upto 51 per cent with control to the investor, this will be a futile exercise. I think the clout of the bureaucrats in the defence ministry who are against FDI is showing,” he said.

The defence allocations prioritise strategic areas, apart from the symbolism of funding a national war memorial, for which Rs 100 crore has been allotted.

For the first time, the defence allocations have created a separate budget head called “Defence Rail Network” for which Rs 1,000 crore is proposed. The fund is to be utilised to build and expand 14 railway lines — 11 of them in the Northeast and three in Jammu and Kashmir — that are meant to transport troops and equipment to the China frontier faster.

The capital budget — for new acquisitions on the modernisation of the military depends — has increased to Rs 94,588 crore, Rs 5,000 crore more than what was sanctioned by the previous government in February in the interim budget.

Of the funds earmarked for modernisation, a back-of-the-envelop calculation indicates that the air force has been given Rs 33,310.18 crore, the army Rs 24,979.86 crore and the navy (including fleet and dockyards) Rs 22,803.72 crore. These figures do not include funds allocated for “special projects”.

The allocations for rewards for the forces have gone up by more than 10 times in two years. The actual amount spent on rewards — casualty awards such as war injury, pay and gallantry awards like Param Vir Chakra — in 2012 was Rs 3.16 crore. In the allocations for 2014-2015, Jaitley has budgeted for Rs 33.05 crore, up from around Rs 25 crore in 2013-14.

The minister also said that Rs 1,000 crore would be used to implement the one-rank-one-pension scheme, which guarantees that soldiers of the same rank and duration of service will receive the same pension.