Budget for Atmanirbharta in defence and Agnipath scheme | Budget 2024 | Agniveer | Budget news

Summary

In this episode of the Budget Show with Business Standard, host Keska Gupta and experts Ares Mohan and Pastor Kumar discuss the future of India's Agnipath scheme and potential modifications in the upcoming budget. They explore the financial implications of changes to the scheme, the defense budget allocation, and the impact of geopolitical relations with China and Pakistan. The experts highlight political pressures, job vacancies, and the push for defense self-reliance, considering the upcoming assembly elections and the broader context of India's defense strategy.

Takeaways

• 😀 The Agnipath scheme has been a contentious issue and a hot topic in the Parliament session, with potential modifications expected in response to election outcomes and public sentiment.
• 🏛️ The Modi government has historically responded to election messages, such as withdrawing the land acquisition bill in 2015 and the three farm laws in 2022, suggesting a possible response to the Agnipath scheme concerns.
• 💡 The Agnipath scheme was introduced with the aim of maintaining a youthful profile in the armed forces and reducing the wage and pension bill, which currently consumes a significant portion of the defense budget.
• 💼 Financial implications of modifying the Agnipath scheme could affect the overall defense allocation, potentially impacting the modernization and mechanization of the armed forces.
• 🔍 An internal review by the Army has suggested possible modifications to the scheme, such as extending the service period and increasing the retention rate of Agniveers beyond the current 25%.
• 📊 The defense budget's key concern is to reach 2% of GDP, which is a benchmark for advanced economies and a goal that the Indian government has been striving to achieve.
• 🌏 China's defense budget for 2024 is significantly larger than India's, standing at about $232 billion compared to India's $75 billion, reflecting the need for India to match capabilities amid border tensions.
• 📉 Pakistan's defense spending is not explicitly detailed, but it is known that they aim to keep pace with India's capabilities, despite the economic divergence between the two countries.
• 🔑 The Agnipath scheme is occurring amidst broader economic challenges, including jobless growth, unfilled government vacancies, and the pressure of a growing pension bill.
• 🤝 PM Modi's third term is expected to bring continuity and strength to foreign relations, but the improvement of relations with China and Pakistan will also depend on their internal situations and political contexts.
• 🛠️ The upcoming budget is crucial for boosting India's Atmanirbhar Bharat initiative in defense, with the defense industry emphasizing the need for increased capital allocation and measures to promote indigenous production and defense exports.

Q & A

What is the Agnipath scheme and why has it been a contentious issue in India?

The Agnipath scheme is a military recruitment program introduced by the Indian government aimed at maintaining a youthful profile in the armed forces and reducing the wage and pension bill. It has been contentious due to protests and concerns over job security and the impact on the armed forces' structure.

How has the Modi government historically responded to election outcomes and public sentiment?

Historically, the Modi government has responded to election outcomes and public sentiment by adjusting policies. For instance, they withdrew the land acquisition bill in 2015 due to protests and upcoming elections, and introduced the PM Kisan scheme in 2018 after losing in key states, attributing the loss to farm distress.

What are the financial implications of modifying the Agnipath scheme on India's defense budget?

Modifying the Agnipath scheme could impact the defense budget by altering the allocation for wages and salaries versus capital expenditure for equipment modernization. The scheme was intended to reduce personnel costs, so changes might affect the balance between these two budget components.

What is the current percentage of India's GDP allocated to defense, and what is the target percentage?

The current defense expenditure is less than 2% of India's GDP, which is a concern as most advanced economies spend between 2 to 5%. The Indian government aims to increase the defense budget to reach at least 2% of GDP.

How does India's defense budget compare to that of China and Pakistan?

China's defense budget for 2024 is about $232 billion, which is triple India's allocation of about $75 billion. China spends about 1.6% of its GDP on defense. Pakistan's defense spending is not specified, but it is generally lower than India's, though they aim to keep pace with India's capabilities.

What is the context of the Agnipath scheme controversy in relation to India's job market and government vacancies?

The Agnipath scheme controversy is set against the backdrop of jobless growth in India, with critics pointing out the lack of jobs for the youth and the government not filling existing vacancies. There is pressure on the government to address these issues.

How might the internal review of the Agnipath scheme by the Indian Army affect its future?

The internal review by the Indian Army has put forward suggestions such as recruiting Agnivesh for a longer period and retaining a greater percentage after their service. However, these are only suggestions, and it is unclear if or when these changes will be implemented.

What is the significance of Prime Minister Modi not attending the Shanghai Cooperation Organization Summit?

Prime Minister Modi's decision not to attend the summit is notable, as it is an important event for regional cooperation. He has previously focused on relations with Central Asia and attended summits in the past. His absence may signal a shift in diplomatic priorities.

What are the expectations from the upcoming budget to boost India's defense and self-reliance (Aatmanirbhar Bharat)?

The defense industry expects the upcoming budget to increase the capital allocation for defense production, aiming for a growth rate of 20-25% annually to meet the ambitious target of Rs. 3 trillion by FY29. Measures like a defense export promotion council and incentives for R&D and indigenous acquisition could also be part of the budget.

How might the upcoming assembly elections in Maharashtra and Haryana influence the government's decisions on the Agnipath scheme?

The upcoming elections in Maharashtra and Haryana could influence the government's decisions on the Agnipath scheme, as the issue has been a hot topic in these states. The government may address the scheme in the budget or make changes closer to the elections depending on political pressures.

What role do Small and Medium Enterprises (SMEs) play in the defense production sector, and what are the expectations from the upcoming budget?

SMEs are expected to play a greater role in defense production, especially in the industrial corridors coming up in Tamil Nadu and Uttar Pradesh. There are expectations that the government will heed the calls for their increased participation in defense production in the upcoming budget.

Outlines

00:00

🔥 Agnipath Scheme and Defense Budget Concerns

The first paragraph discusses the potential continuation and possible modifications of the Agnipath scheme by the Modi 3.0 government, as well as the implications for the defense budget. It highlights the government's past behavior in response to election outcomes and public sentiment, such as the withdrawal of the land acquisition bill in 2015 and the three farm laws in 2022. The paragraph also touches on the financial impact of the Agnipath scheme on the defense budget, emphasizing the need for a youthful military and the reduction of wage and pension bills. Suggestions for modifications include extending the service period of Agnivesh and increasing the retention rate beyond the current 25%. The discussion also speculates on the timing of these changes, possibly in relation to upcoming elections in Maharashtra and Haryana.

05:00

💼 Economic and Foreign Policy Considerations in Defense Spending

The second paragraph delves into India's defense spending in relation to its GDP, comparing it with the spending of advanced economies and its neighbors, China and Pakistan. It underscores the challenge of increasing defense expenditure to 2% of GDP, a goal that has been elusive, with the defense expenditure being only 1.9% of GDP in the interim budget for FY25. The paragraph also addresses the pressure to match China's military capabilities, given the ongoing tensions at the border, and acknowledges the significant disparity in defense spending between India and China. Additionally, it discusses the domestic criticism the government faces regarding jobless growth, unfilled government vacancies, and the pension bill, which all contribute to the complexity of defense budget allocations.

10:02

🤝 International Relations and Defense Self-Reliance

The third paragraph focuses on the broader context of India's foreign relations and the government's efforts towards defense self-reliance (Atmanirbharta). It mentions Prime Minister Modi's absence from the Shanghai Cooperation Organization Summit and the potential implications for India's foreign policy. The discussion then shifts to the ambitious goals set by the government for defense production, aiming to reach a target of 3 trillion rupees by FY29, which is a substantial increase from the previous year's production. The paragraph outlines the need for a significant increase in the capital allocation budget to achieve this target and mentions other measures that could support Atmanirbharta, such as the establishment of a defense export promotion council and incentives for R&D and indigenous acquisition. The summary concludes with the anticipation of how the upcoming budget might address these issues in the context of political pressures and the Agnipath scheme.

Keywords

💡Agnipath Scheme

The Agnipath Scheme is a controversial military recruitment program in India that has been a point of debate due to its implications for the youth and the armed forces. Defined by a limited service period and a significant reduction in the number of personnel eligible for permanent positions, it aims to maintain a youthful profile in the military while reducing wage and pension bills. In the script, it is discussed as a potential area of modification in the upcoming budget, highlighting its importance to the defense strategy and financial planning of the Indian government.

💡Defense Budget

The defense budget refers to the allocation of funds by the government for the purpose of national defense and military activities. It is a central theme in the video, with discussions revolving around its adequacy, the percentage of GDP it should constitute, and how it compares with that of neighboring countries like China and Pakistan. The script mentions the goal of increasing India's defense budget to 2% of GDP, indicating the government's commitment to strengthening national security.

💡Youthful Profile

A youthful profile in the context of the military refers to the composition of the armed forces with a significant number of younger personnel. The Agnipath Scheme was introduced with the aim of ensuring a youthful profile in the armed forces, which is believed to contribute to their vitality and readiness. The script discusses potential modifications to the scheme that could impact this demographic balance.

💡Wage and Pension Bill

The wage and pension bill represents the financial obligations of the government towards the payment of salaries and pensions for military personnel. The Agnipath Scheme was designed to reduce this burden, as it was seen as a significant portion of the defense budget. The script mentions that any changes to the scheme could have financial implications for this aspect of the defense spending.

💡Capital Account

In the context of defense spending, the capital account refers to the funds allocated for the purchase of equipment, modernization, and mechanization of the armed forces. The script indicates that modern militaries spend over 50% of their total defense allocation on the capital account, emphasizing the importance of maintaining up-to-date military capabilities.

💡Personnel Heavy Structure

A personnel heavy structure describes an organization where a large proportion of the budget is dedicated to the payment of personnel, including wages and pensions, as opposed to equipment and infrastructure. The script points out that in the Indian Armed Forces, more than half of the defense allocation is consumed by personnel costs, which the Agnipath Scheme was intended to address.

💡Internal Review

An internal review is a process where an organization assesses its own policies, programs, or initiatives to identify areas for improvement or confirmation of effectiveness. The script mentions that the Army has conducted an internal review of the Agnipath Scheme and put forward suggestions, indicating a self-assessment aimed at refining the scheme.

💡Atmanirbhar Bharat

Atmanirbhar Bharat, or Self-Reliant India, is a policy initiative by the Indian government to promote self-reliance and reduce dependency on imports, especially in critical sectors like defense. The script discusses the government's efforts to boost indigenous defense production and achieve a target of 3 trillion rupees by 2029, reflecting the broader theme of national self-reliance.

💡Galwan Clash

The Galwan Clash refers to a military conflict between India and China in June 2020 at the Line of Actual Control in the Galwan Valley. The script mentions this event as a catalyst for increased efforts towards Atmanirbhar Bharat, particularly in defense, underscoring the impact of geopolitical tensions on national policy.

💡MSMEs

MSMEs stands for Micro, Small, and Medium Enterprises, which are a crucial part of the economy and can contribute significantly to job creation and innovation. The script suggests that there is a call for greater MSME participation in defense production, indicating a desire to involve a broader range of businesses in the defense sector and promote inclusive economic growth.

💡Shanghai Cooperation Organization Summit

The Shanghai Cooperation Organization Summit is an annual meeting of the member states of the SCO, aimed at fostering cooperation in various fields, including security, economy, and culture. The script notes that Prime Minister Modi's decision not to attend the summit is of significance, reflecting India's diplomatic stance and priorities in regional and international affairs.

Highlights

Discussion on the potential continuation and possible modifications of the Agnipath scheme in Modi 3.0 government.

Analysis of the government's past behavior in response to election outcomes and public sentiment.

The Agnipath scheme's impact on the armed forces' wage and pension bill and its role in modernizing the military.

Speculation on the financial implications of modifying the Agnipath scheme on the defense budget.

Internal review conducted by the Army on the Agnipath scheme and suggestions for its modification.

The importance of achieving a defense budget allocation of 2% of GDP for India.

Comparison of India's defense spending with that of neighboring countries like China and Pakistan.

Challenges faced by the Indian government in balancing job creation and defense modernization.

The context of jobless growth and criticism of government vacancies not being filled in India.

Discussion on the impact of internal political situations in China and Pakistan on their foreign relations with India.

PM Modi's decision not to attend the Shanghai Cooperation Organization Summit and its implications.

The role of the defense industry, particularly the private sector, in promoting 'Atmanirbhar Bharat' or self-reliance in defense.

The ambitious target of defense production set for India and the required growth rate to achieve it.

Proposals for a defense export promotion council to boost indigenous defense production.

The call for greater participation of MSMEs in defense production in upcoming industrial corridors.

The political pressure and upcoming assembly elections shaping the government's approach to the Agnipath scheme.

Conclusion on the key agenda items for the Indian government in the upcoming budget.

Transcripts

will Modi 3.0 government continue its

agnipath scheme can we expect some

modifications to the scheme and how much

can the Indian government allocate to

its defense budget this time we'll

discuss all these questions and more in

this episode of the budget show with

business standard hello my name is keska

Gupta and today I'm joined in by my

colleagues and our in-house experts Ares

Mohan and Pastor Kumar

today I would like to start with the

contentious agnipath scheme which also

became a Hot Topic in the recently

concluded Parliament session AR just do

you think the government would continue

the scheme in its present form and what

are the chances of government addressing

the concerns in this budget so before

speculating on that uh what are the

facts uh what is the behavior of this

government over the last 10 years that

we know of uh one uh they always respond

to the message from elections or prepare

for the next subsequent elections for

example if you go back to 2015 uh they

withdrew the land uh acquisition bill

because there were lots of protests and

there were crucial elections forthcoming

similarly by 2018 when they lost in

Madia prades chattis gar

Rajasthan uh they brought in the budget

in the interim budget at that the PM

kissan nii scheme because they assumed

that they or that was the belief that

they lost because of uh Farm distress

similarly before the up

elections uh they withdrew in in 2022

they withdrew those contentious three

Farm laws so I can cite other examples

too so they've always responded to the

message from uh from from from from

elections secondly uh we also know that

har and Maharashtra send big contingents

to the armed forces and in both the

states and that's what post poool

surveys also suggested the issue of

agnipath scheme was as you said hot one

and it's been uh hot one during the

special session as well so I believe

they will respond now how they'll

respond I think probably basar would be

able to tell us better all right if we

assume uh modification to the agnipath

scheme baser what would be the financial

implications of that on the defense

budget if the agnipath scheme is tweaked

scrapped overhauled whichever it is

there will be implications on how the

overall defense allocation is spent

right so when the scheme is introduced

the stated aim was to ensure a youthful

profile in the armed forces the other

goal was to reduce the wage and pension

bill of the the forces right most uh

modern militaries they'll spend over 50%

of their Total Defense allocation on the

capital account right so this is for

buying equipment for modernization for

mechanization and this ensures that they

are ready to go to war with the most

modern equipment possible in the Indian

army in the in the Indian Armed Forces

especially the Army we have a very

Personnel heavy structure so for in our

case what happens is that more than half

half of our defense allocation is eaten

up by paying wages and salaries so

agnipath somewhere was meant to address

this issue so any tweaks there or roll

back there will be an impact what could

these tweaks be uh so what we know at

the moment is that an internal review

has been conducted by the Army uh some

suggestions have been put forward the

ministry of Defense has not given any

comments Beyond this what we might see

is that the agives might be recruited

for a period longer than 4 years maybe 7

or 8 years after that period is over uh

a greater percentage of them may be

retained so right now there's a cut off

of

25% that you know almost 70% could be

retained but remember all of this is

just you know it's all in the realm of

suggestions we don't know what will

actually happen or whether it'll happen

this budget we just know that there is

political pressure

indeed we do not know whether this will

will be part of the budget or this will

go beyond the realm of the budget it may

happen closer to the assembly elections

in Maharashtra and uh harana which are

scheduled around October so yes as he

said all of that is in the realm of

speculation all right besides agnipath

what are the key concerns for the

government uh when it comes to making

the defense budget so the most the key

concern here would be that getting the

defense allocation the defense budget to

2% of

GDP this is a simple arithmetic uh we're

not an advanced economy let's remember

that however the IMF it estimates that

most advanced economies spend between 2

to 5% of their GDP on their militaries

right now if you look at our own

analysis in fact from February uh when

the interim budget for fi25 was

announced uh the defense expenditure was

less than 2% of GDP it was about

1.9% but if you look at the revised

estimate for fi 24 the defense

allocation was I think just let me refer

to my mobile I'll get the exact number

for

you so if you look at this huh so if you

look at the revised estimates for fi 24

right the expenditure on defense was

2.08% of GDP in that year so getting

back to that would be a key concern and

the industry has also the defense

industry the Private Industry

specifically has also indicated this

when they speak to us that let's get

back to that number

all right how much do our neighbors like

China and Pakistan spend on their

defense budget compared to India so

China is a challenge because the

situation at the border at at the line

of actual control remains abnormal as

the government has stated quite a few

times so if you look at China's defense

budget for 2024 right that stood at

about $232 billion H now this is triple

India's defense allocation of about $75

billion in fi25

right however let's be very clear China

spends only about 1.6% of its GDP on

defense allocation the official declared

defense allocation and this is for the

year 2022 that's the last year we have

figures for but the thing is they have a

larger pie out of which to carve out

defenses share and we've seen what has

happened since Galvan since the tensions

aren't really going down there is a

pressure on matching some of the

capabilities that China has and so yes

China does spend more than us that's

just but obvious as far as Pakistan is

concerned I don't have the exact numbers

on

hand broadly Pakistan has always tried

to make sure that as far as capabilities

are concerned they keep Pace with us but

our economic trajectories have now

diverged so significantly that comparing

the numbers would not be quite right it

would be like comparing India's numbers

with let's say China's or the US USS the

economies are just well larger than ours

and ours is just larger than Pakistan's

okay can I can I add to yeah yeah sure

uh you know we need to realize that the

entire agnipath scheme is taking place

in the context of the government facing

criticism that there's been a jobless

growth that government vacancies are

also not being filled while Financial

constraints of a burgeoning pension Bill

and then challenges of the future of of

Greater mechanization of the armed

forces are valid uh but but you know not

just the opposition but even s parar

Affiliates like BH Maur s have been

putting pressure on the government to

fill existing vacancies for example

Congress says there are 3 million

vacancies in the government in the

central government itself the BMS in its

pre-budget consultations with the FM

with the Finance Minister asked her

asked the government to fill 2 million

vacancies so you know the the context is

of of this entire controversy is the

lack of jobs for the Youth all right U

let me go back to the China topic

because I have another question for you

and that is do you think uh India's

relations with China and Pakistan will

get better under PM modi's thirdd term

okay it look in terms of diplomacy

Foreign

Relations uh the experience is that the

stable the government or the or uh the

better it is for foreign relations there

a sense of continuity and there's a

sense of strength that's projected

outside if if one leader has continued

or one dispensation has continued uh but

a whole lot of it would also depend on

the conditions circumstances political

situations in our neighborhood in

Pakistan and in China in China resident

regen ping has it has its own challenges

primly because he's tried to centralize

power uh uh primly because you know

there have been challenges he's he's

been questioned for for centralizing

power so he has to deal with those the

complexities of the Chinese system and

how he would respond to that and how

much of that would reflect on his

foreign policy relations with India uh

would would depend on the internal

situation in China similarly for

Pakistan you know how crucial will the

forces remain whether there'll be some

semblance of restoration of normaly in

its democracy so okay can you uh would

you like to talk about the recent Summit

which PM Modi would not be attending one

one interesting thing that that's

happened is Prime Minister narra Modi

not uh going to attend the Su Shanghai

cooperation organization Summit uh

generally foreign experts foreign policy

experts have said that he should have

been there because it's been an

important Summit and in his initial

years in 20156 and a bit later as well

uh Prime Minister Modi focused on SEO uh

he visited uh SEO suits and uh he

focused on Central Asia as well he was

the only Prime Min he's been the only

Indian Prime Minister to have visited

all Central Asian republics uh

so but but he sent the external affairs

minister and he'll be visiting Russia

Moscow on a bilateral visit later this

month

so all right and my last question and

that is to both of you how can the

upcoming budget boost India's atbara in

defense AAS you want to take it first

please please so uh atbara self-reliance

uh it has been a theme for this

government also in defense again uh

since we were talking of China it became

you know the efforts towards atata

became particularly crucial and more

marked after The galwan

Clash uh and what the industry when we

speak to the defense industry

particularly the Private Industry what

they say is that the goals that have

been set are quite ambitious right so we

have an overall uh defense annual

defense production Target of about rupes

3 trillion by fi

29 which is more than triple what uh we

produced uh in fi 24 the last Financial

year so what they say is that the

capital allocation budget that part of

the defense budget right the overall

defense budget will have to grow at 25%

about 25 to 20% year on year till fi 29

starting with the full budget for

fi25 which is the budget that's coming

now that is the rate of growth required

compared to the current rate of growth

which is about 9% to be able to achieve

that Target so definitely a p is

required we don't know if the government

will adopt such a rate of growth for the

capital acquisition part of the budget

what we know is that there are other

things that are in the works other

measures that could be taken again the

industry input has been that a defense

promo a defense export promotion Council

would help and there have been reports

that something of that sort is in the

worlds uh greater focus on incentivizing

R&D uh on indigenous acquisition so so

they will try and give a boost to atata

to the extent that the industry would

hope for that remains to be

seen I just you want to add something uh

only that you know some of the S parar

Affiliates in the pre pitched

consultations said that uh uh in the

industrial corridors two industrial

corridors coming up in Tamil Nadu and

utar Pradesh uh there should be greater

participation for msmes in in defense

production let's see whether the

government Heats uh them that's all

right amid political pressure and the

upcoming assembly elections agnipath

scheme will remain a key agenda for the

Indian government now it remains to be

seen if the government will address this

in the upcoming Budget on that note we

wrap up this episode of the budget show

with business standard stay tuned for

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