Talking to reporters at the recently concluded Aero India show in Bengaluru, Union Defence Minister AK Antony said, "India is not an island. The world economy is going through a tough time, we will have to cut down."
Mr Antony said that the government is drastically cutting down on expenditure across the board and "budget cuts fall on our department too." He said that there will be no cuts in "priority areas" and the "operational preparedness" of the military will not be affected.
Senior officials have told NDTV that out of the overall estimated cut, Rs. 10,000 crore comes from the capital budget, which means the defence ministry would have much less to spend on buying new systems to upgrade old and aging weapons. The rest, Rs. 4,000 crore, is expected to be slashed from the revenue budget, which is used for paying salaries and meeting other running costs of the armed forces.
The armed forces had sought an outlay of Rs. 2,39,123 crore this fiscal, which amounts to 2.35 per cent of the projected GDP for 2012-13. It was, however, given a little over Rs.1,93,000 crore, from which the Rs. 14,000 crore cuts have been made. About Rs. 67,000 crore of the allocation was for capital expenditure; the revenue budget was pegged at a little over Rs. 1,13,000 crore.
As a result of the cuts, almost all critical purchases of new weapons systems have been affected. India's single biggest defence deal ever, a contract with France for around 200 new-generation fighter jets - pegged at between $15-17 billion - has been deferred to the next financial year. Although negotiations with France are complete, India wants to stagger the acquisition because of the lack of funds.
Similarly, the purchase of Ultra-Light Howitzers from the US for deployment in the mountainous border areas to counter China has been delayed.
Sources have told NDTV that the Indian Navy's plans to rapidly replace its aging fleet of conventional submarines with six new submarines have been affected. Each new submarine is estimated to cost anything between Rs. 7000-8000 crore.
The proposal to equip every infantry battalion of the Indian Army deployed in the plains with Anti-Tank Guided Missiles (ATGMS) has also taken a hit. The Navy's proposal to acquire multi-role helicopters to replace the old Sea King helicopter fleet has been put in cold storage.
Last week, Union Finance Minister P Chidambaram, when asked about the cuts in the defence budget, said, "You must have the money to provide the money." He also said that this year's cut could be made good next year only if India recorded faster growth translating into more tax collections.
Modernisation of the Indian military was put on hold during the 1990s and the 2000s as India grappled with its new economic realities, and needs, post liberalisation. Most of the equipment that the armed forces currently use was developed either in the 1970s or 1980s. It was only in the latter part of the last decade that the focus shifted back on rapidly modernising the military so that it is capable of addressing the altered strategic realities in India's neighbourhood.