Budget 2021: Defence Sector May Receive Higher Budgetary Allocation, Says HDFC Securities

The defence sector may receive higher budgetary allocation against the backdrop of ongoing military face-off between India and China, HDFC Securities said in a report titled Pre-Budget 2021 Expectations. The central government had hiked the defence budget by six per cent last year to meet the needs of the armed forces; in budget 2020-21, an amount of Rs 4,71,378 crore was allocated to the defence sector, which included expenditure on salaries and pensions.

In fact, there has been a whooping 475 per cent increase in defence budgets (excluding pensions) between the years 2000 and 2020.

Later in the year, the centre had also announced an embargo on the import of 101 defence items and raised the foreign direct investment (FDI) limit in the defence sector to 74 per cent under the automatic route, in an attempt to promote defence manufacturing in the country.

The government may outline innovative ways to raise the required finances in light of fiscal pressures, according to HDFC Securities. The centre may either have a non-lapsable defence fund or issue tax-free bonds.

Meanwhile, the brokerage house also reiterated that the new defence acquisition policy (DAP) 2020 was in-line with the government's 'Make in India' policy and Aatmanirbhar Bharat initiatives as it seeks to further enhance indigenous manufacturing through active participation of public and private sectors.