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Financing the Indian Air Force to Touch the Sky with Glory

Financing the Indian Air Force to Touch the Sky with Glory

Be it Humanitarian Assistance and Disaster Relief missions within and beyond the country’s borders or appointing the world’s first female combat commander, the Indian Air Force has always left its special mark in the hearts of Indians.

The same force is completing 91 years of its service on the coming 8th October. 

The Indian Air Force (IAF) was first started on 8th October 1932, as the British or Royal Air Force. This day is marked as ‘Indian Air Force Day’.

The 91st anniversary of the Indian Air Force is scheduled to be held in Uttar Pradesh’s Prayagraj district. The legendary MiG-21 will participate in IAF day flypast for the last time.

The Bharat Drone Shakti 2023, famous Rafael deal or witnessing MiG-21 or Sukhoi Touch the Sky with Glory, the financial provisions are required. Are these demands for funds sufficiently being met is the hot topic for discussions in India. This article gives an overview of government finance and related aspect of defence, particularly, the air force.

Budgetary Allocation for 2023-24

In the budget of 2023-24, the allocation for the three defence services (including pension) is Rs 5,54,875 crore which is 93% of the total budget allocation of the Ministry. Out of this, Army accounts for 57% of the budget while Navy and Air Force make up 17% and 19% of the allocation respectively.

The expenditure on the Army, Navy, and Air Force is in the ratio 3.4:1:1.2. The army has the highest pension obligations among the three services. Excluding pension, the expenditure of the Army, Navy, and Air Force is in the ratio 2.4:1:1.1 in 2023-24. The allocation towards the Army is expected to be largely unchanged in 2023-24 over the revised estimate of 2022-23 while for Navy and Air Force it is estimated to increase by 6% and 2%, respectively.

The overall allocation for defence is INR 5.94 lakh crore, up from INR 5.25 lakh crore in FY 2022–23, a hike of 13 percent. The total capital outlay for this fiscal year is INR 1.62 lakh crore, a nominal increase of 16 percent over the previous fiscal year of INR 1.52 lakh crore.

In the modernisation budget for the Armed Forces, the Indian Air Force got the largest share among the three services at INR 0.57 lakh crore, a 3.6 percent hike from FY 2022–23.

Defence Acquisition Procedure (DAP) 2020

The Defence Acquisition Procedure (DAP) 2020 has been established as a potential catalyst for the Atmanirbhar Bharat Abhiyaan, in the sector of defence manufacturing. The DAP eases the procurement and acquisition of upgraded technology, products and services for the Tri-Services and other allied defence services.

The Ministry of Defence approved projects that will involve design and development of the military hardware covering light tanks, airborne stand-off jammers, communication equipment and simulators under Defence Acquisition Procedure (DAP).

‘Make-I’ refers to government-funded projects while ‘Make-II’ covers industry-funded programmes. Make-I involves in development of big-ticket platforms such as light tank and communication equipment with Indian security protocols. Make-II category involves prototype development of military hardware or its upgrade for import substitution for which no government funding is provided.


  • Reservation in Categories for Indian vendors: With FDI in defence manufacturing permitted up to 100% (up to 74% under Automatic route and beyond 74% under Government route), there is an opportunity for the domestic industry to increase production in the sector.
  • Enhancement of Indigenous Content: Each of the categories has seen an increase in the procurement and acquisition of indigenously manufactured products and technologies in the sector. This would also be facilitated by Inter-Governmental Agreements (IGAs) that would help enable Import Substitution of defence products, technologies and spare parts.
  • Make and Innovation: Besides Make I/II/III which are government and industry-funded efforts towards achieving greater indigenization of manufacturing, the Innovations for Defense Excellence (iDEX) was set up for incubation and infrastructure support to startup enterprises in the sector.
Amendment to DAP 2020 Source: Make in India

Government’s Response involving DAP

With a view to encourage indigenous industry to contribute to defence modernisation, funds for financial year 2023-24 have been earmarked in the ratio of 75:25, where 75 per cent (Rs 99,223.03 crore) is for domestic procurement and 25 per cent (Rs 33,078.24 crore) is for foreign procurement, said Minister of State for Defence Ajay Bhatt said this in response to a query in Lok Sabha.

“Capital procurement of defence equipment is carried out as per the Defence Acquisition Procedure (DAP 2020) with a focus on ‘Atmanirbhar Bharat’ where indigenisation, innovation and import substitution have been facilitated through various schemes to build a robust ecosystem based on domestic industry, including MSME. One of the key objectives of Make in India initiative of the government is to bring MSMEs and start-ups into the defence supply chain and thereby boost self-reliance,” the minister said.

On the purchases or acquisitions made for armed forces and establishments in defence during the last five years, year-wise, he said “during the last five financial years (2018-19 to 2022-23), 239 capital acquisition contracts have been signed for procurement of defence items/equipment.

Out of which, 168 contracts accounting for 68% of total contracts value have been signed with Indian vendors, including MSMEs.


The war between Russia and Ukraine has posed a double challenge for the IAF. The first relates to the availability of spare parts. There is also a delay in getting high value defence systems compared to present ones. Another challenge is learning about the use of new technologies in war and preparing for them. Hence, the IAF started working extensively on indigenous production of drones.

The lack of funding has been a persistent problem in the modernisation of the military. Following the COVID-19 pandemic and the war in Ukraine, however, India faces strong fiscal headwinds and an uncertain global economic environment.

In a memorandum submitted to the 15th Finance Commission, the Ministry of Defence sought adequate funding through alternate sources for meeting its increasing requirements.  The Ministry had pointed out that budgetary allocations have declined over the years and are inadequate to fund large defence acquisitions.

For the period 2021-26, the Ministry estimated to receive Rs 9.01 lakh crore for capital outlay against the defence plan projection of Rs 17.46 lakh crore (48% shortfall).

It was highlighted by the Ministry that consistent shortfalls in the defence budget over a long period has led to serious capability gaps, including compromising the operational preparedness of the three services. Lack of adequate funds has forced the Ministry to manage its expenditure through ad-hoc mechanisms such as postponing procurements and delaying payments.

Furthermore, more than 20% of the defence budget is spent on pension. The high pension budget is a key reason for the reduced allocation to defence. The pension outlay has been increased this year to INR 1.38 lakh crore, up from INR 1.19 lakh crore in FY 2022-2023, owing mainly to the announcement of the implementation of “one-rank-one-pension.”

One of the consequences of high spending on defence pension could result into the lower spending on capital outlay.

Capital outlay for defence includes expenditure on construction work, machinery, and equipment such as tanks, naval vessels, and aircrafts. It also includes capital expenditure on research and development and construction of border roads. In 2013-14, 32% of the defence budget was spent on capital outlay. This share has declined. In 2023-24, the Ministry is estimated to spend 29% of its budget on capital outlay as compared to 27% in 2022-23.

The Standing Committee on Defence (2021) had observed that the ideal ratio of revenue expenditure to capital outlay was 60:40. In 2023-24, the Navy and Air Force are estimated to spend over half of their budget allocation on capital expenditure.

The funding for research and development is another area of concern. Modernisation involves acquisition of state-of-the art technologies and weapons systems to upgrade and augment defence capabilities of the forces. Substantial expenditure on salaries and pension

reduces the funds available for modernisation of the Army. The new budget’s allocation for the Defence Research and Development Organisation (DRDO) is INR 23,264 crore, a mere increase of 9% from the previous year’s budget.

Way Forward

The Standing Committee on Defence (2018) had recommended that the Ministry of Defence should be allocated a fixed budget of about 3% of GDP to ensure adequate preparedness of the armed forces.

The 15th Finance Commission recommended that the central government may constitute the Modernisation Fund for Defence and Internal Security (MFDIS) to bridge the gap between projected budgetary requirements and budget allocation.

The Standing Committee on Defence (2022) was informed that the proposal to create a non-lapsable defence modernisation fund was under consideration by the central government. A suitable mechanism for operationalising the fund was being worked out in consultation with the Ministry of Finance.

The Committee recommended expediting the creation of the fund so that defence procurement can be carried out without having to rely on supplementary or additional grants.

Future Plans of IAF

On 3rd October 2023,Chief Marshal Vivek Ram Chaudhari shared updates and insights during a press briefing mentioning Rs. 42,000 crore as funds for the annual acquisition scheme.

As part of its attempts to promote indigenization in the defence sector, the Indian Air Force is working on several ‘Make in India’ projects valued at over Rs 3.15 lakh crore. Among these programs are the 156 Light Combat Helicopters, 180 Light Combat Aircraft Mark1A, and other weapon systems.

India has been working on significantly ramping up air infrastructure along the LAC. Stating that nine Advance Landing Grounds (ALGs) have been functional and opened for civil use in the Northeast and clearances being given to build an airstrip at Nyoma in eastern Ladakh, he said there has been a focus on creating permanent infrastructure such as hardened aircraft shelters, weapon storage areas and securing assets deployed in the border areas.

He said that the IAF’s requirement to have an authorised strength of 42 squadrons of fighter jets will remain given the existing threats faced by India, particularly from the new technology platforms possessed by the adversary today. At present, the IAF has around 30 fighter squadrons.

Talking about IAF’s major big-ticket procurement plans in the pipeline, he said the force is looking at procuring another 97 additional indigenous Light Combat Aircraft (LCA) Mk 1A fighter jets at a cost of around Rs 1.15 lakh crore, taking the total number of jets in the IAF’s inventory at 180.

He said other contracts worth around Rs 2.5-3 lakh crore will also see the light of day in the next few years. This includes the Light Combat Helicopter (LCH), 10 of which were inducted last year. He said the IAF is looking at signing a contract in the coming year for a total of 156 of them, of which 66 will be for the IAF.

“The contract value we anticipate is Rs45,000 crore. Apart from that we had already signed a Rs6,000 crore contract for 70 HTT-40 trainer aircraft. We have in the pipeline the upgrade of SU-30MKI, 84 of them, the value is anticipated to be a little over Rs 6,000 crore,” he said.

“The overall value of these contracts will be well past 2.5-3 lakh crore and the contracts will be expected to be fulfilled in about 7-8 years. We will plan our budget accordingly,” the Air Chief said, highlighting that most of the acquisitions are indigenous.

In 2021, the Defence Ministry had signed a Rs. 48,000 crore deal with Hindustan Aeronautics Limited (HAL) to supply 83 LCA-Mk1A. Three LCA-MK1A are scheduled to be delivered to the IAF in February 2024 and 16 aircraft will be delivered per year for the next five years.

Furthermore, the Indian Air Force is advancing its long-range air defense systems, having obtained approval for Project Kusha to develop an indigenous S-400 air defense system. The program will be fully supported by the Defence Research and Development Organisation (DRDO), which has already provided the IAF with MR-SAM missile systems worth over Rs 14,500 crore.

Creating and making through appropriate finances, the Indian Air Force will be one of the well-equipped forces in the world for protection and supporting the humanity.

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