Indian government aims to cut defence imports, hold spending steady

By Sanjeev Miglani

NEW DELHI (Reuters) - India plans to focus defence spending more on the domestic market instead of importing combat planes, ships and submarines, after saying on Monday it will leave military spending for 2016/17 largely unchanged following years of increases.

Major global defence companies have been circling over the Indian market, buoyed by the military's modernisation plans worth more than $100 billion.

But the government of Prime Minister Narendra Modi has vowed to end the military's dependence on imports that have made it the world's largest buyer, according to the Stockholm International Peace Research Institute.

"For the first time this government is having a look at our procurement policies and they are telling the military we are not interested in your outright purchases anymore," said Deba R. Mohanty, chairman of Indicia Research and Advisory, a consulting firm on defence affairs.

India's military is deployed on the border with China as well as Pakistan and says it has to plan for a "collusive threat" from them both. For decades it relied on the former Soviet Union to supply planes, ships and artillery.

Then it turned to Western manufacturers including France, United Kingdom and in recent years Israel and the United States for expensive combat planes, missiles and surveillance planes.

In his federal budget presented to parliament on Monday Finance Minister Arun Jaitley allocated 2.49 trillion Indian rupees ($36.5 billion) for defence, a 0.96 percent increase over the 2015/16 allocation of 2.46 trillion rupees.

Amit Cowshish, who handled defence accounting in the ministry, said more than funds, the bigger problem was lack of clarity on the defence procurement policy.

"It's not that the money is not there, it's that there's no still no clear-cut policy on indigenous manufacture, the procedures etc. That is why even the money that has been allocated ends up not being spent."

The budget papers showed that the military didn't spend the full amount given to it last year. The revised estimate for spending for the fiscal year ending in March was 2.24 trillion rupees.

Defence wages and pensions have also risen this year, making even less money available for modernisation, Cowshish said.

China is expected to announce a large rise in defence spending next month, as the ruling Communist Party seeks to assuage the military's unhappiness at sweeping reforms and as worries over the South China Sea and Taiwan weigh on Beijing.

At 886.9 billion yuan ($136.4 billion), China's budgeted defence spending last year was more than three times that of India's expenditure announced on Monday.

($1 = 68.2895 Indian rupees)

(Editing by Hugh Lawson)