2024-25 Budget Is Silent On India’s Maritime Preparedness To Deal With Red Sea Crisis

The interim Budget 2024 has not made mention of any measure or recommendation to address the very serious bottleneck that has been gripping India’s maritime trade for weeks now—the Red Sea crisis! This crisis is also known as the United States-Iran proxy war that began on October 19, 2023, when the Houthis from Yemen launched a series of attacks targeting southern Israel and the ships in the Red Sea which it claimed were linked to Israel.

India is heavily reliant on the Red Sea trade route that is used to reach four regions—Europe, North America, North Africa and West Asia. Goods amounting to billions of dollars pass through this route. Exports from India through the Red Sea are valued at Rs 18 lakh crore (around USD 217 billion), besides imports worth around Rs 17 lakh crore (USD 205 billion).

Now, all of this trade has been hit. The reason…? Ships are avoiding the Red Sea route. Instead of going via the Suez Canal, they are being redirected to the southern tip of Africa, going around the Cape of Good Hope, which adds another 6,500 kilometres and at least two extra weeks of sailing time to the journey.

Indian exports have been getting delayed with shipments being held up and traders counting their losses mostly because of the delays. The time taken to move the goods from one place to another has increased substantially. Shipments are delayed by almost a month—from anywhere between 21 days and 28 days. Some ships have also been restrained from leaving dock.

In fact, since the Red Sea crisis began, 25% of India’s outbound shipments—exports sent directly through warehouses—were held back. These goods have not left India at all. And that is because exporters have not been able to find ships to take them. And those who could find ships had to take the longer route. About 95% of cargo ships from India have taken this much longer Africa route and they will continue to do so in the foreseeable future as there is no resolution in sight.

The Indian Navy is on the job and is doing its bit to mitigate the crisis. They have been manning the waters in and around the Red Sea, securing vital routes and rescuing sailors under threat. In the Indian Ocean alone, the Navy has conducted at least nine operations in recent days. They have rescued commercial ships. But, despite India’s strong presence and defences, the shipments have not stabilized.

Experts are projecting losses. In the last financial year, India had overall exported goods worth USD 451 billion, out of which exports worth more than $30 billion could be impacted because of the Red Sea crisis—almost 7% of India’s exports. The latest trade numbers from the government are not out yet. But it is clear that a prolonged disruption will hurt India and its economic growth.

Ratings agency Fitch says that, if Red Sea disruptions were to persist, the resulting downward revisions to its India forecast would, probably, be significant and dent its 4% growth forecast for Asia in 2024.

Otherwise, in the light of the January 2024 economic assessment by the ministry, India has achieved notable advancement despite facing challenges from the pandemic and starting with an economy riddled with imbalances and a troubled financial sector. It now ranks as the world’s fifth-largest economy, boasting a Gross Domestic Product (GDP) estimated at about $3.7 trillion for fiscal 2024, with the conversion rate being roughly Rs 83 lakh crore for every trillion US dollars.

The government under Prime Minister Narendra Modi has laid down a solid groundwork for India’s journey towards becoming ‘Viksit Bharat’, or a developed country by 2047, with a Budget of ₹47.66 lakh crore announced by Union Finance Minister Nirmala Sitharaman on Thursday. This Budget aims to boost every sector of the economy.

For fiscal 2024-25, India’s draft Budget includes a defence spending of Rs 6.21 lakh crore, marking a 4.72% increase over the previous year’s Budget and a slight decrease of 0.37% from the revised Budget for 2023-24. This year’s defence allocation accounts for 1.89% of the country’s projected GDP for fiscal 2024-25. In fiscal 2022-23, India had dedicated Rs 5.25 lakh crore to defence spending, which marked an increase from Rs 4.78 lakh crore in 2021-22, and Rs 4.71 lakh crore in 2020-21.

The defence ministry has articulated that, in the light of the current global political dynamics and the twin objectives of achieving self-reliance and enhancing export capabilities, the defence Budget has been set at Rs 621,540.85 crore for the fiscal year 2024-25, accounting for 13.04% of the overall Budget. This statement underscores the intent behind the augmented capital expenditure, which is to rectify critical capability shortfalls through modernization efforts. Moreover, it underscores the goal of bolstering the sector’s self-sufficiency through these investments.

Finance Minister Sitharaman has unveiled a new initiative aimed at promoting deep technology in the defence sector. Deep technology encompasses groundbreaking scientific and technological advancements capable of catalysing significant transformative shifts across various sectors. This domain typically involves innovative R&D in such areas as artificial intelligence (AI), biotechnology, blockchain and quantum computing.

Detailed specifics about the program, however, were not immediately disclosed. The initiative is expected to deliver substantial financial assistance, rewards and backing to the defence industry, particularly benefiting startups and medium and small enterprises (MSMEs) engaged in this sector.

The Budget details include revenue expenditures of Rs 2.82 lakh crore, capital investments amounting to Rs 1.72 lakh crore and pensions totalling Rs 1.41 lakh crore. The Budget for upgrading military capabilities has seen a 5.78% increase from that of last year. India is in the process of modernizing its military forces through the procurement of advanced fighter jets, helicopters, naval vessels, tanks, artillery, rocket systems, missiles, unmanned technologies and a variety of other warfare technologies.

The Budget allocation is set to support various projects, including an upgrade of the existing Sukhoi-30 fleet, purchase of new aircraft, procurement of high-performance engines for MiG-29s, acquisition of C-295 transport planes, missile systems, carrier-based fighters and submarines.

The Budget documents reveal that the armed forces did not spend Rs 5,372 crore of the Rs 1.62 lakh crore capital Budget allocated in the previous year. In fiscal 2022-’23, facing border tensions with China, the armed forces spent an extra Rs 21,000 crore over their initial Budget to urgently buy equipment and improve infrastructure in the border areas.

For fiscal 2023-’24, it was noted that the spending on regular expenses went over by Rs 28,548 crore compared to those in the previous year’s Budget. This increase mainly covered salaries and benefits, transportation costs, ex-Servicemen’s health scheme and expenses for the Rashtriya Rifles.

A considerable portion of this year’s defence Budget is earmarked for the acquisition of advanced weapons systems produced within the country. This investment is anticipated to positively influence the nation’s GDP, create job opportunities, promote capital investment and boost the local economy.

The Border Roads Organisation (BRO), vital for the development of India’s border infrastructure, has received an allocation of Rs 6,500 crore. This represents a 30% increase from the previous fiscal (2023-’24) and a 160% rise from two years ago (2021-’22), reflecting the government’s proactive approach to addressing security challenges along the India-China border and its commitment to strengthening border infrastructure capital expenditure of Rs 1.62 lakh crore allocated.

This year marks a period of fewer large-scale missions for India’s space exploration efforts, reflected in a modest Budget increase of 4%. Nonetheless, the sector may see significant support through a new Rs 1 lakh crore fund designed to foster private sector engagement in space R&D through interest-free loans for a duration of 50 years. While detailed information was sparse, the scheme is expected to significantly aid the burgeoning private space industry in India, which includes around 200 startups. Funding for IN-SPACe, the authority established in 2020 to oversee the sector, received a 24% increase in its operational Budget.

For 2024, the Department of Space has received a slight 4% budget enhancement in the 2024-’25 Budget, with its allocation rising from Rs 12,545 crore to Rs 13,043 crore. The Indian space agenda this year is set to concentrate on groundwork for lunar (Chandrayaan) and crewed space missions (Gaganyaan), among other initiatives, by conducting necessary pre-launch activities and achieving key development milestones.

The Budget for space technology initiatives—encompassing the Gaganyaan crewed space mission, the creation of new launch vehicles and various other space missions—experienced a 27% boost. This enhancement signifies greater financial backing for these particular space projects this year relative to last year.

In the previous year, the Indian Space Research Organisation (ISRO) celebrated the successful Chandrayaan-3 mission, which included the soft landing of a robotic explorer on the lunar surface. ISRO also launched the Aditya L-1 mission for solar observations and the XPoSat mission to study neutron stars and blackholes. Additionally, India became a participant in the Artemis Accords, joining forces with the United States on its mission to return humans to the Moon by 2025.

In 2024, notable planned activities include an unmanned Gaganyaan mission test flight, the third launch attempt of the Small Satellite Launch Vehicle (SSLV) and the collaborative venture between NASA and ISRO, the Synthetic Aperture Radar (SAR) mission. ISRO’s team is also dedicating efforts to the advancement of propellants, satellite propulsion systems, new spacecraft launchers and the commercial transfer of these innovations to the private sector. (IPA Service)