India has established eight Defence Public Sector Undertakings (DPSUs) whose responsibility is to provide the Armed Forces state-of-the-art equipments and at the same time enhance country's self-reliance in defence production. However the performance of these Undertakings is not up to the mark, resulting in import of arms worth billions of dollars every year. A deeper insight into DPSUs' production profile reveals that most of them are over-dependent on external sources for the production needs, and have a very low labour productivity level, negligible export, and a low R&D base.

In past two decades, the Army has witnessed a decrease in its share in the overall budget, whereas the Navy and the Air Force have increased their respective shares. This reflects a shifting priority, from land-centric armed force to an air and naval-centric force.

The establishment of an FMIS has become an important benchmark for the country's budget reform agenda, often regarded as a precondition for achieving effective management of the budgetary resources.

A healthy public discourse could infuse much needed fresh ideas in the management of huge defence outlays. This would be possible only if budget outlays are presented in a demystified format.

Ideally, resource allocation needs to be based on the strategic goals to be achieved. Presently, we follow incremental budget process, which is widely accepted as suboptimal. Therefore, there is a need to find a more suitable model to replace the existing one.

A HQ IDS driven integrated approach, for formulation of a synergised perspective plan and five year Defence Plans is the only method of achieving optimal inter–Service allocation of funds.

The defence planning process attempts to match the budgetary resources likely to be made available for the requirement to establish the defence capability which is necessary to face the threats and challenges.

The evolution of the concept of Outcome Budget is traced and the linkage between defence budgeting and defence planning in India is examined. Also the concerns arising out of the present system before examining the scope of introducing Outcome Budget in India.

Defence budget accounts for a significant proportion of the central government expenditure. For the current year, the revenue and capital budgets of defence account for more than 20 and 80 per cent of the entire non-plan revenue and capital budget respectively of the central government. This translates into Rs 57,593 crores as revenue budget and Rs 48,007 crores as capital budget for defence. Allocation for defence has generally been the second largest single head of expenditure in the nonplan segment of the central budget.