NEW DELHI — India’s defense budget for 2020-2021 will be $73.65 billion, the country government announced Saturday, but officials and analysts are warning the amount is unlikely to meet new demands for weapons purchases and military modernization, as India is set to spend about 90 percent if its defense funds on existing obligations.

Of the total budget, $18.52 billion is for weapons purchases; $32.7 billion is for maintenance of the military’s weapons inventory, pay and allowances, infrastructure, and recurring expenses; and $21.91 billion is for defense pensions.

“The capital budget leaves no room for any big-ticket weapons purchase, as over 90 percent of the allocation capital funds will [be spent] for past [defense] contracts’ committed liabilities," a senior Ministry of Defence official told Defense News.

The limited procurement spending is expected to directly impact “Make in India" defense projects, a policy meant to boost the local economy under the ruling National Democratic Alliance government.

“This also [leaves] no room for any major weapons purchases from U.S. at least for one to two years,” the MoD official added.

India is slated to make a number of purchases through the U.S. Foreign Miltiary Sales program, including 22 MQ-9 Reaper (Predator B) drones for $2.6 billion; and additional six P-8I maritime surveillance aircraft for $1 billion; two Gulfstream 550 aircraft for intelligence, surveillance, target acquisition and reconnaissance for nearly $1 billion; and one unit of the National Advanced Surface-to-Air Missile System II for more than $1 billion.

Indian workers set up the venue for the 'Make in India' showcase week in Mumbai on February 11, 2016. Over 190 companies, including national conglomerates and multinational corporations, 5,000 delegates from 60 countries, and leading industrialists including Ratan Tata and Mukesh Ambani will be participating in the maiden 'Make in India' showcase to be held in Mumbai from February 13-18. AFP PHOTO/ INDRANIL MUKHERJEE / AFP / INDRANIL MUKHERJEE (Photo credit should read INDRANIL MUKHERJEE/AFP/Getty Images)

During at least the last two years, the Indian military has complained about a lack of funds for resolving existing liabilities. Amit Cowshish, a former financial adviser for acquisitions at the MoD, said the military will likely continue to face the challenge of preventing defaults on contractual payments.

The senior MoD official told Defense News that due to the shortage of funds, at least a dozen pending defense contracts will experience delays. “The current $18.52 billion capital allocation is only [a] marginal increase from [the] previous year [capital] allocation of $18.02 billion [and] does not even adequately cover inflation costs.”

The Indian Air Force is to receive $6.76 billion from the 2020-2021 budget, a drop from the previous year’s $7.01 billion. The money is expected to go toward payments for orders of Rafale fighters from France and an S-400 missile system from Russia.

The Indian Navy is to receive $4.56 billion, which is expected to help cover the cost of leasing a nuclear submarine and stealth frigates from Russia, as well as pay for warships from Indian companies. A Navy official said it is unlikely the service will be able to sign a contract for 24 MH-60R multirole helicopters for more than $2 billion from the U.S. next year.

The Indian Army is to receive $5.06 billion to pay cover previous orders of wheeled and ultralight artillery guns, T-90 tanks, and ammunition.

India’s state-owned defense companies continue to receive 60 percent of defense-related business, with 30 percent going to overseas defense companies and 10 percent to domestic private defense firms.

Another MoD official said the armed forces plan to focus on industry-funded defense projects under the government’s “Make-II” category, which allows private companies to participate in the prototype development of weapons and platforms with a focus on import substitution, for which no government funding will be provided.

Vivek Raghuvanshi is the India correspondent for Defense News.

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