Union Defence Budget: Expectations and Realities

Abstract:  The Article carries out a brief analysis of the Defence Budget 2015-16. The anomaly of the skewed ratio between the Revenue and Capital Expenditure has been highlighted with the requisite figures to support the same.  At the end certain remedies to give impetus to the Modernisation of Defence Forces have been suggested. The emphasis has been to find solutions from within the Defence Budget allocation.

India’s defence budget assumes great significance owing to its impact on the defence preparedness of the country. The figure of Rs 2,46,727 Crore, when viewed in isolation seems to be a huge sum to be spent on defence. However when one gets into the fine print of the Defence Budget, one realizes that the ‘Expectations and Realities’ are ironically not converging. In fact the gap between  the Defence Services  projection and the actual allocation is widening with every passing year and has now reached a whooping figure of Rs 80,000 Crore.

While presenting the budget on Saturday, the Finance Minister stated that he had provided adequately for the needs of the armed forces. However, as it happens more often than not, the figures are devoid of the ground realities. Especially when broken down into the heads of revenue and capital allocation, this figure of Rs 2,46,727 Crore does not present a promising picture for the much desired defence modernization.  Apart from the prevailing security challenges, the recent hype of the growing Indian clout on the world scene has also mandated that India possesses the Defence Forces of a befitting status. Accordingly, there has been the rhetoric of pegging the Defence Budget at 3% of the National GDP. However the defence budget has remained below 2 per cent of the GDP, except for the year 2009-10 when it was 2.19 percent of the GDP. In fact, there has been a decline in the defence budget in terms of percentage of the GDP from 1.92 in 2007-08 to 1.79 in 2013-14. This year the Defence Budget accounts for 1.75% of the projected National GDP of Rs 1.41 Lakh Crore.

If the above is the reality, then how is the statement of the Finance Minister above, justified. While there is no denying the fact that modernization of defence forces is of utmost importance, the interse priority between sustained economic growth and defence modernization needs to be worked out very carefully. When China started its march towards development in 1990s, the priority was given to all sectors fuelling the sustained economic growth rather than defence modernization. The sustained economic growth has now brought them to a status when their defence budget has been pegged at US $ 130 billion, which is over thrice India’s Defence Budget. 

Aspirations apart, the ground realities of a developing nation always need to be kept in mind and answers need to be found from within. The crux of the problem at hand is that the ideal ratio of 60:40 between the revenue and capital allocation, has got disturbed over the period of time and the same is hugely pronounced in the case of Indian Army. The Revenue budget caters for operation and maintenance expenditure spanning to pay and allowances, transportation, stores (including ammunition) and other budget heads. 67% of the total revenue budget goes towards the pay & allowances and Indian Army being a manpower intensive organization takes a major chunk of the same. While the ratio of Revenue to Capital, for Air Force and Navy is still within the limits (35:65 for Air Force and 41:59 for Navy), for Army it is pegged at 86:14, which is indeed grossly inadequate for any meaningful modernization.

The scales tilted heavily towards the Revenue Expenditure on implementation of the 6^th Pay Commission and when we are poised for another Pay Commission in 2016, the criticality is likely to compound. An increase of Rs 24,357 Crore in the Defence Budget for 2015-16, is in-fact an effective increase of just Rs 14,357 Crore, if we consider Rs 10,000 Crore going towards OROP. Hence not much relief is expected for the Indian Army already feeling the brunt of the raising of the Mountain Strike Corps as an unplanned expenditure, which did not form a part of the LTIPP. So the solution lies in correcting the anomaly between the Revenue and Capital expenditure. Consorted efforts need to be worked out to reduce the revenue expenditure.

Following remedial measures may be considered to give impetus to the modernisation of defence forces:-

1. Revenue budget needs to be optimized for Indian Army at the earliest. Downsizing to a lean and modern Army to reduce the burden of Pay & Allowances is one such step which needs to be considered.
2. The inter service priorities in defence procurement need to be planned more pragmatically. The same is possible only if the much awaited defence reforms are instituted, especially the appointment of CDS. This will ensure systematic modernisation of Defence Forces.
3. The push towards ‘Make in India’ will also ultimately usher us towards our goal of Modernisation of Defence Forces. However much work needs to be done before this dream can be a reality. The gaps before this capability actually comes into being need to be filled up. This could be either by going in for interim global procurements or by going in for up-gradation of already held equipment. However there is a cost involved for each of these and the same needs to be catered for.
4. The Government also needs to pitch in and maintain the allocation made to the Defence Forces in the Budget. The trend states that approx Rs 100,000 Crore has been surrendered by Ministry of Defence in the last decade as the amount unspent; however, it is not solely due to the inability of the Defence Forces to spend the same. Invariably it is seen that at RE stage the Finance Ministry removes a substantial allotment from the Defence Budget (Rs 12,623 Crore removed from Capital Outlay in the FY 2014-15) to keep the financial deficit under control. This blocks the fructification of a substantial capital procurement schemes and in-turn disturbs the complete planning process of  the Defence Services, thus bringing in adhocism in their planning.

Striking a balance between the requirements of defence services and fiscal prudence, defence budget has grown at a steady pace, although not always to the satisfaction of all concerned. The answers have to be found from within keeping in mind the compulsions of a developing nation.

The author is Senior Fellow at CLAWS. Views expressed are personal.