Defence Budget FY 2020-21: A Brief Analysis

Opinion

By Air Marshal Dhiraj Kukreja (Retd)

Introduction

Budgets come and budgets go whether they are interim budgets or annual budgets. The annual budget was presented to Parliament on February 1, 2020 by Union Finance Minister Nirmala Sitharaman. As always, national security was mentioned as of prime importance and allocation of funds for defence forces found a mention, and like every year it was not just a passing reference, but was received with thumping of desks in Parliament. Rs 3.37 lakh crore have been set aside in the budget for defence spending; this is 6.00 per cent over the previous year’s budget estimate (BE), and only 1.9 per cent over the revised estimate (RE) for 2019-20. This can at best be termed ‘anaemic’ as compared to the accolades that the budget announcements received for some of the other policy initiatives.

In the cacophony of voices in raucous debates last year, over some new acquisitions – especially the Rafale aircraft for the IAF – the terror strike on a CRPF convoy followed by the retaliatory air strike at the terror camp in Balakot in Pakistan, the shooting down of a PAF F-16 aircraft and an Indian MiG-21 BISON aircraft followed by the capture and subsequent release of Wg Cdr Abhinandan by Pakistan, the dissolution of the Lok Sabha for the elections in May 2019, and the budget announcements thereafter, the importance of discussing the defence budget was lost. Hopefully, this year, the defence budget would get its due importance in discussions in Parliament!

Breakdown of the Budget

An explanation of the terms ‘Budget Estimate’ and ‘Revised Estimate’ needs to be made here, although the author is quite convinced that the readers would know these terms. While BE refers to monetary projections for the next fiscal year sometimes in the end of the second quarter of the current year; the actual expenditure during the current year is the RE, which is generally calculated in the third quarter of the year. Allocations are adjusted after the RE with funds either withdrawn or fresh allocations. For the defence allocations, it is almost the norm for withdrawal of funds!

As it appears India’s defence budget is higher than what goes under the titular head of defence budget”; nevertheless a detailed examination of the figures indicates otherwise. As per the budget papers, last year’s BE was 3.18 lakh crore while the RE was 3.31 lakh crore. Several years ago, the defence budget had separated the expenditure head of pensions, which is now reported as ‘defence pensions’. If the money allocated towards pensions of Rs 1.33 lakh crore is added, India’s total outlay on defence is Rs 4.71 lakh crore, and the allocation for pensions has increased by a significant 13.6 per cent! An analysis of the budget outlay shows that defence gets an allocation of eight paise per rupee of the total revenues of the Government. However, the defence allocation of 3.37 lakh crore works out to just 1.5 per cent of the projected GDP, which is the lowest figure since 1962! If calculated along with the allocation for pensions, it works out to be 2.1 per cent of GDP, still short of the 2.5 per cent that the experts talk about.

Out of the total allocation, Rs 1,18,555 crore has been earmarked as capital outlay for new weapon systems and modernisation. This is a marginal increase from Rs 1,08,248 crore which was the capital outlay for the year 2019-20. This figure, however, appears miniscule against the revenue expenditure for day-to-day running costs, salaries and other such costs, which amounts to Rs 2, 18,998 crore.

The capital outlay for the Army has increased 10.3 per cent, while that for the Navy by two per cent. The outlay for the Air Force, on the contrary, has decreased by 2.3 per cent in a year when the Rafale aircraft would be inducted into service!

This allocation does not cover even the ‘committed liabilities’. What are these committed liabilities? To try and put it in a layman’s language, these are annual payments for ongoing capital projects such as building warships, purchasing aircraft or missile systems and the likes of them. In short, the Armed Forces will not have funds to pay for platforms and equipment they have contracted for in the previous years, unless the Government gives a transfusion of funds to meet these commitments.

An analysis of defence budgets over the past 10 years shows that the revenue expenditure under the defence budget has been increasing and forms nearly two thirds of the defence budget. The revenue expenditure which includes expenses on payment of salaries and maintenance of establishments with about 56 per cent of the budget comprising of salaries and pensions, mainly pensions which constitute 28 per cent of the entire budget. This is an increase of about nine per cent from 2014. It is pertinent to mention here that pension payments to civilians paid out of defence estimates are a major chunk as against pension payments made to the officers and soldiers.

What Next

What with limited fiscal space available, the defence budget has been subject to a moderate increase but not in real terms. This raise would not however satisfy the defence services, which are already grappling with a huge shortage of resources to meet expenses. In 2018-19, the shortage of funds for the three services alone amounted to 30 per cent – or Rs 1,12,137 crore – against a projected requirement of Rs 3,71,023 crore of greater concern is that this shortage has not been bridged in the ensuing years. With the recurring effects of many of the promised ‘populist’ measures continuing, and a tight fiscal path that the Government has articulated by which the deficit is planned to be contained at three per cent of GDP, but not achieved, the scope for a hefty increase in defence expenditure in the immediate future looks bleak.

What options then do the defence services have? An easy way out could be to roll over committed liabilities. As per Amit Cowshish, former Chief Financial Adviser in MoD, rolling over of committed liabilities does occur but it is not advisable as it reflects poorly on the fiscal management of a nation. Another course of action could be to re-prioritise some of the major acquisitions and then stagger a few; once again it is not a preferred course of action considering that the modernisation of the defence services has already been subjected to delays due to various reasons. The newly appointed CDS has a tough job in hand!

India is among the largest importer of arms in the world as per the Stockholm International Peace Research Institute (SIPRI). Between 2013 and 2017, India accounted for nearly 12 per cent of all global import of arms. No major Make in India project in fields ranging from fighter aircraft and helicopters to infantry vehicles and submarines has been launched in the last five years due to political squabbles, bureaucratic bottlenecks, complicated and confusing procedures, and commercial and technical controversies. Barring a few success stories, such as that of the joint venture to manufacture self-propelled artillery guns, much more is needed to indigenise the defence forces.

Conclusion

Notwithstanding the perceived increase in the defence budget, the resource problem of the defence services which are already in the grip of a huge deficit of funds is bound to further intensify. What is of greater concern for them is that the budget outlook in the medium term also looks grim in view of the many committed liabilities and the tight fiscal consolidation path that the Government has propounded. Given this stark reality, the defence services have very little option but to optimise their expenses.

The biggest security threat to any nation is a weak military, backed by political will but in a near-bankrupt sovereign. With multiple demands from an aspiring and impatient population, the constraints on the modernisation of the defence services are a reality. The demand for more money for the defence services may not be unrealistic, but it is difficult to meet.

One can only hope and pray for the best!

The writer is an Indian Air Force veteran

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