In­dia’s De­fence Bud­get 2017-18

The Fi­nance Min­is­ter’s over­all stated fig­ure of ₹ 2,74,114 crore is, how­ever, not what the Min­istry of De­fence (MoD) con­sid­ers as In­dia’s of­fi­cial de­fence bud­get. The dif­fer­ence amount be­tween Fi­nance Min­is­ter’s and MoD’s fig­ures of ₹ 11,724 crore is allo

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The Fi­nance Min­is­ter’s over­all stated fig­ure of 2,74,114 crore is, how­ever, not what the Min­istry of De­fence (MoD) con­sid­ers as In­dia’s of­fi­cial de­fence bud­get. The dif­fer­ence amount be­tween Fi­nance Min­is­ter’s and MoD’s fig­ures of 11,724 crore is al­lo­cated un­der what is con­sid­ered De­fence (Civil Es­ti­mates) which, in­clu­sive of de­fence pen­sion of 85,740 crore, does not form part of the of­fi­cial de­fence bud­get.

Lax­man Ku­mar Be­hera

WHILE PRE­SENT­ING THE UNION bud­get 2017-18 on Fe­bru­ary 1, 2017, Fi­nance Min­is­ter Arun Jait­ley al­lo­cated ₹ 3,59,854 crore ($55.36 bil­lion) to the Min­istry of De­fence (MoD). Like in his pre­vi­ous bud­get, the Fi­nance Min­is­ter also made cer­tain changes in the for­mat of the de­fence De­mand for Grants (un­der which de­fence money is dis­trib­uted among the armed forces and other de­fence agen­cies), bring­ing an el­e­ment of fur­ther com­plex­ity of es­ti­mat­ing var­i­ous el­e­ments of what con­sti­tutes In­dia’s of­fi­cial de­fence bud­get. The com­plex­ity apart, the big­ger ques­tion that faces the de­fence com­mu­nity is whether the lat­est al­lo­ca­tion is ad­e­quate to meet the se­cu­rity needs of the coun­try. This ar­ti­cle ex­am­ines the lat­est de­fence al­lo­ca­tion in the light of its pos­si­ble im­pact on mod­erni­sa­tion and op­er­a­tional pre­pared­ness of the de­fence forces.

Rec­on­cil­ing the Fig­ures

While pre­sent­ing the union bud­get to the Par­lia­ment, the Fi­nance Min­is­ter stated that “[for De­fence ex­pen­di­ture ex­clud­ing pen­sions, I have pro­vided a sum of ₹ 2,74,114 crore in­clud­ing ₹ 86,488 crore for De­fence cap­i­tal.” The Fi­nance Min­is­ter’s over­all stated fig­ure of ₹ 2,74,114 crore is, how­ever, not what the Min­istry of De­fence (MoD) con­sid­ers as In­dia’s of­fi­cial de­fence bud­get. An at­tempt is made in Ta­ble 1 to rec­on­cile the de­fence-re­lated al­lo­ca­tions pro­vided in the union bud­get with the tra­di­tional for­mat used by the MoD and com­pare it with the pre­vi­ous years’ al­lo­ca­tion and ex­pen­di­ture. Us­ing the MoD for­mat, the de­fence bud­get for 2017-18 amounts to ₹ 2,62,390 crore. The dif­fer­ence amount (be­tween Fi­nance Min­is­ter’s and MoD’s fig­ures) of ₹ 11,724 crore is al­lo­cated un­der what is con­sid­ered De­fence (Civil Es­ti­mates) which, in­clu­sive of de­fence pen­sion of ₹ 85,740 crore, does not form part of the of­fi­cial de­fence bud­get.

A no­tice­able as­pect of the Ta­ble 1 is the un­der­util­i­sa­tion of cap­i­tal al­lo­ca­tions pro­vided in the 2016-17 bud­get, re­sult­ing in a sur­ren­der of ₹ 6,970 crore (8.1 per cent). The sur­ren­dered amount has largely been ab­sorbed in the rev­enue ex­pen­di­ture which has in­creased from its orig­i­nal es­ti­mates by ₹ 5,876 crore.

It is sig­nif­i­cant to note that the man­power driven de­fence bud­get is not unique to 201718. In the last sev­eral years, it has been a re­cur­ring fea­ture with a de­bil­i­tat­ing ef­fect on two vi­tal el­e­ments of the de­fence bud­get rev­enue-stores and cap­i­tal mod­erni­sa­tion which to­gether play a vi­tal role in the op­er­a­tional pre­pared­ness of the armed forces.

The High­lights and the Ma­jor Trends

The Ta­ble 2 pro­vides com­par­a­tive sta­tis­tics of de­fence bud­get and re­lated fig­ures for 2016-17 and 2017-18. The dis­tinct no­tice­able fea­ture of the ta­ble is the fur­ther de­cline in the de­fence bud­get’s share in both Cen­tral Gov­ern­ment ex­pen­di­ture and the GDP. With a share of 1.56 per cent in the es­ti­mated GDP of 2017-18, the de­fence bud­get is the low­est since 1956-57.

An­other ma­jor fea­ture of the Ta­ble 2 is the fur­ther in­crease in the share of the rev­enue ex­pen­di­ture in the to­tal de­fence bud­get. The in­crease is pri­mar­ily due to the hike in the man­power cost of the armed forces, which ac­counts for over 83 per cent (`11,071 crore) of the over­all growth of

₹ 13,291 crore in the de­fence bud­get. It is sig­nif­i­cant to note that the man­power driven de­fence bud­get is not unique to 2017-18. In the last sev­eral years, it has been a re­cur­ring fea­ture with a de­bil­i­tat­ing ef­fect on two vi­tal el­e­ments of the de­fence bud­get rev­enue-stores and cap­i­tal mod­erni­sa­tion which to­gether play a vi­tal role in the op­er­a­tional pre­pared­ness of the armed forces. As the Fig­ure 1 suc­cinctly il­lus­trates, the com­bined share of these two el­e­ments has de­clined from 55 per cent in 2007-08 to 40 per cent in 2016-17. This does not augur well, espe­cially when there ex­ists a huge void in In­dia’s de­fence pre­pared­ness, and the armed forces have grave short­ages in many ar­eas rang­ing from am­mu­ni­tion, as­sault ri­fles, bul­let-proof jack­ets, night-fight­ing de­vices to how­itzers, mis­siles, he­li­copters, fight­ers and war­ships. Need­less to say that for a cred­i­ble de­fence pre­pared­ness, the present ra­tio needs to change for bet­ter for which al­lo­ca­tion un­der rev­enue stores and cap­i­tal mod­erni­sa­tion needs to be aug­mented sub­stan­tially.

Share of the De­fence Ser­vices

Among the de­fence ser­vices, the In­dian Army with a bud­get of ₹ 1,49,369 crore ac­counts for the big­gest share in de­fence bud­get, fol­lowed by the Air Force, Navy, De­fence Re­search and De­vel­op­ment Or­gan­i­sa­tion (DRDO) and Ord­nance Fac­to­ries (OFs) (Fig­ure 2). The big­gest share of the Army is pri­mar­ily be­cause of its over­whelm­ingly nu­mer­i­cal su­pe­ri­or­ity over the sis­ter ser­vices. Ac­count­ing for over 85 per cent of the uni­formed per­son­nel, bulk of the Army’s bud­get goes into meet­ing the pay and al­lowances of the per­son­nel. In 2017-18, only 17 per cent of Army’s to­tal al­lo­ca­tion is ear­marked for cap­i­tal ex­pen­di­ture. The com­par­a­tive fig­ures for the Air Force and Navy are 58 per cent and 51 per cent, re­spec­tively.

Im­pact on Mod­erni­sa­tion

Ta­bles 3 pro­vides the mod­erni­sa­tion bud­get of the three forces whereas the Ta­ble 4 shows sep­a­rately for the Army. As can be seen, the over­all al­lo­ca­tion made in 201718 bud­get has de­clined, al­though marginally, over the pre­vi­ous al­lo­ca­tion. Among the three forces, Air Force is the only ser­vice whose mod­erni­sa­tion bud­get has in­creased whereas both the Army and Navy have wit­nessed a de­cline in their re­spec­tive bud­gets.

What is of greater con­cern is that un­der­util­i­sa­tion has be­come a re­cur­ring fea­ture of In­dia’s de­fence bud­get, de­spite nu­mer­ous im­prove­ments in the pro­cure­ment pro­ce­dures un­der­taken by the MoD in the past two-and-a-half decades.

The de­cline in the mod­erni­sa­tion bud­get is a source of great con­cern, espe­cially given the lim­ited bud­getary scope avail­able for sign­ing new con­tracts. In 2016-17, only 12 per cent of the to­tal mod­erni­sa­tion bud­get of ₹ 70,000 crore was avail­able for sign­ing new schemes, with the rest be­ing ear­marked for the com­mit­ted li­a­bil­i­ties aris­ing out of con­tracts al­ready signed (Ta­ble 5). It is, how­ever, to be noted

that this lim­ited scope has not been fully ex­ploited as there has been an un­der­util­i­sa­tion of a whop­ping ₹ 7,393 crore (10.5 per cent). The un­der­util­i­sa­tion is across the ser­vices, al­though the Army ac­counts for over 50 per cent of to­tal un­spent funds. What is of greater con­cern is that un­der­util­i­sa­tion has be­come a re­cur­ring fea­ture of In­dia’s de­fence bud­get, de­spite nu­mer­ous im­prove­ments in the pro­cure­ment pro­ce­dures un­der­taken by the MoD in the past two-and-a-half decades. Given that steady mod­erni­sa­tion is a pre­req­ui­site for build­ing up a strong mil­i­tary ca­pa­bil­ity, the MoD has a big task ahead to bring in ef­fi­ciency and ex­pe­di­tious­ness in the pro­cure­ment process.

Make in In­dia and De­fence Pro­duc­tion

Un­like in the pre­vi­ous bud­get, the union bud­get has not pro­vided any spe­cific in­cen­tives to push the ‘Make in In­dia’ ini­tia­tive in the de­fence sec­tor, al­though some in­dus­try-wide pro­pos­als have been promised. Among oth­ers, the gov­ern­ment has promised to re­duce in­come tax from present 30 per cent to 25 per cent for Mi­cro, Small and Medium En­ter­prises (MSMEs) with an an­nual turnover of up to ₹ 50 crore. This is likely to ben­e­fit some 6,000 MSMEs which are presently sup­ply­ing parts, com­po­nents and sub­sys­tems to play­ers like DRDO, de­fence pub­lic sec­tor un­der­tak­ings, ord­nance fac­to­ries and the large pri­vate com­pa­nies.

The lack of any spe­cific in­cen­tive for the de­fence in­dus­try may be a source of dis­ap­point, as in­dus­try has re­peat­edly de­manded cer­tain con­ces­sion which are ex­tended to other sec­tors. In the union bud­get it­self, the Fi­nance Min­is­ter ex­tended the ‘In­fra­struc­ture Sta­tus’ to the ‘Af­ford­able Hous­ing’, sec­tor, al­low­ing the in­dus­try in that sec­tor to avail cer­tain tax-re­lated ben­e­fits. Need­less to say, In­fra­struc­ture Sta­tus is one of sev­eral de­mands long re­quested by the de­fence in­dus­try.

Within the de­fence bud­get, how­ever, there has been a small al­lo­ca­tion of ₹ 44.63 crore made for poro­to­type de­vel­op­ment un­der the ‘Make’ pro­ce­dures which have re­cently been re­vised by the MoD and some 23 projects have been iden­ti­fied for ex­e­cu­tion. Of the to­tal amount, ₹ 30.08 crore is ear­marked for Army and the bal­ance ₹ 14.55 crore for the Air Force.

Con­clu­sion

The mea­gre in­crease of 5 per cent in the of­fi­cial de­fence bud­get is grossly in­ad­e­quate espe­cially in view of the vast void ex­ist­ing in mil­i­tary ca­pa­bil­ity and the lat­est bud­get’s neg­a­tive in­cre­men­tal ef­fect on mod­erni­sa­tion and op­er­a­tional pre­pared­ness. There is a need to aug­ment sub­stan­tial re­sources, par­tic­u­larly un­der two crit­i­cal heads of the de­fence bud­get — stores and cap­i­tal pro­cure­ment — which have come un­der se­vere pres­sure in the last sev­eral years with a huge neg­a­tive con­se­quence on In­dia’s de­fence pre­pared­ness.

From the MoD’s perspective, while the de­mand for higher re­source is a gen­uine one, it must also be fully geared up to utilise the avail­able re­sources in a time-bound man­ner. There is hardly any merit in ask­ing for more re­sources while the present ca­pac­ity to utilise the avail­able re­sources, par­tic­u­larly those un­der the cap­i­tal head, is con­strained. The de­fence es­tab­lish­ment must, there­fore, look in­ward and find last­ing so­lu­tions to pro­cure­ment im­ped­i­ments. At the same time, the MoD also needs to look at the cur­rent profile of de­fence bud­get and find out any scope for con­trol­ling man­power cost so as to al­low other items of ex­pen­di­ture to grow in a healthy man­ner.

What is of greater con­cern is that un­der­util­i­sa­tion has be­come a re­cur­ring fea­ture of In­dia’s de­fence bud­get, de­spite nu­mer­ous im­prove­ments in the pro­cure­ment pro­ce­dures un­der­taken by the MoD in the past two-and-a-half decades

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