Modest6.35% hike in defence Budget, govt talks up OROP

With larger allocations to the agricultural and social sectors in an election year, the defence Budget plumbed the lowest levels since 1962 — the year when an illequipped Indian Army was roundly defeated by China.

Including money allocated to defence pensions and the defence ministry, the defence allocation for 2019-20 rose to ~4.31 trillion, just 6.35 per cent more than the revised estimates for 2018-19. This will be insufficient to cover even cost inflation and foreign exchange depreciation during the year.

The defence allocation for the coming year will account for 15.5 per cent of the central government’s expenditure, and 2.05 per cent of the estimated Gross Domestic Product (GDP). This is significantly lower than this year’s revised estimates of 16.5 per cent of the government’s expenditure and 2.15 per cent of the GDP.

As in preceding years, various Budget documents calculated the defence allocations differently. The detailed Expenditure Budget took a comprehensive view of defence spending, with its demands for grants and the notes thereto, including all allocations to the Ministry of Defence (Demand No. 19); revenue allocations to the three services, Defence R&D Organisation (DRDO) and Ordnance Factories (Demand No. 20), capital allocations to these entities (Demand No. 21) and also defence pensions (Demand No. 22). These four allocations amount to ~4.31 trillion.

However, Finance Minister Piyush Goyal’s Budget speech, and a government statement released through the Press Information Bureau, treated the pension and MoD allocations as outside the defence Budget. By that count, the defence budget amounts to ~3.02 trillion.

Addressing Parliament, Goyal said, “Our defence budget will be crossing ~3 trillion for the first time in 2019-20. For securing our borders and to maintain preparedness of the highest order, in necessary, additional funds would be provided.”

Underlining the political backdrop to the interim Budget, Goyal’s speech also made reference to the One Rank, One Pension (OROP) scheme, which the government has implemented during its tenure.

“The previous governments announced it (OROP) in three budgets but sanctioned a mere ~500 crore in the 2014-15 interim budget. In contrast, we have already disbursed over ~35,000 crore after implementing the scheme in its true spirit,” said Goyal.

For the first time ever, the defence capital budget crossed the ~1-trillion mark, with the ~1.03 trillion capital allocation for 2019-20 exactly 10 per cent higher than the current year’s revised estimate of ~93,982 crore. Given the significant pay-outs impending for fighter aircraft, missiles, warships and other systems, there is likely to be a demand for an increase at the revised estimates stage later this year.

Welcoming the Budget, Bharat Forge Chairman Baba Kalyani said, “We hope that ‘Make in India’ in defence will result in greater role for the private industry in this critical sector of the country’s economy. The thrust on MSMEs is also welcome…”

Including money allocated to defence pensions & the defence ministry, the defence allocation for FY20 rose to ~4.31 trillion, just 6.35% more than the revised estimates for 2018-19