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Decoding the defence budget The Statesman 08 Feb 2022
The current budget allocations by the Finance Minister indicated an upswing in government expenditure providing a boost to the economy. Economic development and national security go hand in hand. Addressing a seminar in Delhi in Feb 2018, General Rawat, then army chief, stated, ‘Economic rise takes place if the country is secure. Economic development and military modernisation must go hand-in-hand.’ India’s security threats have been rising sharply, demanding capability and capacity upgradation. Simultaneously, a nation can never be militarily secure by banking on imported equipment. Military expenditure is dictated by the defence budget.
The defence budget for the coming fiscal year is pegged at 5.25 Lakh crore, an increase of 9.8% the previous year. It is 2.03% of the GDP and 13.3% of government expenditure. Military share of the defence budget is 4.78 Lakh crore as compared to 4.71 Lakh crore of last year. The revenue component meant for salaries and maintaining forces in being is 2.3 Lakh crores. The budget includes pensions to the tune of 1.19 Lakh crore. Last year the armed forces spent 20.776 crores in emergency purchases beyond the allocated budget due to continued border tensions.
The capital budget, earmarked for modernization is 1.52 Lakh crores which is 12.8% higher than the budget estimates and comprises 68% of the defence budget. Within this, the navy gained an increase of over 43% from the previous year, while the air force a marginal rise of 4.5% but retaining the largest share of the capital pie. The army’s share went down by 12.2%.
This could possibly have been due to poor spending in the last budget by the army, which expended only 40% of its share as compared to 70% of the air force and 90% of the navy. A factor to note is that air force and naval platforms are more cost intensive as compared to the army. Also development of capabilities takes time. While the increase is welcome, what is unknown is amount due under committed liabilities for earlier procurements, which will impact availability of funds for current and future plans.
The capital budget of the Border Roads Organization (BRO) has increased from 2,500 to 3500 crores, approximately 40%. This will enable connectivity to remote regions while enhancing military mobility. The coast guard also received a quantum leap in its share by approximately 60%.
This distribution of the capital budget between the services also displays the perception of threat in the near and mid future. The government appears to consider the Indian Ocean Region emerging as a zone of competition in times to come. It also projects that in its opinion the army has sufficient capabilities for handling both, the northern and western borders. Continued modernization of airpower remains a necessity. The current allocation would give a boost to the domestic industry as most naval construction is being done within the country, while air acquisitions currently in the pipeline are the Tejas, and the Tata manufactured C 295 transport aircraft.
The government has earmarked 68% or 84.598 crores from the capital budget for domestic procurement, an increase of 10% from the previous year. Additionally 25% of the defence R & D budget is being allocated for R and D by the private sector, start-ups and academia. The finance minister also announced the creation of an independent nodal organization to meet wide-ranging testing and certification requirements of weapon systems, a demand of the private defence industry.
Enhancing procurement from domestic sources is a welcome step. As stated earlier, there are hidden imports within domestic procurements. Engines for Tejas aircraft, main battle tank and major components for naval ships, though covered under domestic would in reality be imported. The true picture would always remain hidden. Involving the private sector into R and D is a step which was long awaited. The results are bound to be positive, though we need to be patient. However the R and D share is a meagre 0.7% of the GDP as compared to 3% in developed nations.
Defence manufacturing capabilities are determined by exports, implying global acceptance. India is currently 23rd in the list of defence exporters. It achieved exports worth Rs 8,434.84 crore in the last fiscal. It has set a target of Rs 35,000 crores or USD 5 Billion by 2025. The recent sale of BrahMos to Philippines has come as a boost. Unless exports increase, investments by the private sector would begin to stagnate. In this the government has a major role. Empowering defence attaches to represent Indian defence industry is not a long-term solution.
Marginal increase in the revenue budget would place strains on the armed forces to maintain forces in being. Increased deployment along the LAC, especially in Ladakh, are financially taxing and would impact revenue expenditure. The revenue budget is also utilized for upkeep of defence assets and maintaining readiness of forces. It would require juggling by finance departments of the services to meet aspirations of troops as also ensure operational readiness.
Another factor of concern is FDI in the defence sector which has remained stagnant for the past two years despite the government permitting 74%. This implies that the government has failed to garner confidence of major global arms manufacturers.
The finance minister must consider the viability of announcing independent service capital budgets in an era when the armed forces are undergoing a major transformation with the creation of the Department of Military Affairs (DMA) and theatre commands. Ideally, service allocation should be done by the CDS based on a common threat profile and joint capability requirements of the forces. The finance minister must only announce allocations under major heads, leaving further inter-service distribution to the DMA.
A major pending demand of the forces for a rolling budget has once again been ignored. As it happened this year, services failed to expend their portion, resulting in surrender of funds. This could be avoided by having a rolling budget. While the budget appears to have met most requirements, the true availability of funds for capability enhancement would be known once figures of committed liabilities are released.