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Post the defence budget The Excelsior 14 Feb 2021
The budget speech by the Finance Minister, Nirmala Sitharaman, had no mention of the defence outlay. This left many wondering whether the budget did cater for the growing security threats that the country faces, especially since the Chinese intruded into Ladakh. The Chinese had, by their actions, proved existing government policies wrong. The Modi government strategy was based on the belief that diplomatic parleys and a coupled economy would keep the LAC with China secure and incident free, enabling the nation to concentrate on development. The Chinese had other plans.
The Chinese intrusion in May last year, the deployment of additional forces to block them and immediate procurements to reduce the capability gap had cost the government over 20,000 crores in emergency expenditure. These figures were displayed in the government’s revised estimates. The Chinese intrusion occurred as the nation was grappling with the pandemic and economy was shrinking. With this backdrop, the current budget was announced. Hence, allocations this year need to be compared with revised estimates of last year and not initial allocations of last year.
The current defence budget had an allocation of 4.78 Lakh crores as against 4.71 Lakh crores last year. The capital expenditure, meant for procurements was 1.35 Lakh crores, an increase of 19% over the previous year’s initial allocation. As per the defence minister, this is the largest increase in 15 years. However, this claim is incorrect. The revised estimates of last year stated that the actual capital expenditure, due to additional allocations was Rs 1,35.5 crores, hence the actual increase is just 551 crores or only 0.4%.
The pension budget has reduced from 1,25,000 crores in the revised estimates to 1,15,000 crores. The reason given is that the figures last year were inflated. The revenue budget has increased from 2.09 Lakh crores to 2.12 Lakh crores. The revenue budget is for sustenance of current force levels. The budget also mentions establishing 100 Sainik Schools across the country. These schools are feeder institutions for the National Defence Academy. It was stated that these schools would be opened with participation of the private sector, an aspect which needs reconsideration.
The last few years has witnessed a shrinking budget for defence, which led to most procurements being pushed further and further away. General Bipin Rawat, as COAS, was compelled to use the revenue budget to make up deficiencies in ammunition stocks. The shortfalls in funds were such that the army vice chief, General Sarath Chand was compelled to state in 2018, ‘Allocation for modernisation is insufficient even to cater for committed payments.’ The government is currently pushed to make up for its earlier errors in poor funding at a time when the situation on the borders is tense. The finance commission had recommended, on multiple occasions, that the government must set up a non-lapsable fund for defence, a demand which may finally see the light of day.
There is no doubt that with a shrinking economy amidst the pandemic, the government has to cater for all sections of society with available funds. Thus, it is assumed that it has done the best it could. Military procurements take time and hence orders being placed post Chinese intrusions would being materializing shortly. The forces felt these shortfalls when the Chinese intruded. There have been no comments on the budget from service chiefs. It is unlikely they would criticize the allocations but would be compelled to manage within them.
With the budget now announced, the forces would need to get their act together. This is where the Department of Military Affairs (DMA), under the Chief of Defence Staff (CDS) will come into play. It would need to prioritize procurements between the forces, curtail unnecessary expenditure and seek to place maximum orders on domestic industry. It would need to holistically assess threats to the country, rather than it being done by individual services, and prioritize procurements. Management of the capital budget is essential. Similar must be the emphasis on revenue expenditure. With additional forces deployed in Ladakh, the revenue expenditure would need careful monitoring.
One manner of doing so is to centralize all procurements under its wing rather than allocate funds to service HQs. It should also lay down guidelines for emphasis on local procurements, rather than imports. A centralized procurement plan, with emphasis on jointness in employment would reduce costs and enhance employability of equipment.
The MoD must also push in areas directly under it. Defence PSUs and ordnance factories can no longer be white elephants, sucking defence funds with little output. They have to either be corporatized or become profit making and stand on their own feet. Unless they enhance quality, become globally competitive and commence exporting, apart from meeting their domestic targets, they would remain blood sucking enterprises. Their survival should depend on their ability to deliver.
Simultaneously, the government must consider shutting down worthless entities like the Indian Defence Estate Service, close down cantonment boards, hand over civilian areas to local municipal authorities and convert cantonments into military stations. Other organizations, such as the Military Engineering Service, which has bloated to uncontrollable levels, must also be given a hard look. Only those organizations and institutions which contribute positively to management of defence must be retained. All unwarranted expenditure must be curtailed and emphasis on management of defence increased.
With a CDS in place there is no need for the finance minister to announce separate force allocations in the capital budget. The allocation should be central and based on threat perception and priority in procurement, funds should be sub-allocated by the CDS.
India will always have competing priorities for funds. The pie is fixed, and the finance minister has to manage everything within it. National defence and development will always go hand in hand. Without one, the other cannot be catered for. Hence, it will be difficult to decide where additional allocations are needed. The government must simultaneously enforce measures to reduce the pension bill. Multiple committee’s have given their recommendations, it is time for them to be considered and implemented.