At Rs 5,93,538 crore, the total defence outlay for the financial year (FY) 2023-24, including the outlay of Rs 1,38,205 crore for defence pensions, represents a 13.02% year-on-year growth over the current year’s budget estimates (BE) of Rs 5,25,166 crore.
Considering that the current year’s budget was enhanced only by 9.82% over the last financial year’s BE, the 13.02% hike sounds heartening, but the picture changes dramatically if the growth is calculated with reference to the current year’s revised estimates (RE) of Rs 5,84,791 crore, for then it slumps to a mere 1.5%.
Conventionally, the efficacy of the defence budget is assessed on two other parameters also: its share in the central government expenditure (CGE) and its correlation with the gross domestic product (GDP). While the next financial year’s BE accounts for 13.18% of the CGE, down from 13.31% this year, its percentage in relation to the GDP has also dropped from 2.04% to 1.97%.
Defence analysts have been arguing for long that the defence budget should be pegged at 3% of the GDP; its drop below the 2%-mark is bound to aggravate their concerns, not least because of a meagre increase in the capital outlay of the defence services which caters for the acquisition of new equipment, upgrade of the existing kit, acquisition of land, and development of civil infrastructure.
A sum of Rs 1,62,000 crore has been allocated for the capital expenditure next financial year, which is only 6.71% more than the current year’s BE, far below what was generally expected. This amount is not available for new acquisitions as a major proportion of the capital budget is spent on discharging committed liabilities, or payments due to be made in a given year against the previously concluded contracts.
The extent of committed liabilities for the next financial year is not known at this time but going by the information available for the previous years, it could be as high as 80-90% of the total allocation. Consequently, as in the previous years, not much amount is likely to be available for concluding new big-ticket contracts. This can affect the pace of acquisition of military capabilities unless additional sums are allocated at the RE stage if the situation demands.
The revenue budget of the defence services has been increased by a whopping 15.93% over the current year’s BE of Rs 2,33,000 crore to Rs 2,70,120 crore. But here too, the picture changes dramatically if the increase is reckoned with reference to the current year’s enhanced RE of 2,59,500 crore, for then the hike drops down to a mere 4.09%.
The payout on salaries of the service personnel and defence civilians constitutes a major portion of the revenue expenditure. It accounted for 64.12% in the current year, but has, almost magically, come down to 57.18% in the next year’s BE. All the three services have contributed to this magic with the Indian Air Force (IAF) bringing it down from 60.95% to 51.40%, Indian Navy (IN) from 49.42% to 39.57%, and the Indian Army (IA) from 70.78% to 65.09%.
What accounts for this drop in the salaries bill is a mystery, for there has been no significant reduction in manpower or drop in emoluments. While the mystery will unravel in due course, there has been a positive spin-off from this in the form of an almost five per cent increase in the money available for operational expenditure, going up from 27.87% this year to 32.39% of the total revenue budget for the next financial year. For the IAF, this has jumped from 39.69% to 48.70%, for the IN from 40.56% to 48.75%, and for the IA from 25.22% to 27.47%.
Operational expenditure mainly comprises the outlay for procurement of ordnance and other stores, execution of civil works related to maintenance of infrastructure, transportation of personnel and stores, repairs and refit of naval vessels, and some other miscellaneous operational expenditure.
It is a travesty of the budgetary structure that the Defence Research and Development Organisation (DRDO) is clubbed with the armed forces under the rubric of ‘defence services’. Be that as it may, DRDO’s allocation for the next financial year is pegged at Rs 23,264 crore, more than half of which – Rs 12,850 crore – is allocated for capital expenditure. This amounts to a slightly more than 9% increase over the current year’s BE of Rs 21,330 crore.
It is arguable if a 9% hike in DRDO’s budget, which corresponds to approximately 3.91% of the total defence outlay, is enough to promote high-tech R&D and innovation which are crucial for achieving Aatmanirbharta, or self-reliance, in design and development of military equipment in the coming years.
In the belief that involvement of the private sector in R&D is critical for achieving the goal of self-reliance, Finance Minister Nirmala Sitharaman announced in her last year’s budget speech that 25% of the R&D budget was being set aside to finance the design and development of military platforms and equipment by the private sector, singly or in collaboration with the DRDO. There was no indication in the budget for FY 2023-24 of any allocation on this count.
Like the DRDO budget’s inexplicable clubbing with the armed forces’ budget, the outlay for Ex-servicemen Contributory Health Scheme (ECHS), National Cadet Corps (NCC), Director General of Quality Audit (DGQA), and Military Farms is clubbed with the IA’s budget. Although the allocation for these organisations is not significant, except for the ECHS whose revenue budget has gone up from Rs 3,583 crore this year to Rs 5,432 crore for FY 2023-24, their clubbing with the IA’s budget distorts the picture.
The expenditure on defence pensions has been increasing rapidly, going up from Rs 1,19,696 crore this year to Rs 1,38,205 crore, which accounts for more than 23% of the total defence budget for the FY 2023-24. The increase of Rs 18,509 crore is nearly double the increase of Rs 10,230 in the capital outlay. The allocation for pensions, which was just Rs 11,000 crore two decades back in 2003-04, is bound to grow manifold in future.
The Indian Coast Guard (ICG) and the Border Roads Organisation are not clubbed with the defence services for the purpose of budgetary allocation, but they play a significant complementary role in shoring up maritime security and the development of civil infrastructure in the sensitive border areas.
The capital allocation for the ICG jumped from Rs 5,245 crore in 2021-22 to Rs 7,310.29 crore in the current FY, but it has been reduced to Rs 7,198 crore for the next financial year. This has led to a sharp decline in the ICG’s capital allocation from Rs 4,246 crore to Rs 3,526 crore, but its revenue or operational allocation has increased marginally from Rs 3,064 crore to Rs 3,661 crore. This could impact ICG’s capital acquisition programmes, though the increased revenue expenditure seems to indicate the expansion of the force’s patrolling and surveillance activities along India’s long coastline.
Bucking the trend, the allocation for the Border Roads Development Board has been increased by more than 30% from Rs 4,555 crore to Rs 6,005 crore, undoubtedly for expediting strategically important infrastructure development along the disputed Line of Actual Control with an irredentist China.
To conclude, what stands out in the next year’s defence budget is the increase in funds available for operational expenditure under the revenue segment of the defence services’ budget and a less-than-expected increase in the capital outlay.
Considering the need for fiscal consolidation, increased capex for rapid economic growth, and containing the common man’s tax burden, this is possibly the best the finance minister could do under the circumstances to manage the competing requirements. It is now for the armed forces to make the best use of the allocated funds.
–The writer is a Ex-Financial Advisor (Acquisition), Ministry of Defence. The views expressed are personal and do not necessarily reflect the views of Raksha Anirveda