India’s net defence budget of Rs 4,78,195.62 crore for the Financial Year (FY) 2021-22 is only Rs 6,817.62 crore more than the current FY’s budget estimate (BE). This paltry increase is ironic because the allocation for the next FY is Rs 6,540.44 crore less than the revised estimates (RE) for the current FY. In simpler words, the money available for spending next FY is less than the money that the Ministry of Defence (MoD) is likely to end up spending by the end of March 2021.

 

This must be disappointing for those who believed that regardless of the state of economy, the pressing requirement of other sectors like health and infrastructure, and the constraints in raising higher receipts through taxation and borrowings, the government will allocate substantially higher funds for defence to deal with the ongoing faceoff with China along our northern borders, and long- term military modernisation.

The allocation is disappointing, but not surprising. The Indian economy, like most economies of the world, is recovering from one of the worst disruptions the world has ever seen because of the Covid-19 pandemic. Reviving the economy and providing relief through welfare schemes to millions of households adversely affected by the pandemic is as important as the defence of the country. All this costs money, but the simple fact is that the government is not able to generate sufficient resources to meet the demand of all the sectors.

 

The expenditure for the next fiscal is projected to be Rs 34,83,236 crore of which Rs 15,06,812 crore, or 43.26 per cent, is to be met through borrowings. This is primarily because the receipts from the tax and non-tax revenue, recovery of loans, and disinvestment during the next fiscal are going to be Rs 2,69,469 crore less than the current year’s BE.There are serious constraints in augmenting receipts through these sources. Evidently, this crisis of resource generation has impacted the budgetary allocation across all sectors.

This is reflected in the defence budget, which consists of four Demands for Grant. These are: Ministry of Defence (Civil), Defence Services (Revenue), Capital Outlay on Defence Services, and Defence Pensions. The second and third grants are also collectively referred to as the Defence Services Estimates, though these demands also include the budgetary requirement of the Ordnance Factories and the Department of Defence Research and Development.

 

The Demand for Grant of the Ministry of Defence (Civil) includes not just the requirement of the MoD’s secretariat but also that of the Border Roads Organisation (BRO), Indian Coast Guard (ICG), Defence Estates Organisation (DEO), Jammu and Kashmir Light Infantry (JAKLI), and the Armed Forces Tribunal.

The BE of Rs 14,500 crore under this Demand for Grant has been revised to Rs 15,914 crore, but the BE for the next fiscal has been pegged at Rs 15,257 crore –an increase of just Rs 757 crore with reference to the BE, but a decrease of Rs 657 crore vis-à-vis the RE.This could impact the infrastructure development by the BRO and constrain the activities of the ICG.

The allocation for the current fiscal under the Demand for Grant for Defence Pensions has been brought down from Rs 1,33,825 crore in the BE to Rs 1,25,000 crore in the RE. More surprisingly, the allocation for the next fiscal has gone down further to Rs 1,15,850 crore. Many ascribe this to freezing of the dearness relief, payment of arrears on account of earlier revisions having been completed, and even the likely reduction in liability on account of extension of retirement age, etc.

It is not known what the real reasons are, but the possibility of the reduced allocation impacting payment of current pensions can be ruled out. Like the salaries, payment of pension is obligatory. There is no known instance of the central government defaulting on these payments. If required, the government will have to provide additional funds at the RE stage to defray the expenditure.

The allocation under the Demand for Grant for Defence Services (Revenue) is quite intriguing. The current FY’s RE is Rs 7 crore less than the BE despite a substantial increase in the allocation for procurement of stores that include spare parts, ammunition, winter clothing etc. This has been achieved by reducing the allocation even for salaries, which could be on account of freezing of three installments of dearness allowance due on 1st of January and July 2020 and the third on 1st January 2021.

For the next fiscal, the allocation has been increased by Rs 2,709 crore vis-à-vis the current year’s BE.Whichever way one looks at it, the allocation is grossly inadequate. The financial constraints could impact procurement of ordnance stores that includes ammunition and clothing, maintenance of equipment and infrastructure, transportation of personnel and goods, and other operational needs.

In comparison, the Capital Outlay on Defence Services for the next fiscal is less intriguing. The current FY’s BE of Rs 1,13,734 crore was increased by Rs 20,776 crore to Rs 1,34,510 crore at the RE stage, undoubtedly because of the emergency procurement made following the Galwan incident in June 2020. However, the allocation for the next FY has been pegged at Rs 1,35,060 crore, which is Rs 21,326 crore more than the BE for the current FY, but just Rs 550 crore more than the RE.

The spurt in expenditure during the current FY, which necessitated additional allocation of Rs 20,776, is clearly on account of the emergency purchases of weapons and equipment. Some of the expenditure on these purchases will spill over to the next FY, depending on the delivery schedule and the payment terms. Consequently, how many new contracts can be signed in the FY 2021-22 will depend on how much of the next FY’s allocation will go into meeting the committed liabilities related to the ongoing contracts, of which no indication is currently available.

It is immaterial what the next FY’s allocation amounts to in terms of percentage of the GDP or of the total Central Government Expenditure. What does, however, matter is whether the total money available for acquiring the military capabilities to face the threat posed by China and Pakistan, as also for other operational expenditure, is adequate. The increase of Rs 6,817 crore vis-à-vis the BE and reduction of Rs 6,540 crore vis-à-vis the RE does not inspire much confidence, although it is not difficult to understand the underlying reasons. One can only hope that, like this year, additional funds will be allotted during the year, if required by the armed forces. However, this is not conducive to long term military planning.

-The writer is ex-Financial Adviser, Ministry of Defence. The views expressed are personal, and do not necessarily reflect the views of Raksha Anirveda