The total defence outlay for the Financial Year 2024-25 (FY ’24) has been pegged at Rs 6,21,740.85 crore in the interim union budget presented by Finance Minister Nirmala Sitharaman on February 1 amidst widespread expectations of several tax concessions ahead of the impending general elections to the 18th Lok Sabha.
In the event, Sitharaman not only resisted the temptation of offering electoral sops – an indication of the government’s confidence that it will return to power this summer – but presented a fiscally prudent and unmistakably growth-oriented budget with a focus on infrastructure development. On the flip side, this has had a sobering effect on the defence budget.
The proposed defence outlay is Rs 28,203.21 crore more than the budget estimates (BE), but Rs 2,148.09 crore less than the revised estimates (RE), of the current financial year 2023-24 that ends on March 31. The BE-to-BE increase of 4.75 per cent is perhaps one of the lowest in recent years. Just last year, the budget outlay for defence was hiked by a little over 13 per cent.
The allocation for the FY ’25 accounts for 13.05 per cent of total central government expenditure and 1.9 per cent of the estimated nominal gross domestic product of the FY ’25. These percentages are slightly lower than the corresponding figures of 13.18 per cent and 1.97 per cent respectively for the current financial year, but otherwise, the allocation is in keeping with the general trend witnessed over the last few years.
Unlike in the past, the Ministry of Finance (MoF) has been generous in allocating extra funds at the RE stage in recent years. Between 2019-20 and 2023-24, a total sum of Rs 1,45,831 crore was so allocated for defraying additional expenditure on salaries, pensions, capital acquisitions, and the like. It may happen again in FY ’25 if the need arises. However slim the chances, the possibility of the outlay being increased when the regular budget is presented later this year cannot also be ruled out. This should be comforting for the armed forces.
The proposed defence outlay is Rs 28,203.21 crore more than the budget estimates (BE), but Rs 2,148.09 crore less than the revised estimates. The BE-to-BE increase of 4.75 per cent is perhaps one of the lowest in recent years. Just last year, the budget outlay for defence was hiked by a little over 13 per cent
Out of the total defence budget, a sum of Rs 4,54,972.67 has been allocated to the armed forces – representing a year-on-year growth of 5.14 per cent – while the remaining allocation is meant for defraying expenditure on defence pensions and other organisations like the Border Roads Organisation (BRO) and the Indian Coast Guard (ICG).
The armed forces’ budget comprises Rs 2,82,772.67 crore for revenue, and Rs 1,72,000 crore for capital expenditure, accounting for an annual increase of 4.68 per cent and 5.9 per cent respectively. On the face of it, this allocation, especially under the revenue segment, is inadequate and could potentially affect the procurement of ammunition and other ordnance stores, upkeep of the in-service equipment, training, transportation of goods and personnel, maintenance of infrastructure, and other operational activities.
Many attempts have been made to contain the revenue expenditure of the armed forces, but the result has not been encouraging. During the current financial year, the revenue expenditure has gone up from Rs 2,70,120.14 crore to Rs 2,98,668.75 crore. This is on account of an increase in expenditure on salaries, transportation, stores, repairs and refit of naval vessels, and other miscellaneous expenditures.
What stands out is the jump in the revenue expenditure of the Ex-servicemen Contributory Health Scheme (ECHS), which has gone up by more than 69 per cent from Rs 5,431.56 crore to Rs 9,221.50 crore during the current financial year. The reasons are not immediately clear, but the sum of Rs 6,968 crore set aside for the FY ’25 seems grossly inadequate, for it is far less than the RE for the current year and merely Rs 67.53 crore more than the actual expenditure incurred two years back in the FY 2022-23. In fact, the ECHS budget has almost trebled since the FY 2019-20 when it stood at Rs 3,281.26 crore.
The capital budget of the armed forces has been affected by the paltry increase in defence outlay, and underutilisation of the current year’s allocation which has been reduced by Rs 5,371,80 crore in the RE. This is a worrying throwback to the old times when the Ministry of Defence (MoD) would routinely struggle to fully utilise the capital budget. Considering that the allocation for the FY ’25 is almost Rs 15,000 crore higher than the RE ’25, MoD will have to strive harder this year.
Out of the total defence budget, a sum of Rs 4,54,972.67 has been allocated to the armed forces – representing a year-on-year growth of 5.14 per cent – while the remaining allocation is meant for defraying expenditure on defence pensions and other organisations like the Border Roads Organisation and the Indian Coast Guard
The practice of showing the service-wise allocation has been done away with in the Demand for Grant for Capital Outlay on Defence Services for the FY ’25. Instead, the allocation is made under generic budget heads pertaining to land, construction works, aircraft and aero-engines, naval fleet etc. While the follow-up Detailed Demand for Grant which will now be presented by the MoD to the parliament may show the service-wise breakdown, clubbing of the allocation under generic budget heads will possibly facilitate inter-services shifting of funds during the year without any formal re-appropriation.
The government’s focus on infrastructure development along the borders and coastal security remains unabated. The allocation for works to be executed by the BRO has been increased from Rs 6,005 crore to Rs 7,805 crore. The ICG has not seen a similar hike but the increase from Rs 7,197.47 crore to Rs 7,651,80 crore is not insignificant.
Defence pensions are a major constituent of the defence budget. The allocation grew exponentially from Rs 12,000 crore in FY ’01 to Rs 1,38,205 during the current FY ’24. It has been raised to Rs 1,41,205 crore, accounting for 22.71 per cent of the total defence budget for the FY ’25. This has been, and continues to be, an area of concern as budgeting is a zero-sum game, and it is generally acknowledged that the rising pension bill – coupled with other manpower costs – affects the availability of funds for the modernisation of the armed forces and other operational expenditures.
The government’s focus on infrastructure development along the borders and coastal security remains unabated. The allocation for works to be executed by the BRO has been increased from Rs 6,005 crore to Rs 7,805 crore. The ICG has not seen a similar hike but the increase from Rs 7,197.47 crore to Rs 7,651,80 crore is not insignificant
Indigenous research and development (R&D) is critical for achieving self-reliance in defence. Efforts to involve the private sector in this venture notwithstanding, the Defence Research and Development Organisation (DRDO) continues to be the primary agency for defence R&D. Some structural changes are expected later this year based on the recommendations of the Vijay Raghavan committee, set up late last year to revamp the organisation, but for the present, it seems to be business as usual for the DRDO, with its allocation being raised from Rs 23,263.89 crore for the current year to Rs 23,855.61 crore for the FY ‘25. A mere increase of Rs 591.72 crore is as insignificant as it gets.
On the brighter side, Finance Minister Sitharaman announced in her budget speech that a new scheme will be launched for strengthening ‘deep-tech technologies for defence purposes’ and expediting ‘Aatmanirbharta’. A Press Release by the MoD mentions that this scheme will have a corpus of Rupees one lakh crore. Hopefully, the scheme will be launched sooner rather than later and, more importantly, it will be backed by adequate budgetary allocations.
To sum up, the defence budget for the FY ’25 is not par for the course. The increase in the allocation is not commensurate with the past trend and in keeping with the imperatives of strengthening defence preparedness. There is little doubt that the MoF will allocate additional funds during the year if the need arises, but this is not a smart way of managing the scarce financial resources. The answer lies in pragmatic and financially viable defence planning which has not received as much attention all these years as it deserved.
–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
