Sunday, 1 March 2015

Defence budget up marginally, after having failed to spend current year’s allocations


 By Ajai Shukla
Business Standard, 1st March 2015

Underlining the National Democratic Alliance (NDA) government’s focus on job creation and development, the finance minister on Saturday allocated Rs 2,46,727 crore ($40 billion) towards the defence budget for 2015-16, a rise of 10.95 per cent over the revised estimates for the previous year.

At 1.75 per cent of the estimated Gross Domestic Product (GDP) for the coming year, this continues a steady decline over the last two years. In percentage terms, this is similar to the allocations made in the lead up to 1962.

Even this modest rise was possible because the government failed to spend Rs 2,29,000 crore that it had allocated for 2014-15. The revised estimates of Rs 2,22,370 crore for the current year indicate the defence budget remained underspent by Rs 6,630 crore.

That spending shortfall came entirely in the crucial capital procurement head, where the defence ministry spent only Rs 81,965 crore, of the current year’s capital allocation of Rs 94,588 crore --- a shortfall of 12,623 crore.

Besides the Rs 6,630 crore that will be returned unspent from the capital head, the defence ministry transferred another Rs 6,000 crore from the capital to the revenue head.

This record underspend on equipment modernisation comes after Defence Minister Manohar Parrikar twice claimed before the media that sticking to procurement targets was “his specialty”.

The coming year’s capital budget is Rs 94,588 crore, coincidentally the same figure as last year’s capital allocation. The revenue budget, meanwhile, has gone up from Rs 1,34,412 to Rs 1,52,139, a rise of Rs 17,727 crore, or 13 per cent.

Amongst the three services, the air force has been allocated the lion’s share of the capital budget --- Rs 31,481 crore, compared to the navy’s Rs 23,910 crore and the army’s Rs 21,574 crore. Even so, the air force allocation remains stagnant, indicating that the government has not budgeted for buying the Rafale medium fighter --- which would have required about Rs 15,000 crore as the signing amount.

Interestingly, the allocation for defence pensions has risen by Rs 4,500 crore to Rs 54,500 crore for the coming year. It remains unclear how the government will implement the One Rank One Pension (OROP) scheme that the defence ministry sanctioned last week. OROP has been variously estimated to require Rs 8-12,000 crore to implement.

The army, which has been allocated over 50 per cent of the overall defence budget remains the smallest spender on equipment modernization. Its salary budget has risen from 68,871 crore to Rs 74,119 crore, almost 60 per cent of its overall Rs 1,25,733 crore allocation.

In contrast, the navy will spend Rs 23,910 crore on new equipment, a healthy 60 per cent of its overall Rs 39,436 crore allocation. The air force enjoys a similar ratio, spending Rs 31,481 crore on modernization out of an overall allocation of Rs 54,481 crore.


An interesting feature of the budget that suggests the defence ministry intends to push indigenous equipment projects, is the allocation of Rs 144 crore for “Make procedure” projects. Under this, indigenous industry-led consortia develop cutting-edge defence equipment with the MoD paying 80 per cent of the development costs. During the current year, a mere Rs 50 lakhs had been allocated under this head.

* * * * 
Source: Extrapolated from Budget documents

(all figs in Rs crore)


2014-15 (BE)
2014-15 (RE)
2015-16 (BE)




Revenue budget







Salaries (army)
65808
68871
74119
Salaries (navy)
5506
5821
6288
Salaries (air force)
9972
10547
11360
TOTAL Salaries
81286
85239
91767




Transportation
3544
4654
4071
Stores
28026
29321
31000
Works
9635
11281
11836
Joint Staff
1589
1649
1780
DRDO
5985
6300
6570
Ordnance Factories
1275
1673
2884
Miscellaneous
3072
288
2231
Total Revenue allocation
134412
140405
152139




Capital budget







Army
20665
16866
21574
Navy
22312
17470
23910
IAF
31818
31818
31481
Joint Staff
1029
715
922
Defence Rail Network
1000
---
500
Land & accommodation
6952
7193
7087
Defence R&D Organisation
9298
7148
7788
Ordnance factories
1207
660
760
Miscellaneous
307
95
566
Total Capital allocation
94588
81965
94588




Total budget allocation
229000
222370
246727




Total government spending
1794892
1681158
1777477




% of total spending
12.75%
13.25%
13.85%




Gross domestic production
12876653
12653762*
14108945**
% of GDP
1.78%
1.76%
1.75%

3 comments:

Anonymous said...

Two points consistent :
1. Capital budget is never used up.
2. Salary budget exceeds .we need to make Armed forces personnel a part of modified NPS.


Both these Issues MoD & Armed forces need to work together.

Parthvader89 said...

Things look really really bad. If we are to even dream of modernising the Army one day, it is apparent that large scale downsizing is required.

Additionally, think of the state of capital expenditure when the 7th pay commission and OROP kick in. Increase that 90,000 crore salary account by 3 times at the minimum. We will need a budget of 4,20,000 crore just to sustain under existing circumstances!

Cologne sir, is there any thought being given to downsizing the Army at all? In the MoD? There is no way we can afford a 1.4 million army with 4th generation warfare capabilities is there?

Rituraj said...

Colonel,

Defence budget is 40+ billion USD. In addition, there is another 9 billion USD in defence pensions. Both included, the share of defence budget to GDP goes to about 2.15 percent, which is a respectable size.

China has kept its defence budget at 2 percent consistently. Due to the increase in the size of their GDP, the defence pie has also increased, even though its still at 2 percent.

A nation who spends more than 2 percent of its GDP on defence, is basically digging its financial grave. Want an example - see what has happened to Pakistan or even United States.

The Indian defence budget is right in its size. Its the Indian Army which is bloating and leaving no money in kitty for modernisation. The reform needs to begin by downsizing Indian Army.