Tuesday, 1 March 2016

Defence spending cut in real terms; it is down to 1.65 per cent of GDP, lowest since 1962



By Ajai Shukla
Business Standard, 1st March 2016

Defence allocations: 2016-17

(In rupees crore; one crore = ten million)


2014-15 (Actual)
2015-16 (BE)
2015-16 (RE)
2016-17 (BE)





Revenue budget









Salaries



        
(a)  Army *
67576
73068
71683
82174
(b)  Navy
5788
6288
6287
7688
(c)  Air Force
10533
11360
11359
13437
(d)  DRDO
2306
2500
2444
2873
TOTAL SALARY
86203
93216
91773
106172





Other revenue expenditure
50604
58923
51463
56578
Total Revenue allocation
136807
152139
143236
162759





Capital budget









Army
13890
22406
18486
22110
Navy
21249
23911
18678
20715
IAF
30809
31481
28644
27555
Defence R&D Org
7483
7788
6480
6866
Land & works
7075
7087
8368
8207
Other heads
1381
1915
744
888
Total Capital allocation
81887
94588
81400
86340





Total budget allocation
218694
246727
224636
249099





Total government spending
1663673
1777477
1785391
1978060





Gross domestic production
12653762
14108945
13567192
15065010





Defence budget as % of total spending
13.15%
13.85%
12.50 %
12.6%





As % of GDP
1.73%
1.75%
1.66%
1.65%





























































*    Including Rashtriya Rifles and J&K Light Infantry


Every finance minister, while presenting the annual budget, pays tribute to the military. He announces the defence allocation for the coming year --- normally 15-20 per cent higher than the previous year’s allocation --- and then promises that the government will make available whatever more is needed for defending the country.

This year, Finance Minister Arun Jaitley’s speech did not make even a token mention of the government’s highest chunk of expenditure. The defence allocation, at Rs 2,49,099 crore, was barely held at the same level as last year’s budget allocation of Rs 2,46,727 crore.

From this year’s revised allocation of Rs 2,24,636 crore, it was a raise of a little more than 10 per cent, well below defence inflation, which normally runs at 15 per cent annually.

The all-important capital head, under which new equipment is bought for modernising the military, spending has been flat for three years. In 2014-15, the capital spend was Rs 81,887 crore; in the revised estimates for 2015-16, it has dropped to Rs 81,400 crore; and will be only marginally higher this year at Rs 86,340 crore.

That assumes the defence ministry manages to spend its entire capital allocation. In the current year, it will surrender Rs 13,188 crore, about 14 per cent of its allocation.

Meanwhile, revenue expenditure continues to rise. From Rs 1,43,236 crore in the current year’s revised estimates, the allocation for the coming year has been raised to Rs 1,62,759 crore, a rise of Rs 19,523 crore, or about 14 per cent.

There is apprehension that even this might not be enough, with the military facing a two-pronged pressure of growing manpower numbers; and higher salaries when the 7th Central Pay Commission is implemented.

In addition, the government will face financial pressure from implementing the One Rank One Pension (OROP) award, although pensions are not included in the defence budget. From Rs 60,238 crore allocated for pensions in the revised estimates for the current year, the coming year has an allocation of Rs 82,333 crore --- a rise of over 35 per cent.

The capital expenditure allocations for the three services provide some indication of what contracts might be signed. The army is the big gainer, with its capital allocation up from Rs 18,486 crore in the current year, to Rs 22,110 crore next year. This jump suggests the likelihood of artillery gun contracts being concluded, including the purchase of M777 ultralight howitzers from BAE Systems.

The navy has been given a marginal raise in capital expenditure, which suggests that its flow of new warships is likely to continue smoothly.

Significantly, the Indian Air Force (IAF) allocations have been marginally reduced. This suggests the defence ministry is not expecting to sign a contract next year for the Rafale fighter --- for which it would have to budget about Rs 9,000-10,000 crore as the signing amount.

In terms of overall government spending, defence will consume about 12.6 per cent of the government’s overall spending next year, approximately the same as the current year’s revised estimates.

As a percentage of Gross Domestic Product (GDP), defence is now down to about 1.65 per cent of GDP, the lowest level since the 1962 war with China. This continued downward trend indicates that the government does not perceive any pressing national security threats, and has chosen to direct spending to the social sectors instead.

8 comments:

Anonymous said...

Nothing to panic about. The key issue is to make good use of the allocated funds which has never happened in the history of India all through since indipendance

Anonymous said...

"This continued downward trend indicates that the government does not perceive any pressing national security threats, and has chosen to direct spending to the social sectors instead."
A cynical view would be that the government has prioritised winning UP Assembly Elections over National Security.

Anonymous said...

Mr. Shukla are you sure your figures are correct? The Hindu pegs the total defence expense at 2.4% of the GDP.

http://www.thehindu.com/business/budget/budget-2016-where-the-money-comes-from-and-where-it-goes/article8297149.ece?homepage=true

Shimyl Ahmed said...


VERY NICE POST

Anonymous said...

The government is clearly concerned about the possibility of a "hybrid war" (".5 War," "Color Revolution," etc.)

http://economictimes.indiatimes.com/news/economy/policy/budget-2016-mha-gets-rs-77383-12-cr-in-2016-17-budget-a-24-56-pc-hike/articleshow/51194149.cms?from=mdr

"The Home Ministry has been allocated over Rs 77,000 crore in 2016-17 budget, a steep hike of 24.56 per cent, majority of which have been earmarked for paramilitary forces like CRPF and BSF, responsible for internal security and border guarding duties ....

In the 2016-17 budget, a total of Rs 50,176.45 crore has been allocated to seven paramilitary forces.

Among these forces, Central Reserve Police Force, deployed for internal security, action against Maoists and operations against militants, has been earmarked the highest at Rs 16,228.18 crore."

Anonymous said...

This is a nice way to nudge import friendly Generals and Air marshals to learn from the desi friendly Admirals

Anonymous said...

If they are not spending the money allocated to them for so many years than what is the use of giving them more money .If they spend all the money they have been allocated in this budget before the next budget they will be allocated more money.

Rahul said...

I hope GOI has prioritized 'spending' over putting another inflated figure, which has been a long transition .