The gap between projection and allocation of the Defence budget is an issue which is debated by analysts and experts each year after presentation of the Budget. If we go by statistics then India is counted as amongst the top ten defence spenders in the world. Ministry of Defence, according to the report of the Fifteenth Finance Commission, has the highest allocation among all Union Ministries. But on the other hand, the issue of inadequate budget continues to be highlighted as a matter of ocincern impacting both force sustainment and force mdoernsiation and in turn national security.
Data analysed by the Fifteenth Finance Commission over the last ten years (2011-12 to 2020-21), shows that the defence budget has a trend growth rate of 9.6 per cent. Within this, revenue expenditure has grown at 11 per cent and capital expenditure at only 6.1 per cent. The higher growth of revenue expenditure is mainly on account of rising outlays on defence pension, which has increased at the rate of 15.7 per cent. The analysis has confirmed the basic dichotomy which exists in the defence budget viz., spiralling revenue expenditure on the one hand and inadequate funds for capital expenditure.
Viewed as a percentage of the total Central Government Expenditure.(CGE), defence expenditure which was 16.4% in 2011-12 increased to 17.4 % in 2018 -19 but thereafter declined to 15.5 % in 2020-21.The increase is largely accounted for by defence revenue expenditure which rose from 12.6 per cent of the Union Government’s revenue expenditure in 2011-12 to 15.1 per cent in 2018 – 19 on account of higher outgo on salaries and pensions, with the implementation of revised pay scales following the recommendations of the Seventh Central Pay Commission.
From 2016-17 the allocations for the Ministry of Defence (MoD) are presented under four Demands for Grants by the Ministry of Finance:
Grant No 19 — Ministry of Defence (Miscellaneous)
Grant No 20 — Defence Services – Revenue
Grant No 21 — Capital Outlay on Defence Services
Grant No 22 — Ministry of Defence (Pension)
An analysis of BE projections and allocations from 2016-17 to 2021-22 in the report of the Standing Committee on Defence shows that the shortfall in allocations have been progressively increasing from Rs.31,122 crore in 2016-17 to Rs. 1,44,605 crores in 2021-22. So, are the higher projections driven by the capacity to utilize the allocations so asked for or by the general tendency to pitch for higher budgets based on the assumption that Ministry of Finance will anyway pare it down? With the prevalent concept of ‘envelope budgeting’ where an overall budget is conveyed by Ministry of Finance based on their resource assessment the Ministry of Defence, in consultation with various stakeholders, fits their requirements within this ceiling limit. There is, therefore, a tendency to ask for higher budgets to use as leverage as there are competing demands within various organisations in the same Ministry.
The issue is not limited to lesser funds for the Capital budget since even the Revenue budget of the services is impacted. The non-salary segment has been stagnating due to the increase in the salary component leaving little for essential spares and maintenance. The allocations for Stores have had at best a modest increase. This will in the long term have a detrimental impact on force serviceability levels. Ministry of Finance had also pointed out that with heavy capital expenditure being incurred by the Ministry of Defence in the last ten years, the burden of maintenance of defence acquisitions is going to increase the demand for revenue expenditure in the coming years. The rising fuel costs will also lead to increase in demand for what is referred in military parlance as POL (Petrol Oil Lubricants). Services therefore have to balance their financial needs between force sustainment and force modernisation.
Defence Budget – Projection, Allocation and Actual Expenditure
(Rs in Crore)
Year BE Projection BE Allocation Shortfall BE
2016-17 3,72,044 3,40,922 31,122
2017-18 4,69,052 3,59,854 1,09,198
2018-19 5,24,510 4,04,365 1,20,145
2019-20 5,41,073 4,31,011 1,10,062
2020-21 5,74,315 4,71,378 1,02,937
2021-22 6,22,801 4,78,196 1,44,605
Year RE Projection RE Allocation Actual Expenditure
2016-17 3,94,705 3,45,106 3,51,650
2017-18 4,47,253 3,74,004 3,79,702
2018-19 4,98,984 4,05,194 4,03,457
2019-20 5,64,186 4,48,820 4,52,996
2020-21 5,61,004 4,84,736 4,85,678#
[Based on data in 19th Report of Standing Committee on Defence (17 Lok Sabha)]
# Source: Controller General of Accounts
The defence sector is one of the core strategic areas under the Atma nirbhar Bharat initiative which has resulted in unprecedented measures to promote domestic production of weapons, equipment, platforms and systems. Since 2020-21, a separate capital budget allocation for domestic vendors was made which was 58% of the total allocation. In 2021-22 the allocation was enhanced to 64%. The expenditure and utilisation under the domestic allocation will be indicative of the capability and capacity of the indigenous industry to deliver.
And so again, this year’s defence budget is awaited with a sense of déjà vu as the Finance Minister tries to balance the requirements of various sectors, with the pressing needs of health, social welfare and infrastructure and various sectors which have been affected by the prolonged pandemic and the pressures on national security occasioned by the turn of events in the Himalayas. In addition, bringing the fiscal deficit down to the stipluated levels may further reduce options for allocations against the projections made by the defence services.