Wednesday, January 31, 2018

India’s Defence Sector needs more than a Subtle Mention in the Budget


By Anusha Sooriyan*


The defence budget is an important baggage for the Ministry of Finance (MoF), as the men in uniform wait for their fair share in protecting the nation. With escalating security threats such as the Doklam issue with China and incidents of infiltration in the Indo–Pak border, the defence forces are vitally engaged in building and training a robust team, and procuring and trading the best weaponry. The defence forces in India have sufficiently grabbed the government’s attention by giving a testament of their might. But has the government given them their due?
While the defence budget of 2016-17 was known for its pays and perks (as it was the season of One Rank One Pension scheme), its 2017-18 counterpart was a huge comedown. Honourable Finance Minister Arun Jaitely brushed aside the expenditure for the defence sector in a quick note. With an insignificant hike of 6.2 per cent in defence spending and an allocation of ₹2,74,114 crore, Mr Jaitley closed the defence budget statement. The previous financial budget did not include the pension bill, which amounted to ₹85,000 crore, and the whole expenditure share was just 1.56 per cent of the country’s GDP.

Budgetary Allocations of 2017-18
The three services in the defence sector hardly witnessed any change in their share of the total budget for a long period. History repeated in 2017-18, when the Army got the largest share, while the Air Force and Navy were allocated 21 per cent and 13 per cent of the expenditure, respectively. Surprisingly, the Research and Development (R&D) and Ordnance Factories marked an increase of 8 per cent in their share of the total budget compared to 2016-17. 

Source: Official Website of the Institute of Defence Studies 


Capital and revenue expenditures are the two main components of the defence budget. The revenue expenditure has held on to a giant share of the budgetary allocation in the last few years. In 2017-18, ₹1,82,534 crore was allocated for revenue expenditure, while ₹91,579.9 crore was earmarked for capital expenditure. This was no surprise, as the allocation towards capital and revenue expenditures has been in the ratio of 60:40 since 2014.

Source: Official Website of the Institute of Defence Studies 

Imposing cuts on defence modernisation shifted the expenses from capital to revenue expenditure. The MoF took this step, as the Ministry of Defence (MoD) failed to utilise and, hence, returned more than ₹10,000 crore, earmarked for capital expenses in the previous budget. This reflects poor planning and financial management by the MoD. 

Global Trends

Keeping a watch over the defence budget allocation of various nations, the US and China have shown huge deflections. In 2017, the US allotted 654 billion USD, the highest in the world. It was a 10 per cent increase in expenditure from the previous year. On March 6, 2017, China announced that it would raise the defence allocation by 7 per cent, i.e. around 151.43 billion USD. China’s defence spending is about three times higher and that of the US is 13 times more than the Indian defence budget.
           



Expert Opinions
The defence sector is in dire need of higher allocation for enhancing its combat capabilities in the eastern and western sides of international borders. The overall increase of ₹15,525 crore is insufficient and inadequate for military modernisation. The skill to plan the finance on developing and modernising the assets has to be the top priority of MoD. The ‘Make in India’ campaign for defence has not yielded positive results. Hence, the Indian defence sector needs to credibly attract more investors and reduce dependence on imports.
A recent example is the cancellation of the ‘Make in India’ project for building minesweepers or mine-counter vehicles (MCVM’s) in association with a South Korean firm at Goa shipyard. This is a setback to the Indian Navy and a challenge to ocean and sea-borne trade. Despite these standalones, some experts are keen on an increase of 10-12 per cent in the capital outlay for defence.
The Army, Navy and Air Force need at least 4-5 billion USD for the next six to seven years in order to fill the funding gap, which is capped at 50 billion USD. “There has to be a significant jump in the capital outlay for defence acquisition. From ₹90 lakh crore, it has to be increased to ₹120 lakh crore,” said a defence ministry official, while talking to an online news portal.
The lack of a long-term plan for strategically examining the requirements of the defence sector has never been addressed. Experts suggest that forming a National Security Strategy and a separate standing committee could attend to the needs and necessities of the sector. This could help curb the unspent expenditure estimate and give an approximate number. R&D has to gain its due for the defence sector to progress uniformly. The dream to bring the expenditure count to 3 per cent of the country’s GDP needs to be catered efficiently.
Union Budget 2018-19 will be a taxing affair for the central government, as it will be the last budget session before the general elections in 2019. The MoF has gone on record, citing farmers’ issues and job creation for youth as the government’s priority. With the answer loud and clear, one can expect a subtle mention of the defence sector this year too. 

*This blog is written by Anusha Sooriyan, interning at CPPR and Pursuing Masters in Politics and International Relations. Views expressed by the author is personal and does not represent that of CPPR