Absence of any reference to defence budget in finance minister Arun Jaitley’s speech was surprising. It was probably because of restructuring of the defence budget which would have made it difficult for him to explain the comparisons. But it also seems to have something to do with an unusually low growth with reference to last year’s Budget Estimates (BE).
According to Amit Cowshish, a former financial advisor (acquisition), ministry of defence (MoD), “This, however, dissembles the fact that there was under utilisation of more than Rs 22,000 crore by MoD in 2015-16, and that with reference to the Revised Estimates the growth is more than 10%, which has been the norm even in the past.”
“The real challenge is to improve decision making, unless that happens higher allocations will continue to remain underutilised,” he adds.
Out of the total Budget outlay of Rs 19,78,060 crore, Rs 2,49,099 crore is for defence which is 12.59%. The allocation for defence of Rs 2,49,099 crore represents growth of 0.96% over BE (2015-16) which is Rs 2,46,727 crore. It is a 10.89% increase over RE (15-16) which is Rs 2,24,636 crore.
Out of R2,49,099 allocated for the next financial year, R1,62,759 crore has been earmarked for revenue (net) expenditure which includes provision towards ordinance factories, R&D, DGQA, Rashtriya Rifles, Military Farms, ECHS and NCC. And R86,340 crore is meant for capital expenditure, with a marginal increase of R4287.07 crore in the capital expenditure of the three services that are in the process of modernizing their equipment.
Independent analyst Deba Mohanty of Indicia Research & Advisory says, “I was hoping for a usual 10 % increase from the last year’s budget estimates. However, I am not disappointed for the very simple reason that I have been trying to read defence minister Manohar Parrikar’s mind for the past 16 months. He has chided his armed forces as ‘erratic buyers’, instructed them to prune their demand on long-pending and irrelevant purchases, avowed that domestic purchases would save money. When I look at all figures in the budget, I realise that what he has been hinting at have actually been factored into.”
According to Rahul Gangal, partner (Aerospace and Defence) at Roland Berger, “It is clear that the government has looked to incentivise domestic value addition and improve cost competitiveness of defence manufacturing through rationalisation of duties and taxes. It has also tried to secure a level playing field for private sector manufacturers vis-à-vis defence PSUs.”