Budget 2019: No further hike in defence outlay needs to be taken in its stride

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July 5, 2019 8:50 PM

Usually, the committee ends up recommending that more funds should be sought at the revised estimate stage and, in the long run, the defence outlay should be increased, preferably to the level of three per cent of the gross domestic product.

Budget 2019, Union Budget 2019 India, Budget 2019 India, Budget 2019-20,Restoration of the exemption, albeit only for the equipment which cannot be sourced from within the country, is a good move.

By Amit Cowshish

Finance Minister Nirmala Sitharaman presented her maiden, and this year’s regular, budget to the parliament today. The virtual absence of any reference to defence in her speech and no enhancement in the outlay beyond what was allocated in the interim budget is raising many an eyebrow. It may be disappointing for some, but it would be wrong to interpret it as an indication of the government’s insensitivity to the defence needs.

One will do well to remember that none of this is unprecedented. In the budget speech of 2016 also, there was hardly any mention of defence, and in 2009-10 there was an increase of just about Rs 0.25 crore in the regular budget over the outlay proposed in the interim budget.

More to the point, at Rs 4.31 lakh crore, the defence outlay for the current fiscal is slightly more than 2 per cent of the gross domestic product and accounts for 15.45 per cent of the total central government expenditure envisaged in the regular budget. This is arguably the second single largest chunk of expenditure in the union budget after interest payments.

Equally importantly, at Rs 1.03 lakh crore, the capital outlay on defence services accounts for more than 30 per cent of the total central government expenditure on capital account. Similarly, at Rs 1.12 lakh crore, the outlay for defence pensions probably accounts for more than half of the total pension bill of the central government.

Does it imply that Is the present outlay is sufficient? Apparently not. Should more funds need to be allocated for defence? Yes, indeed. Could the finance minister do so in the regular budget for the current fiscal? Difficult to say. Probably she could, but the question is how much additional funds she could allocate at this stage and how.

Going by the past data, the budget allocated to the armed forces for the current fiscal would be far below the requirement projected by them. Last year, the gap was more than Rs 1 lakh crore. Even if it is assumed that this year the gap is half of that, it would still be Rs 50,000 crore. It is difficult to see how the outlay could be enhanced to bridge this kind of gap in the regular budget.

May be a smaller increase was possible, even desirable, if for no other reason than to deflect any adverse criticism. But there is no guarantee that there would have been no reduction at the revised estimate stage later this year. In 2014, the capital outlay was raised from Rs 89,588 crore in the interim budget to Rs 94,588 crore in the regular budget, but it was brought down to Rs 81,965 crore in the revised estimates. It is just as well that the finance minister did not resort to such a cosmetic measure.

If it is any consolation, the decision to exempt import of defence equipment that is not being manufactured in India will reduce the burden on the defence budget to some extent. Duty exemptions enjoyed by the state-owned defence public sector undertakings and the ordnance factories were withdrawn a couple of years back ostensibly to provide a level playing field to the private sector manufacturers, without any consideration for the additional burden it put on the defence budget.

Restoration of the exemption, albeit only for the equipment which cannot be sourced from within the country, is a good move. It does not upset the level playing field and provides a substantial relief in monetary terms if one considers the fact that in 2018-19, approximately Rs 37,000 crore was spent on procurement of defence equipment from abroad.

In all likelihood, the parliamentary standing committee on defence will shortly take up the issue of inadequacy of defence outlay when it examines defence ministry’s demands for grant and, as in the past, upbraid the ministry for not providing sufficient funds for modernisation and other requirements of the armed forces.

Usually, the committee ends up recommending that more funds should be sought at the revised estimate stage and, in the long run, the defence outlay should be increased, preferably to the level of three per cent of the gross domestic product.

Such recommendations are of no help as they skirt the basic question of viability of higher defence spending in the backdrop of the present state of economy and competing requirement of other sectors of the economy – manufacturing, agriculture, infrastructure, to name a few – which has clearly been the main focus of the budget.

The defence ministry, which generally finds itself on the defence in the face of the criticism by the standing committee and a dominant section of the defence analysts, will do well to invite think tanks, defence economists and other analysts to suggest how, ceteris paribus, the defence outlay could be enhanced to meet the rising expectations of the armed forces and present the recommendations to the finance ministry for consideration in the run up to the next year’s budget.

(Author is former Financial Advisor (Acquisition), Ministry of Defence. Views are personal )

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