Budget 2020 India: The paltry increase in the capital outlay for 2020-21 virtually rules out the possibility of many big-ticket contracts being awarded, as it would entail a substantial cash outgo during the year in addition to the payments due to be made against the ongoing contracts.
By Amit Cowshish
Union Budget 2020 India: At Rs 4,71,378 crore, the total defence budget for 2020-21 is 9.37 per cent higher than the budget estimates (BE) of 2019-20, but only 5.03 per cent higher when compared with the revised estimate (RE). Of this, 68.35 per cent goes to the armed forces. Defence pensions are the clear winner in the overall defence budget. With an increase of 19.4 per cent when compared with the BE 2019-20, it surpasses the increase of 10 per cent in the capital outlay by almost a hundred per cent.
These percentages look more dismaying when the proposed allocation is compared with the RE for the current year. While the increase in defence pensions remains at a robust 13.6 per cent, the increase in the capital outlay drops down sharply to just 3 per cent.
The RE is a more realistic indicator of the money likely to be spent during the year. With an increase of just about Rs 3,340 crore in the capital outlay for the armed forces with reference to the RE of 2019-20, it is difficult to imagine how the situation is going to be managed by the defence ministry.
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In at least the last two years, the services have been complaining of the capital outlay not being enough to cover even the committed liabilities. It remains a mystery how this situation was managed by the services, but it is certain that they will continue to face the challenge of preventing a default on contractual payments.
Even if the allocation not being adequate to pay for the committed liabilities is seen as an exception, the fact remains that most of the allocation is spent on discharging such liabilities, leaving very little money for the new acquisitions.
The paltry increase in the capital outlay for 2020-21 virtually rules out the possibility of many big-ticket contracts being awarded, as it would entail a substantial cash outgo during the year in addition to the payments due to be made against the ongoing contracts.
This is a setback for the modernisation drive of the armed forces and the government’s aspirations of making India a defence manufacturing hub. There is a silver lining in all these depressing figures, though.
While the proposed allocation under various capital heads is lower, or marginally higher, than the BE for 2019-20, there is a substantial increase under the aircraft and aero-engines budget head. It remains to be seen whether it is the foreign companies or the domestic industry which will benefit from this increased allocation.
The revenue budget presents a more interesting picture. While the overall increase in the revenue budget is Rs 7,417.24 crore, the allocation for pay and allowances has gone by Rs 9,737.10 crore. This feat has been achieved by reducing allocation under various other revenue budget heads.
The ‘stores’ budget head is the one that seems to have borne the brunt of reduction in allocation to accommodate the inescapable increase in pay and allowances. The proposed allocation of Rs 33,142 crore for the ‘stores’ budget head of all the three services is Rs 2,481 crore less than the BE for the current year, Rs 1,826 crore less than the RE, and more importantly, Rs 1,504 crore less than the actual expenditure for 2018-19.
Considering that the ‘stores’ budget head caters for the expenditure on ration, clothing, ammunition and other operational stores and services that are critical for ensuring serviceability of the in-service equipment, the reduction in allocation is a matter of serious concern. It is not just the modernisation drive, but the maintenance of equipment and stocking of ammunition, which is at stake. Some out of box long term thinking is required to arrest the downward spiral of the defence budget.
(Author is former Financial Advisor (Acquisition), Ministry of Defence. Views are personal.)