Budget 2021-22: Meeting defence’s requirement a big challenge

December 25, 2020 12:59 PM

Union Budget 2021 India: Even in the normal years, finance ministers find it difficult to meet the aspirations of a billion-plus citizen and countless organisations that depend on government support.

Budget 2021-22, Defense budget, Union Budget 2021The 1991 budget which ushered in economic reforms and the 1997 budget, dubbed as a dream budget by the media, were perhaps exceptions. (Reuters Image)

By Amit Cowshish

Indian Union Budget 2021-22: Addressing the CII Partnership Summit 2020 earlier this month, Finance Minister Nirmala Sitharaman promised a never-seen-before kind of budget for the next fiscal 2021-22. This bravado may come to haunt her and the government when she presents the budget on February 1, 2021. For, such is the magnitude of the requirement that it is virtually impossible to meet it in any substantial measure.

Even in the normal years, finance ministers find it difficult to meet the aspirations of a billion-plus citizen and countless organisations that depend on government support. The 1991 budget which ushered in economic reforms and the 1997 budget, dubbed as a dream budget by the media, were perhaps exceptions.

Repeating those exceptional feats, much less presenting a budget which ‘100 years of India wouldn’t have seen… being made post-pandemic like this’, seems a virtual impossibility with the economy having taken the hardest hit ever because of the rampaging Covid-19 pandemic that is now threatening to assume more menacing proportions.

The finance minister did add, probably as an afterthought, that it will not be possible to deliver on this promise without the industry’s inputs and wish list -something that the industry and various interest groups give every year anyway. Be that as it may, the industry and other interest groups can be expected to largely seek concessions, financial support, fiscal incentives, and lowering of taxes and duties. Even the common person has similar expectations.

These expectations are legitimate but meeting them requires huge sums of money which the government can raise only through taxation, borrowings, or other assorted methods like disinvestment. There are social, economic, and political limits on how far any government can go in resorting to these measures. One thing is, therefore, clear: the ball is squarely in the finance minister’s court.

In her address to the CII, she made a pointed reference to infrastructure, medicine and biotechnology as sectors that require investment, apart from vocational training and skill development. But these are not the only sectors desperate for budgetary support. There are many others, including defence which, on average, accounts for 15-16% of the total central government expenditure and is probably the second single largest chunk of expenditure in the union budget, next only to interest payment.

Finance ministers routinely promise in their budget speech that there will be no dearth of funds for defence, but the reality is quite different. The gap between the requirement projected by the armed forces and the actual budgetary allocation has gone up from Rs 23,014.43 crore in 2010-11 to Rs 1,03,535 crore in 2020-21, of which Rs 59,416.63 crore was under the capital segment.

Those projections and allocations were made when the security situation was normal as compared with the situation that developed after the presentation of the last budget, following an unprecedented violent clash with the Peoples’ Liberation Army in Ladakh’s Galwan valley. The ongoing stand-off has led to emergency purchases worth an indeterminable amount, apart from all the routine procurement for which sufficient allocation was anyway not made when the budget was presented last February.

Additional sums of money may be required this year itself to pay for a part of the emergency purchases whose delivery is expected during the current fiscal. But the consequent liability added to the liability on account of past contracts and the organisational changes that are being contemplated alongside, such as the raising of theatre commands, will require unascertainable augmentation of budgetary allocation for the current and coming years.

The defence pensions budget, which has been rising rapidly, going up from Rs 25,000 crore in 2010-11 to Rs 1,33,825 crore this fiscal, will also have to be factored in by the finance minister when she finalises the allocation for defence, especially if it is decided to implement the second upgradation of pensions that was due a couple of years back under the one-rank-one-pension scheme.

It is pointless speculating about the extent of increase in the defence budget, but it would be safe to say -without the risk of being proved wrong- that the allocation is unlikely to meet the expectations of the armed forces and the defence analysts, who have for long been asking for defence budget to be pegged at 3% of the gross domestic product.

The finance minister has another promise to keep. In May this year, she had announced a separate budget for domestic capital procurement. It remains unclear whether she intended to create a separate moiety in the budget for domestic procurement. If that is what was intended, presentation of the next year’s budget would be an appropriate opportunity to deliver on the promise.

The fifteenth finance commission was asked by the union cabinet to address the concerns regarding the allocation of adequate funds and creation of a non-lapsable fund for defence and internal security. The commission has submitted its recommendations which may provide some manoeuvring space to the finance minister, but it is a feeble hope.

Raising sufficiently higher revenue and allocating reasonable sums of money to various competing sectors, including defence, which is a perennial zero-sum game, would require exceptional skill in tight-rope walking. The finance minister will have to pull a rabbit out of the hat to achieve this feat and present a never-seen-before kind of budget that she has promised.

(The author is a former Financial Advisor (Acquisition), Ministry of Defence. Views are personal.)

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