One expectation every government entity has from the union budget is that of a handsome increase in its budget outlay, other than for defraying expenditure on salaries and sundry obligatory functions. The armed forces are no different; it’s another matter that their expectation rarely, if ever, comes true.
For as long as one can recall, the armed forces have knowingly made unrealistic budgetary pitches, only to be disappointed. Back in the 2000-01, they and other MoD departments had made a combined bid for allocation of Rs 72,724 crores. The projection was brought down to Rs 63586.95 crores by the MoD after due diligence. In the event, MoD ended up with an allocation of merely Rs 58,587crore -a good 20% lower than the initial projection.
This trend of ambitious budgetary projections and underwhelming allocations has persisted and the gap between the two widened over the past two decades. For the current fiscal the gap between projection and allocation was Rs 1,01,678 crore for the armed forces alone, as reported by the Standing Committee on Defence (SCoD).
It is risky to predict but going by the past trend it will be reasonably safe to say that the allocation for the coming fiscal is unlikely to match the requirement projected by the armed forces. This is likely to be true of other less talked about branches of the MoD like the Defence Research and Development Organisation (DRDO), Coast Guard Border Roads Organisation (BRO)though they too are important constituents of India’s overall defence capabilities.
There is a near unanimity among the defence analysts on the need for increasing the defence outlay. A section of the strategic community favours doubling the armed forces’ outlay to 3% of the GDP. The fiscal reality, however, has prevented the successive governments from even toying with that idea.
The more one gets into the numbers, the more intractable the problem appears to be. The Fifteenth Finance Commission projected that there will be a gap of Rs 15, 24,100 crore between 2021-22 and 2025-26 between the anticipated requirement of the armed forces and the annual allocations. This was based on the generous assumption that the revenue and capital outlay would grow at 7% and 16% per annum respectively during this period.
These figures do not include defence pensions which have grown almost ten times from Rs 12,000 crore (BE) in 2000-01 to Rs 1,19,696 crore this year. The requirement is set to rise further in the next fiscal because of not just the normal annual increase in pensions, but also the second pension hike under the One Rank One Pension (OROP) Scheme retrospectively from July 2019, expected to cost Rs 8,450 crore in recurring expenditure and Rs 23,638 crore in arrears till June 2022.
In the circumstances, it will be something worth celebrating if the finance minister maintains the past momentum and increases the defence outlay by 9-10% for the next fiscal; anything above that would be a bonus. For sure, the final allocation will be much below the expectation, or the formal demand projected by the armed forces, but it will be unrealistic to expect a dramatic turnaround.
There is a tendency to consider the government’s inability to meet the armed forces’ expectations as an indication of the political and bureaucratic apathy, if not failure to grasp the imperatives of increasing the defence outlay in the face of threats posed individually and collectively by China and Pakistan. Consequently, much energy is expended in making out a case for substantially higher allocations. This is both unfair and unnecessary.
The problem lies in the government’s inability to raise enough revenue through taxation and borrowings, both of which have political and economic implications. Higher revenues are a sine qua non for making higher allocations for defence and other sectors like health, education, infrastructure, and poverty alleviation which too deserve as much attention as defence.
As a matter of fact, the union budget is more about the government’s economic policies and schemes rather than matters related to defence and security which almost exclusively fall in the MoD’s domain and, to some extent, the National Security Council. The MoD needs to pull its socks up to evolve policies and plans in sync with the fiscal reality rather than making financially unviable plans and bemoaning inadequacy of budgetary allocations. It is not for the finance minister to advise the MoD how to do this.
While the finance minister is unlikely to arrogate to herself the responsibility of expounding the defence plan and strategies, it is possible that some reference will be made to Atmanirbharta, or self-reliance, which has become the trope for local manufacture, indigenisation, research and innovation, private sector participation, embargo on imports, defence exports, and the like.
The finance minister had announced in her speech while presenting the budget for 2022-23 that a total of 68% of the capital budget -up from 58% in 2021-22- was earmarked for procurement from the domestic industry. Although the impact of this announcement, and other measures like embargo on import of 411 items, is debatable, one cannot begrudge her, or any other finance minister, a little window dressing in the budget speech.
Be that as it may, it would be a sign of political maturity and fairness if, alongside this window dressing, the finance minister also gives an update on some announcements made, and steps taken, in the recent past. This would include creation of the Non-lapsable Defence Modernisation Fund, recommended by the Fifteenth Finance Commission, scaling down the Public Sector Enterprises in the strategic sector to a bare minimum number, corporatisation of the Ordnance Factory Board, and earmarking 25% of the R&D budget for the private industry, startups and the academia.
The author is Former Financial Advisor (Acquisition), Ministry of Defence.
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