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Comment on Budgetary Allocations for the Defence Ministry FY 22-23

Sushant Singh

February 2, 2022
2 February 2022
Comment on Budgetary Allocations for the Defence Ministry FY 22-23
Following the trend set by his predecessor, Arun Jaitley, the finance minister Nirmala Sitharaman did not mention budgetary allocations for the defence ministry in her budget speech in Lok Sabha on Tuesday. It is a bit jarring because no other ministry can boast of a share of the total budgetary allocations of the union government close to the 13.31% for the defence ministry. Moreover, the budget speech comes at the time of a major border crisis with China in Ladakh which has not been resolved after 21 months and witnessed a massive commitment of the armed forces in a very tough environment.

The allocation for four demands of the defence ministry is Rs 5.25 lakh crore (approximately $72 bn), which is an increase of 4.43% over the revised estimates for the previous year. Considering the high rate of inflation in India, this amounts to a reduction in real terms. As has been witnessed after the implementation of One Rank One Pension scheme and the implementation of the Seventh Pay Commission’s recommendations, the allocation for defence pensions has shot up to 1.197 lakh crore (approximately $16.4 bn). Nearly 86% of the pension budget is allocated for retired Army personnel, while the rest goes to retired personnel of the Indian Air Force and the Navy.

Another major item of expenditure is the salaries, where the total budgetary allocation is Rs 1.536 lakh crore ($21 bn), the lion’s share again going to the 13.5 lakh strong Army. The expenditure on human resources thus consumes 52% of the allocations for the defence ministry, a problem area that has become critical over the past few years but remains untackled, often masked by the big headline numbers of defence spending put out by the government. It was part of the amended terms of reference of the Fifteenth Finance Commission which submitted its report in 2020.

Due to “overall fiscal constraints”, the Fifteenth Finance Commission was forced to recommend that the government “should take immediate measures to innovatively bring down the salaries and pension liabilities”. Recommendations of the commission, such as those of “bringing service personnel currently under the old pension scheme into the New Pension Scheme (NPS) or a separate NPS for the armed forces” are unlikely to find any political support or traction from the defence services. The commission essentially wants the government “to ensure [that] the growth of defence pensions are at par with non-defence pensions,” which is a logical impossibility unless some painful reforms are undertaken in the provision of defence pensions.

At Rs 1.52 lakh crore, the capital allocation for the defence ministry saw an increase of 9.7% over the revised estimates of last year. Of this, Rs 1.24 lakh crore ($17 bn) is budgeted for the capital acquisition by the defence services, the actual amount to be spent towards scheduled payments of already contracted procurements and for the first instalment of new contracts that will be signed this year. Of this, the government has stipulated that 68% will reserved to be spent on domestic industry; last year, the stipulation was 64% but the actual figure achieved was only 58%. These figures, as many experts have pointed out, are also misleading as major sub-systems of these indigenous platforms are often imported from foreign countries. For eg., Tejas Light Combat Aircraft manufactured by Hindustan Aeronautics Limited for the IAF is only 62% indigenous by value.

The armed forces have been crying out for modernisation, with the Army complaining of more than two-thirds of its weapons, platforms and equipment being vintage, the IAF asking for resources to make up its depleting fleet of fighter jet squadrons while the Navy has curtailed its ambitions now to only being a 175-vessel force. While the IAF and the Navy spent more than their capital BE allocations in FY 21-22, the Army returned more than 30% of its BE allocations at the RE stage. The Army’s inability to spend the allocated amount is a very worrying development, considering that India’s emergent security challenges remain continental, both versus China and Pakistan.

In August 2020, defence ministry submitted a note to the Fifteenth Finance Commission which showed that between FY 2021-22 and FY 2026-27, there will be a shortfall of Rs 8.45 lakh crore even if there an increase of 16% per year in capital expenditure. It also said that “consistent shortfalls in the defence budget over a long period has resulted in serious capability gaps, compromising the operational preparedness of the services. Consequently, they have to resort to ad-hoc mechanisms such as postponement of a few procurements and delaying payments, resulting in high carry forward of unmet requirements and committed liabilities”. Nothing has been done to change this perilous state of affairs for India’s national security in the current budget.