The Union Budget 2012-13, presented to the Parliament on March 16, 2012, has increased the defence budget to Rs. 1,93,407.29 crore. However, the actual increase is only 13.5 per cent if the figures of the revised estimates are taken into consideration for the year 2011-12.

Building a military capability is a long-term exercise. In the Indian context, it involves formulation of the 15-year-long-term integrated perspective plan (LTIPP) by Headquarters Integrated Defence Staff in consultation with the Service Headquartes (Army, Navy and Air Force). The five years capital acquisition plan and the annual acquisition plans are derived from the LTIPP and form the basis of working out the capital budget for all major procurements during a year. The capital budget requirement of each service added to the revenue budget constitutes their overall budget demand during the year.

The security threats and challenges facing India have increased enormously. While the old adversarial threats due to unresolved borders remain, new threats and challenges like terrorism and insurgencies have been added to the old inventory. Thus India needs to prepare itself for the full spectrum of warfare ranging from low-intensity conflict involving counter-insurgency and counter-terrorist operations to conventional conflicts under the nuclear shadow on two widely separated fronts on its western and eastern flanks. The dilemma is only regarding the extent of emphasis that should be laid to acquiring each type of capability. Thus the requirements of the services are vast and wide-ranging.

The Union Budget 2012-13, presented to the Parliament on March 16, 2012, has increased the defence budget to Rs. 1,93,407.29 crore ($38.68 billion). This represents a growth of 17.63 per cent over the previous year’s budget. After 2009-10, when the budget was increased by 34 per cent due to the heavy increase in revenue expenditure caused by the recommendations of the Sixth Central Pay Commission, it is this year’s defence budget which has witnessed the highest increase in recent years.

Laxman Behera, the well-known analyst of the Institute for Defence Studies and Analyses (IDSA) who invariably gives a detailed analysis of each year’s defence budget has the following to say regarding the reasons for the increase: “The new defence budget comes at a time when the performance of the Indian economy is under stress and the prospect of recovery is tenuous. As the Economic Survey 2011-12, presented to the Parliament a day before the Union Budget puts it, GDP growth is projected at 6.9 per cent in the present fiscal year and at 7.6 per cent in 2012-13. These growth rates, which are significantly lower especially in comparison to the nearly 10 per cent growth registered in 2006-07, has however not forced the government to tighten its purse. Instead, it has resorted to what can be termed as fiscal profligacy, by increasing the overall Central Government expenditure by a hefty 18.54 per cent, with little regard for the fiscal situation. Consequently, the fiscal deficit, which the Finance Minister had promised in his previous budget speech to be reduced to 4.1 per cent of GDP in 2012-13, is now projected to increase to 5.1 per cent. This expansionary fiscal policy has been the prime mover for the large increase in the budget of the Defence Ministry, which would otherwise have come under severe budgetary pressure if the Finance Minister had chosen a tight budget.

The increase in the defence budget has been shown as about 17.63 per cent. However, the actual increase is only 13.5 per cent if the figures of the revised estimates (RE) are taken into consideration for the year 2011-12. The upward revision from RE stage of 2011-12 to budget estimates (BE) stage of 2012-13 of the revenue budget amounts to Rs. 9,036 crore and of the capital budget is Rs. 13,435 crore, thus bringing the total increase in defence budget from RE stage of the concluding year to the BE stage of 2012-13 to Rs. 22,471 crore. However, if the figures of the BE stage of the concluding year to BE stage of 2012-13 are taken, the increase is Rs. 28,993 crore. Therefore, the actual increase from the RE stage is only 13.5 per cent.

The increase in the defence budget is misleading if one does not see the finer print and understand the totality of the impact on various aspects of the budget. It can be broadly concluded from the figures (see table) that while the share of the defence budget in the GDP has marginally increased, its share in Central Government expenditure has fallen. Moreover what is quite evident is the fact that in comparison to the capital expenditure, the revenue expenditure has increased faster. The growth of the defence budget has been driven primarily because of the increase in pay and allowance of the armed forces, which has increased by 27 per cent to Rs. 63,182.46 crore, accounting for around 46 per cent growth of the total defence budget.

Service-wise Share in the Budget

The Army with an approximate budget of Rs. 97,302.54 accounts for 50 per cent of the latest defence budget, followed by the Air Force ( Rs. 48,191.16; 25 per cent), Navy ( Rs. 37,314.44; 19 per cent), the Defence Research and Development Organisation ( Rs. 10,635.56 crore; six per cent) and ordnance factories ( Rs. 135.13 crore). It is noteworthy that compared to the previous year’s budget, Navy is the only service which has an increased share in its total defence allocation (from 15 to 19 per cent). The Air Force’s share has decreased the most (by four percentage points), whereas the Army’s share has declined by one percentage point.