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Defence Budget – Now and Next

January 20, 2020 By Lt. General P.C. Katoch (Retd) Photo(s): By PIB
The Author is Former Director General of Information Systems and A Special Forces Veteran, Indian Army


The Union Minister for Finance and Corporate Affairs, Nirmala Sitharaman.

India's defence budget for 2019-20 stands at 3.18 lakh crore. This included a capital outlay of just 1,03,394 crore that is not enough to upgrade capabilities and more money is required to avoid a funding crisis. The government has not allotted any additional funds yet. On December 23, 2019, the Parliamentary Standing Committee on Defence asked the Ministry of Defence (MoD) to "strongly press" for additional funds from the Ministry of Finance (MoF) to enable the Military to buy new equipment and also pay for weapons and systems it has already contracted to purchase, at a time when the Armed Forces have projected a combined requirement of almost 1 lakh crore more under the capital head for 2019-20. In a series of reports on demands for grants of the defence ministry for 2019-20, the Committee underlined the need to provide adequate budgetary support to the Armed Forces for powering different modernisation programmes and also pay for committed liabilities or procurements already made in the previous years. The additional money sought by the Army, Navy and Air Force almost equals this year's capital expenditure.

The Parliamentary Standing Committee on Defence wrote, "While allocating funds, the ministry of finance analysed past absorption capacity of the services and the pace of expenditure in the current financial year. The committee understood that if this logic was applied, there was no reason not to allocate requisite budget for the forces as for the past few financial years they had been able to fully utilise the funds allocated to them at the revised estimates stage." The Armed Forces have so far spent over 90 per cent of funds on modernisation and committed liabilities. The Parliamentary Standing Committee on Defence further said, "Under the defence services estimates, committed liabilities constitute a significant element in respect of the capital acquisition segment, since one project may span several financial years. As such, it is important to track the element of committed liabilities, which hold first charge on budget allocation. These shortages are baffling, as these are payments towards procurements made in previous years. Allocation as promised should be disbursed for committed liabilities. Media quoted an official in saying that the Army is seeking additional funds as the 29,461 crore earmarked for the force fall short of its needs. On December 3, Navy Chief Admiral Karambir Singh had highlighted that the Navy needed funds for pursuing modernisation programme as its share of the defence budget had declined from 18 per cent to 13 per cent during the last five years. The capital expenditure of 23,156 crore earmarked for the Navy isn't sufficient to meet requirements and the service needs at least 20,000 crore more. Likewise, the capital expenditure of 39,300 crore earmarked for IAF in this year's budget is not enough and it requires an additional 40,000 crore to upgrade capabilities. However, MoD replied to the Parliamentary Standing Committee on Defence in the standard format that read that the requirements projected by the three services had been forwarded to the finance ministry for "favourable consideration". It may be recalled that on an earlier when the Parliamentary Standing Committee on Defence chaired by Major General B.C. Khanduri had told Parliament in plain terms through a written report how the Armed Forces had been brought down to a poor state for lack of funding, then Defence Minister Nirmala Sitharaman had publicly derided General Khanduri though the General is from the same political party, years senior to her and had served as Union Minister during NDA 1. Delivering a talk on 'Indian Ocean Region-Changing Dynamics-Maritime Security Imperatives for India' on August 26, 2019, Navy Chief Karambir had also underlined the need for defence diplomacy fund to help other countries and reduce the influence of powerful nations by saying, "India is looked as a security provider in the Indian Ocean region. We go to various countries. They require help in capacity and capability building. We make a lot of promises but we are poor on delivery ... There was a task force on defence diplomacy, which recommended that there should be a defence diplomacy fund. So, if the Army Chief goes to a particular place and promises them equipment and when he comes back, he should not be fighting a war for the next two years to get items going there. It should be done quickly... This will reduce the influence of other countries going very fast in this area."

Ironically, measured against the country's GDP, India's defence spending currently stands at around 1.5 per cent of the GDP, the lowest in decades. Several experts have argued that India should spend 3 per cent of its GDP to build military capabilities to counter a combined threat from China and Pakistan. India has yet to find the correct balance between economic growth and security. Under the BJP-led government right from 2014, the annual defence budget has been negative in actual terms. The main reason is the belief that there will be no conflict and therefore there is no need to spend much on defence – this is not much different from the Nehruvian line which provides enemy the opportunity to strike. Quite recently, the top political hierarchy has been referring to "other ways" than war. For any expenditure above 100 crore, the Defence Minister must go running to the Finance Minister. The CDS is required to plan on "perceived budget" and capital acquisitions have been placed under the Defence Secretary, not CDS. So the Finance Minister will likely continue arbitrarily capping defence allocations. We need a system like the US where the military projects budgetary demands linked to operational capability to a Parliamentary Panel and it is the Parliamentary Panel (not military) that projects the budgetary requirement to the government. While presenting the next budget in Parliament on February 1, hopefully the Finance Minister will meet military's additional demand in current FY in terms of capital expenditure, and more importantly defence allocation for FY 2020-2021 at 3 per cent of GDP given the declining GDP growth rate.