Analysing the Defence Budget 2017-18 : By Lt Gen (Retd) S L Narasimhan

Analysing the Defence Budget 2017-18 : By Lt Gen (Retd) S L Narasimhan

The aim of this article is to analyse the defence budget and see whether an increase in real terms has materialised.

Mr Arun Jaitley, the finance minister, broke new ground on 01 February 2017 by presenting the budget a full one month ahead of time and also combined the railway budget with the main budget. The budget seems to have received an applause if one were to look at the stock market which went up and reached the highest levels in the last three months.

The budget allocation for defence in the budget for the year 2017-18 is Rs 2,74,114 Crores. It is pegged at 1.62% of the Gross Domestic Product of the country. Over the years the Defence Budget has been shrinking in terms of GDP. Look at the chart below:

In contrast, China follows a policy of economic growth and defence modernisation going hand in hand. Even that premise has been left behind some time back. Despite China’s economy slowing down after the 2008 financial crisis, she kept increasing her defence spending. We do not have to compete with China on this issue. Her requirements and India’s requirements are different. However, we need to take note of the modernisation of China’s armed forces that has been supported by such a budget.

This year’s defence budget announced is excluding defence pensions. The defence pensions in 2016-17 cost the exchequer approximately Rs 91000 crores. If that money is in addition then there will be a net increase in the defence budget. Last year’s capital expenditure was Rs 78586 Crores. This year’s capital expenditure budget is Rs 86,488 Crores amounting to an increase of approximately 10%. Rs 6886 Crores was surrendered to the finance ministry during the financial year 2016-17. Since 10% of the capital expenditure budget gets surrendered every year, whatever increase that one sees in the capital expenditure budget will get nullified by this aspect. Inflation is at a rate of approximately 3-4 percent. Therefore, one can safely say that the budget allocation for capital expenditure is lower in value than last year’s allocation. When Late Mr George Fernandes was the Defence Minister, the unexpended part of the Capital Expenditure was rolled over. A similar procedure needs to be started again.

Looking at the revenue expenditure, if the pensions that were paid out of defence expenditure last year is added to this year’s defence budget it will come to Rs 365,114 Crores (274,114+91,000 crores approximately). If capital expenditure is taken out of this then the revenue expenditure will come to Rs 278,626 crores. This will indicate an increase of approximately 20%. Catering for the inflation the allocation for revenue expenditure will go up by approximately 16-17%. Increase in the revenue budget will ease out the problems that the forces have been facing in maintaining the equipment, accommodation etc.

While one agrees that the country has to balance the expenditure between social upliftment and expenditure on defence. This is the dilemma that our country faces. However, the government needs to look at defence expenditure not as a wasteful one but a guarantee for the safety and security of the country. Such minimal increases for capital expenditure will affect the long overdue modernisation of the armed forces adversely. With two active borders to defend and fighting insurgency in Jammu and Kashmir and the North East parts of our country, the armed forces need to be properly equipped keeping in line with the technology that is advancing leaps and bounds. In addition to the budgetary constraints, the procurement procedures are so lengthy that any equipment takes almost a decade to induct fully. By the time the equipment is inducted, it starts getting obsolete. Any army needs to have a 30:40:30 kind of an equipment profile meaning thereby, 30% of the equipment should be modern, 40% should be the equipment in normal use and 30% obsolete. With the kind of procurement procedure that we have, it is well neigh impossible to achieve this kind of a profile. Therefore, the procurement procedures of the Ministry of Defence need to be simplified a lot more. The home ministry model of procurement may be one solution.

Another aspect is that, though the financial powers have been delegated to services authorities, they have to be exercised only with the concurrence of the Integrated Financial Advisers. This requirement creates delays and a lot of unwanted correspondence. Therefore, a system needs to be instituted wherein the IFAs become a part of the procurement team and held equally accountable for the delay in procurements. They also need to be educated on matters concerning defence before they tenant such appointments.

Capability of large armed forces cannot be built overnight. Take the case of Kargil conflict. When the conflict started critical deficiencies were existing. Teams had to rush to many countries to make up the deficiencies urgently. The cost paid for the spot purchase was exorbitant. If the procurements had taken place in time this could have been avoided.

When the budget used to be presented to the parliament on 28 February, the allocation of the funds on the Vote on Account used to take till May of the year and the budget allocation used to reach the users by end June. Practically one quarter of the year was lost before the procurement procedure could commence. With the budget being presented on 31 January the vote on account can be avoided and the funds will reach by 01 April to the users. This will assist in the expenditure done evenly throughout the year. On the other side the services have to streamline their procurement procedures so that all necessary documentation is done in a time bound manner and the procurements can commence immediately after the funds are received.

The government must take a hard look at the allocation of funds for defence. With lot of deficiencies in the armed forces, considerable time taken to make them up and then prepare for any future war needs very detailed and diligent planning. It cannot be done overnight. On their part, the armed forces will do well to plan well, create a cadre of specialists to deal with procurement and maintenance issues and stream line their procedures.