Rebooting the Defence Budget

It may sound harsh but the changes made in the structure of the defence budget for the second year running appear quite aimless. In the process, however, these disruptive changes have raised two questions.

The first question concerns the very definition of the defence budget. The practice followed till 2015-16 was to refer to the sum total of the net revenue and capital allocation for the three services (including Joint Staff), Defence Research & Development Organisation (DRDO), and Ordnance Factories (OFs) as the ‘defence budget’.

When the finance minister announced an allocation of Rs. 2,46,727 crore for the armed forces in his 2015 budget speech, he did not include the allocation made for meeting the requirements of the ministry’s own secretariat and of a number of other organisations such as the Coast Guard and the Armed Forces Tribunal. But while presenting the union budget for 2017-18, he included these elements and announced a total allocation of Rs. 2,74,114 crore for defence expenditure.

Of course, in 2017-18, as in 2015-16 and earlier years, the figures mentioned by the finance minister did not include the outlay on defence pensions. (In the budget speech for 2016-17, there was no mention of the allocation made for defence or pensions.)

So, what is India’s defence budget? It could be any of the following:

1. Gross or net allocation made for revenue and capital expenditure of the three services, including Joint Staff.
2. Allocation referred to at (a) above plus the revenue and capital budget of DRDO and OFs.
3. Allocation referred to at (b) above plus revenue and capital expenditure of the ministry’s secretariat and all (or a few) other organisations under its administrative control.
4. Allocation referred to at (a), (b) or (c) plus the corresponding outlay on defence pensions.

This is important because the defence budget would look more reasonable if it were to be defined as the sum total of all allocations, including defence pensions, than if it were to be defined only as the sum of allocations made for revenue and capital expenditure of the armed forces.

To illustrate: The allocation for defence, excluding defence pensions, for 2017-18 would work out to 1.6 per cent of GDP. But if defence pensions are also considered as a part of the defence budget, the total allocation would be 2.1 per cent of GDP.

The way defence expenditure is defined by the Stockholm International Peace Research Institute (SIPRI) would require the inclusion of expenditure for which provision is made in all the four demands for grant of the Ministry of Defence (MoD), including the demand for defence pension.

This issue has to be also looked at in the light of the fact that changes were made in 2016 with a view to providing “a holistic picture of budgetary allocations and effective expenditure monitoring.”1 Despite all the changes made since then, expenditure related to J&K Light Infantry – a regular infantry regiment of the Army – continues to be outside the Army’s budget. So much for providing ‘a holistic’ picture of budgetary allocations.

It would be possible to take a holistic view only if the entire expenditure on defence, including the expenditure on defence pensions, is taken into account. This issue needs to be settled to infuse an element of realism in the discourse on India’s defence budget.

The second question concerns the objective of the exercise. What purpose has been served by restructuring of the demands for grant? Tucked away in the budget documents last year was a statement that the exercise “to rationalize Plan and Non-Plan schemes of all Ministries and Departments (had) been undertaken” for “effective outcome oriented monitoring of implementation of programmes and schemes/projects and to ensure optimum utilization of resources.” The document went on to say that the “existing programmes and schemes (had) been reorganized into outcome-based Umbrella programmes and schemes” and that this “process would be carried forward in the coming years.”

That none of that is true of the revamped demands for grant of the ministry of defence is another matter. The demands for grant of the ministry continue to be bereft of any outcome-orientation.

There is a strong case for abandoning the present approach of looking at the defence budget through the narrow prism of allocation and utilisation. What matters more is not ensuring utilisation of the budget but focussing on the outcomes. For ensuring outcome-oriented monitoring of the defence budget it is necessary to revisit the structure of the demands for grant and reformulate them, to the extent it is possible to do so, in terms of specific programmes, schemes and projects.

The present discourse on the defence budget revolves around concepts such as the modernisation budget, manpower costs, and allocation for ‘new schemes’ or other operational requirements. Interestingly, there are no specific budget heads which capture expenditure related to these concepts as they do not fit into the scheme of budgetary classification. For example, there is no formal budgetary classification relating to ‘modernisation’ (often also referred to as ‘capital acquisition’) in the budget documents, much less its bifurcation into ‘committed liabilities’ and ‘new schemes’. There are also no cut and dried budget heads for capturing allocation and expenditure on such critical operational requirements as procurement of ammunition or maintenance of in-use equipment, weapon systems and other platforms.

The sporadic and disjointed information available in the reports of the Standing Committee on Defence is invaluable, but it cannot make up for the dysfunctional system of budgetary classification. It is high time that serious thought is given to a thorough revamping of the system of budgetary classification so that information is captured in a manner that serves the objective of outcome monitoring.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.

• 1. See http://indiabudget.gov.in/budget2016-2017/ub2016-17/eb/contabvol2.pdf for the passages quoted in this subsequent paragraphs