Defence Budget 2017-18: Chugging Along

Defence was not blanked out in the budget speech this time, as it happened last year, but while announcing the allocation for defence, the finance minister avoided any mention of the previous year’s allocation. Perhaps, it was for a reason.

At Rs. 2,74,114 crore, the defence budget for 2017-18, excluding defence pensions, is only six per cent more than the comparable Budget Estimate (BE) figure of Rs. 2,58,589 crore (excluding defence pensions) for 2016-17. The increase would work out to just 5.6 per cent, if reckoned with reference to the Revised Estimate (RE). Though not unprecedented, this would be one of the lowest increases in the recent past.

The BE allocation for defence pensions increased from the actual expenditure of Rs. 66,237.60 crore in 2015-16 to Rs. 85,625.96 crore at the RE stage in 2016-17. But for the coming fiscal, it has been increased by a paltry sum of Rs. 115 crore to Rs. 85,740 crore.

The last year’s spurt was on account of the payment of arrears on account of one-rank-one-pension. Therefore, the seemingly paltry increase of Rs. 115 crore may not necessarily be a case of gross under provisioning but one can never tell with certainty.

The allocation for 2017-18, excluding pensions, seems to be 1.63 per cent of the GDP and 12.77 per cent of the total central government expenditure of Rs. 21,46,735 crore. If the outlay for defence pensions is also taken into account, the total outlay would work out to 2.14 per cent of the GDP, much lower than the three per cent mark, widely believed to be the bare minimum level of allocation that must be made to meet the operational requirement of the armed forces.

This view may be questionable but what is not in doubt is that the defence outlay for 2017-18 is prima facie uninspiring for several reasons.

One, the increase in the capital budget does not break away from the previous trend. Out of the total capital outlay of Rs. 86,488.01 crore, a sum of Rs. 8,363.97 crore is allocated for Ordnance Factory Board (OFB), Defence Research and Development Organisation (DRDO), Directorate General of Quality Assurance (DGQA). The remaining amount of Rs. 78,124.04 crore is for the armed forces.

The capital budget for the armed forces for the current fiscal was Rs. 78,586.68 crore, which has gone down to Rs. 71,700.00 crore at the RE stage. While the increase for the coming fiscal would be approximately 8.96 per cent with reference to the RE 2016-17, it also shows that the malady of underutilisation of capital budget continues quite unabated.

There is no doubt that the capital budget would be sufficient for meeting the committed liabilities but, in the absence of any authentic information, it is difficult to say whether the remaining amount would be adequate for making advance payments against the contracts that are likely to materialise during 2017-18. Even so, the amount may turn out to be grossly inadequate if several big ticket acquisition programmes that have been in the pipeline were to materialise in 2017-18.

Two, there are no clear indications of a big push being given to what could loosely be called Make-in-India in defence. For one thing, there is a very insignificant allocation under the budget head: Technology Development – Assistance for prototype development under the ‘Make’ procedure. At Rs. 30.38 crore for Indian Army and Rs. 14.55 crore for Indian Air Force, one is not sure how many projects the ministry is aiming to – or could possibly – take up under the ‘Make’ procedure during the next fiscal.

There are great expectations from the scheme for financing technology development from the Defence Technology Fund, recently announced by the ministry. However, it is not clear if any corpus has been created for this fund, or any allocation made, for providing budgetary support to technology development programmes.

Three, there has always been a hand-to-mouth situation under the revenue segment of the budget, most of which is taken up by pay and other obligatory expenditure on ration and clothing, etc. This impacts the allocation under budget heads which have a direct bearing on operational preparedness.

The most important of such budget heads is the minor head ‘Stores’ in respect of all the three services and ‘repairs and refits’ in respect of the Indian Navy. These budget heads cater for expenditure on buying ammunition and other ordnance stores, including spares, for carrying out maintenance and repair of the in-service equipment.

Army’s allocation under ‘stores’ has come down from BE 2016-17 of Rs. 17,728.18 crore to Rs. 17,487.78 crore for the coming fiscal. For the Indian Navy, the BE allocations for the current and coming fiscal under this head remain constant at Rs. 4,488.00 crore. So does the allocation for the Indian Air Force, which remains static at Rs. 7,334.05 crore. The allocation for repairs and refits of the ships, submarines and other naval vessels also remains constant at Rs. 865.00 crore.

This could be a cause for concern, especially for the Indian Army, which has been struggling to make up its war wastage reserves of ammunition and other warlike stores.

Four, last year the Standing Committee on Defence had recommended outcome-oriented allocation for, and monitoring of, expenditure on important acquisition schemes. There is no indication of any movement towards achieving this goal. To be fair, a final judgment on this count will have to wait till the presentation of the detailed demands for grant by the ministry of defence.

Five, it is quite evident that the coming year will see little movement on issues, such as creation of cyber, aero-space and integrated theatre commands, or a spurt in research and development activities, all of which are critical for India to keep in step with the developments in its neighbourhood and beyond. The budget, which is not just all about figures but also a statement of policy, contains no hint of any intention of the government to bring about a paradigm shift in the defence policy.

In the event, the announcement by the finance minister of a Centralised Defence Travel System for online booking of travel tickets and web-based interactive Pension Disbursement System for defence pensioners could well be the proverbial silver lining on the horizon.

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