The Rs 5,83,538 crore budget outlay for defence, representing a 13.2% hike for financial year 2023-24 (FY23-24) over the previous year’s budget estimates (BE), is somewhat misleading.
The allocation has dipped from 2.04% to 1.97% of the gross domestic product (GDP), which is well short of the 3% demanded by military planners, service veterans and defence analysts. Additionally, the share of defence expenditure in the overall budget for the forthcoming FY too has declined, albeit marginally, from 13.31% to 13.18%.
Statistics apart, this increase is unlikely to satiate the armed forces’ aspirations, who like the proverbial Dickensian orphan Oliver Twist, are always in the need for more.
This perennial debate notwithstanding, the entire defence outlay is not available to the armed forces for modernisation and operational tasks, as it includes Rs 1,38,205 crore for defence pensions and Rs 22,613 crore for organisations like the Border Roads and the Indian Coast Guard (ICG).
The balance Rs 4,32,720 crore is for the military, of which Rs 2,70,120 crore has been earmarked for revenue expenditure and Rs 1,62,000 crore as the capital outlay, representing year-on-year hikes of 15.93% and 6.71% respectively. The former includes salaries and the armed forces’ running costs like transportation, stores, while the latter is meant for procuring new equipment, upgrading existing kit, acquiring land and developing infrastructure.
But even this amount in not available to the armed forces in its entirety, as it also incorporates the outlay for the Defence Research and Development Organisation (DRDO), Ex-servicemen Contributory Health Scheme (ECHS), National Cadet Corps (NCC), Director General of Quality Audit (DGQA) and other sundry departments. The DRDO, for instance, accounts for Rs 10,414 crore of the overall revenue budget and Rs 12,850 crore of the capital outlay, equalling a total of Rs 23,264 crore.
What further constricts the budget is that a significant proportion of the revenue expenditure is consumed by salaries, while that of the capital budget is pegged to ‘committed liabilities’, or payments due in the coming year on account of previously acquired materiel. It is not known how much of the capital budget will go towards discharging these liabilities, but past trends indicate that it could be as high as 80-90% in all three services, leaving limited funds for new acquisitions.
This has been an enduring handicap in modernising the armed forces and a cross-section of military planners and defence analysts agree that it is unlikely to change in the coming financial year. Hence, the chimera of upgrading military capability persists, seemingly without cure.
Furthermore, although the capital outlay has increased by 6.71% to Rs 1,62,000 crore over the current year’s BE, or 8.4% over the revised estimates (RE), even then it is far less than the 16% hike anticipated by the Ministry of Defence (MoD), as reflected in the 2020 report of the Fifteenth Finance Commission, which at the time had also suggested the establishment of a non-lapsable Defence Modernisation Fund. More than two years later, this remains a work-in-progress.
As for the revenue budget, salaries of the service personnel and the defence civilians have traditionally been a major and steadily increasing component of the outlay. But, remarkably, the share of salaries in the total net revenue budget has come down from 64.12% in the current year’s BE to 57.18% in next year’s budget due to all three services magically restricting their expenditure in this regard.
The Indian Army (IA), for its part, has brought down its salary share from 70.78% in the current year to 65.09% in FY 2023-24, while the other services have done even better; the Indian Navy (IN) has reduced its salary bill from 49.82% to 39.57% and the Indian Air Force (IAF) has cut it from 60.95% to 51.40%. What accounts for this dip is not presently clear, as there has not been any significant reduction either in the manpower or emoluments, but the puzzle is expected to resolve itself as the year progresses.
Be that as it may, a consequential outcome of this salary decrease has been that the moneys available for operational expenditure have increased almost five percentage points, up from 27.87% to 32.39% of the total net revenue allocation. For the IAF, this has jumped from 39.69% to 48.70%, for the IN from 40.56% to 48.75%, and from 25.22% to 27.47% for the IA.
These calculations are based on the premise that the operational expenditure comprises mainly the outlay for procurement of ordnance and other stores, execution of civil works related to maintenance of infrastructure, transportation of personnel and equipment, repairs and refit of naval vessels, and some other miscellaneous operational expenditure.
The outlay for Joint Staff, which caters for tri-services organisations like the Defence Cyber and Space Agencies, Strategic Forces Command, and Andaman and Nicobar Command, has been increased from Rs 3,195 crore to Rs 4,222 crore, signifying the increasing focus on operational jointness, especially in the Indo-Pacific. It also signifies a commitment to ‘jointness’ which all three services have been striving towards for years, but not achieving.
The defence R&D budget too has increased marginally from Rs 21,331 crore to Rs 23,264 crore. This includes a hike in the revenue budget from Rs 9,349 crore to Rs 10,414 crore and the capital outlay from Rs 11,982 crore to Rs 12,850 crore. This seems grossly insufficient keeping in mind the imperatives of atmanirbharta or self-reliance in defence production and a reduction in imports.
Also, there is no indication that 25% of the R&D budget has been set aside to finance private industry, start-ups and academia for taking up the design and development of military platforms and equipment, singly and in collaboration with the DRDO as announced by finance minister Nirmala Sitharaman in her budget speech last year.
The capital allocation for the ICG, on the other hand, had jumped from Rs 5,245 crore in 2021-22 to Rs 7,310.29 crore in the current FY, but has been reduced to Rs 7,198 crore for the FY23-24. Concomitantly, there has been a sharp decline in the ICGs capital allocation from Rs 4,246 crore to Rs 3,526 crore, whereas its revenue or operational allocation has increased from Rs 3,064 crore to Rs 3,661 crore, which is an indication of the importance the government places on coastal defence. But the fall in capital allocation could adversely impact the ICG’s expansion and acquiring platforms like patrol boats, helicopters and even fixed wing aircraft.
Amid all this, the allocation for the Border Roads Development Board has been increased from Rs 4,555 crore to Rs 6,005 crore, no doubt with an eye on infrastructure development along the disputed Line of Actual Control with an irredentist China.
To sum up, the major highlight of the defence budget is the increase in funds available for operational expenditure under the revenue segment of the budget but with little primacy to modernisation. Given the need for fiscal consolidation, increased capex for rapid economic growth, and containing the common man’s tax burden, this is possibly the best the finance minister could do to strike a balance between the competing requirements.
The ball is now in the armed forces’ court, to determine how effectively – or not – they utilise the resources made available to them.
Amit Cowshish is a former financial advisor (acquisitions), Ministry of Defence.