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A Decline in Real Terms

A less than one percent rise in allocation for defence in Budget is not only going to be negated by the rise in worth of US dollar since last year but also actually reduces defence budget in actual

Policy Pulse
Publish Date: Mar 19 2016 3:40PM | Updated Date: Mar 19 2016 5:45PM

A Decline in Real Terms

 A less than one percent rise in allocation for defence in this year’s Union Budget is not only going to be negated by the rise in the worth of US dollar since last year but also actually reduces the defence budget in actual terms. This exposes the yawning gap between Government’s tall talk vis-à-vis defence and the will to provide the high cost wherewithal that the armed forces need so badly, writes Ranjit Kumar 

It will not take longer for the reality to dawn on strategic observers and also the decision makers in the Ministry of Defence, when they start calculating the real worth of the provisions and allocations made in the defence budget for the year 2016-17. Last year’s defence budget was Rs 2,46,727 crores and in US dollar terms it was worth only $40.4 billion. This year’s budget (Rs 2,49,099 crores) though has seen a meagre increase of 0.96 percent in Rupee terms (Rs 2372 crores) over the previous year, it will show a negative growth in US Dollars. If the US dollar is calculated at the rate of Rs 68 or 69, the defence budget for the year 2016-17 should not be more than US $37 or 38 billion. The rate at which the value of Indian currency is going down, it should not surprise anybody if the real worth of Indian defence budget for the year 2016-17 further slides down. Since over 65 percent of Indian armed forces requirements are imported, for which foreign currency assets are needed, the meagre provisions of Rs 88,340 crores under the head of the Capital Outlay will be reflected in the poor rate of imports if no additional provisions are made in the defence budget of the Union. This amount will certainly not be sufficient for various acquisitions that the NDA Government has promised in accordance with its ethos of making India  militarily powerful. 
As a proportion of total provisions in the Union Budget the share of defence was 13.88 percent, which has also reflected a heavy decline to the level of ten percent in 2016-17 Union Budget. Probably this year’s defence budget (2016-17) has seen the lowest rise in the history of defence budgets. The negligible rise in this year’s defence budget will shock the armed forces and strategic community who visualise new great power role for the country. Though Indian economy has continued to show resilience in spite of worldwide slowdown and there has been significant decline on foreign currency expenditures on crude oil imports, one expected the finance minister to be more responsive to the needs of the national security.  Not only the armed forces headquarters, but also the integrated headquarters of the Ministry of Defence felt let down as there were promises galore from the national leadership to fast track the acquisition process for which funds will never be an impediment. The armed forces headquarters and the mandarins of the MOD are no less to blame. They could not utilise the funds provided in the 2015-16 budget and an amount of over Rs 12,400 crores was returned. But this year the Defence Advisory Committee of the MOD led by the Defence Minister Manohar Parrikar himself has cleared projects of over rupees one-and-half lakh  crores. But what percentage of this is going to be executed and whether the  armed forces are actually handed over those weapon  systems  and platforms will be assessed very soon. 
At a time when the country is facing renewed threats and challenges on its land  borders and maritime areas of interest, requirements of equipping  its armed forces with latest weaponry has never been felt more. Hence, the meagre provision for the nation’s defence has shocked the defence and strategic community. 
Reacting strongly over this year’s minor improvement in budget over last year’s, the defence expert Air Commodore (retd) Prahsant Dixit said, “Budgeting for Defence Expenditures on the 2016-17 Finance Bill was most perfunctory in style and content. Firstly the FM did not even consider it important to mention it in his budget speech – an outlay of nearly two percent of GDP. Secondly, it truly is out of sync with regime’s sloganeering about ‘Make in India’ for defence equipment, with R&D getting only a 1102 crores more than last year whilst the workhorse, the Corporate Sector left in distress. If the Government believes that start ups limited to 500 crores can achieve this with a three years tax holiday, then they are dreaming.”
Last year’s provision of capital outlay in the total defence budget was Rs 74,229 crores. The armed forces could not fully utilise this amount and the MOD had to return over Rs 2400 crores to the Finance Ministry. Hence, the revised estimate of last year’s budget was reduced substantially. 
The mandarins in the Defence Ministry also assert  that the additional expenditure on the payments on account of the recommendations of One-Rank-One-Pension scheme and implementation of the Seventh Pay Commission recommendations have put a great burden on this year’s defence budget, which has a serving staff of around 13 lakh and over 25 lakh soldiers  get retirement benefits from the Government. This expenditure will continue to rise and the MOD in discussion with the Ministry of Finance will have to find a way out otherwise Indian defence preparedness will suffer the most. The payments on account of pensions this year has increased substantially and an additional provision of Rs 22,094 crores was made. Hence, this year’s payments under defence pensions will go up to Rs 82,332 crores. However, the soldier’s pensions are presented under a separate head of Defence Pensions, which is separate of outlay on defence budget. 
On Defence Research and Development the Government has made a minor increase of Rs 1102 crores, this  year’s provision was only of Rs 13593 crores. For the three armed forces a total provision of Rs 143,869 crores has been made which is 18,061 crores more than previous year’s Rs 1,25,808 crores. Out of this the Army has received the lion’s share of Rs 1.13.732 crores, navy Rs 17,424 crores and Air Force Rs 23,655 crores.
Experts are of the view that the Finance Minister has made provisions in the defence budget only for the regular upkeep of the armed forces and usual maintenance of its weapon stores. During last year the Defence Advisory Council of the Ministry of Defence has cleared projects over Rs 1,50,000 crores, however, it seems difficult to execute all these projects with the lowest ever rise in defence budget this year.
Most important among all the projects are the commitment made to France for acquiring 36 Rafale fighter aircraft , for which price bargaining are currently on and the Government will have to shell out minimum of Rs 60-65,000 crores. Likewise the Government has also okayed the acquisition of Chinook and Apache copters from the US Boeing. This is worth a few billions US dollars. From Russia and Israel many sensitive defence projects are under implementation and in view of the meagre provision in this year’s budget one finds it difficult to induct the high technology equipment in the Indian armed forces to meet the strategic and tactical needs of the armed forces. Also one finds it difficult to understand from where the Government will find resources to continue to implement the sensitive mountain strike corps project on the borders with China and complete the project on schedule. Probably there would be many other projects of similar nature which will need extra financial resources from the Finance Ministry to fund.
The meagre rise in India’s defence budget is more worrisome in view of fast rising modernisation of the armed forces of India’s arch rivals and continued pressure on India’s security interests not only on our land borders but in the maritime waters of India’s interests, which is not only limited to India’s Exclusive Economic Zone but shores touching the African coast and beyond the Malacca Strait , the gateway to South China Sea.