Defence budget inches lower towards 2% of GDP - Broadsword by Ajai Shukla - Strategy. Economics. Stuff.

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Friday, 5 July 2019

Defence budget inches lower towards 2% of GDP

Allocations are Rs 50,640 crore lower than 2014-15 levels of spending

By Ajai Shukla
Business Standard, 6th July 19

Finance Minister Nirmala Sitharaman has allocated Rs 4,31,011 crore for defence spending (including military pensions), the same as in the February 1 interim budget. As a proportion of the Gross Domestic Product (GDP), however, the allocation is inching steadily lower, towards the two per cent mark.

In 2014-15, defence allocations, including pensions, accounted for 17.1 per cent of Central government spending, or about 2.28 per cent of the GDP. This year, the defence budget will comprise 15.5 per cent of government expenditure and just 2.04 per cent of the GDP.

In countries like India that face significant security threats, the norm is for defence spending to rise at least in tandem with GDP. Were allocations to have remained at the 2014-15 level of 2.28 per cent of GDP, the military would be getting Rs 50,640 crore more this year than it has received.

Defence budget: falling share

(In Rupees crore) 

2016-17 (Actual)
2017-18 (Actual)
2018-19 (RE)
2019-20 (BE)





Revenue allocation
177367
192273
199945
210683





Capital allocation
86357
95431
98473
108248





Pension allocation
87826
92000
106775
112080





TOTAL DEFENCE ALLOCATION
351550
379704
405193
431011





Central government spending
1975194
2217750
2457235
2786349





Share of government spending
17.8%
17.1%
16.5%
15.5%





Gross Domestic Product (GDP)
15075429
16784679
18840731
21100607





Defence as a percentage of GDP
2.33%
2.23%
2.15%
2.04%






(Source: budget documents)

Defence spending is falling in percentage terms even though all military purchases are now subject to Goods and Services Tax (GST). For many items, such as vehicles, this is levied at the higher rates of 18 and 28 per cent.

Nor do the defence allocations cater for the addition of 100,000 more soldiers to the army over the preceding decade, which the government sanctioned to cater for the rising threat from China. Over the last dozen years, the salary bill has risen six-fold, with swelling manpower numbers compounded by the salary and pension hikes of the Sixth and Seventh Central Pay Commissions and the One Rank One Pension award of 2014-25.

Providing some relief to the military, the finance minister announced customs duty exemption for the import of defence goods. “Defence has an immediate requirement of modernisation and upgradation. This is a national priority. For this purpose, import of defence equipment that are not being manufactured in India are being exempted from the basic customs duty”, she said.

Capital allocations, which fund the purchase of new weapons and equipment for modernisation, remains at 1,08,248 crore, or just one quarter of the total defence budget. The Indian Air Force (IAF) has again been allocated the bulk of the capital budget – Rs 39,303 crore or almost 37 per cent of the total.

Yet, this is unlikely to suffice, with the IAF paying annual instalments for the Rafale fighters which will start joining the fleet this year; and for ongoing purchases of Sukhoi-30MKI and Tejas fighters and upgrades to its Mirage 2000 and Jaguar fleets.

The 1.26 million-strong army, which includes 85 per cent of the military’s manpower and is in combat round the year, has been allocated Rs 31,815 crore, or 29 per cent of the modernisation budget.

The 83,500-strong navy has been allocated Rs 25,656 crore for modernisation, or about 24 per cent of the capital budget. This includes Rs 2,500 crore for the Coast Guard. Navy planners will struggle to fund the planned purchase of six conventional submarines and a second indigenous aircraft carrier. Payments are also being made for the first indigenous carrier, INS Vikrant, which Cochin Shipyard promises to deliver by 2021.



4 comments:

  1. 16000-16800 ton and another 19700 ton SSN AND SSBN COMBINE say SSGN like nuclear submarines and HY 163 and HY 178 steels already handed over with all electric propulsion drive and naval nuclear reactor and LEU fuel better than or equal to french used in baracudda class have been given with many times speed making it 2xbetter than columbia class and 3x better than husky class, in noise suppression, speed and acceleration and all that are needed to built a submarine. Also MiRV for Agni 3,4,5 missiles have been given. SSKs AIP given in combination with DRDO AIP making it better than German AIP and Swedish Sterling AIP and Japansese Soryu Li battery like capacity. So also special steel given better than non-metallic hull of German Type 212 submarines and combat management system sub assemblies and other utilities given and told what to add from where.

    ReplyDelete
  2. Minor rise in Budget will be ate up with salaries. But all major purchases are out of Budgetary grants for army, navy, airforce and budget of DRDO, ISRO etc. and Defence PSUs is other extra things. So Demands for excess grants and supplementary grants etc. need to be looked into for purchase of weapons.

    ReplyDelete
  3. As GDP increases, it is natural that % allocation will fall. the absolute amount is what matters, that has increased. It would be nice if % allocation also increased, but that is wishful thinking.

    ReplyDelete
  4. The military Budget is more than enough, we have too much os waste . We need to start cutting, some ideas

    1. Inefficient military industrial public sector units and OFB. They need to dramatically trim down their costs.
    The PSU shipyards need to build warships at far faster rate, that alone will cut costs.

    2. Stream line and push speeds of procurement and upgrades.
    last 70 years MoD has a policy of “nothing is better than something”.
    Look at mess some babu created in MMRCA , instead simply ordering 126 mirage 2000 jets with make in India.

    3. Reduce MoD head count Top to bottom. 4 lakh civilians is too much, make it 1 lakh or so.
    Ensure all are members of territorial army, do a tour of North East & Kashmir once 3 years.

    4. Ensure 50% intake in state and central govts is ex armed forces men.
    This should include even depts like Indian railways.
    The pension bill will come down, armed forces will remain young.

    ReplyDelete

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