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Defence Budget 2020-21: An Analysis

India needs to increase its defence allocation and committed funding through substantial Budget allocation to cover the procurements of new weapons and equipment besides adequately cover for the inflation.

The Union Budget for the financial year 2020-21, envisaged a total outlay of Rs 30,42,230 Crore. The total Defence Budget accounts for 15.49% of the total central government expenditure for the year 2020-21. The Budget increase is consistent with past increases and stands at 2.1% of the Gross Domestic Product (GDP).  Out of this, Rs 471378 Crore has been allocated for Defence representing a growth of 5% over Revised Budget Estimates (Rs 448820 Crore) for the financial year 2019-20. There is an increase of measly Rs 22558 Crore in the total Defence allocations (Rs 471378 Crore) over the financial year 2019-20. Also, after analyzing the current Defence allocation one can clearly make out that the increase witnessed is mainly due to an increase in pensions and salaries bills (Revenue) due to huge manpower.

Defence Budget 2020-21: Key Statistics

Considering the Rs 323053 Crore that has been earmarked towards Defence Revenue & Capital part, which form the main components of the Defence Budget, a growth of merge 5.8% is seen over Budget Estimates (Rs 305296 Crores) for the financial year 2019-20. However, the increase is a minuscule 2.1% in comparison to the Revised Budget Estimate (Rs 316296 Crores) of the previous allocation. The comparative key statistics and their increase/decrease in the defence budget of 2020-21 as against 2019-20 is given in the Table.

The Capital and Revenue Expenditure

Out of Rs 323053 Crore allocated for the financial year 2020-21, Rs 209319 Crore is for the Revenue expenditure and Rs 113734 Crore is for Capital expenditure for the Defence Services and for the Organizations/Departments under Ministry of Defence. The share of percentage of capital allocation in defence budget as compared to revenue allocation is 35:65 this time. In past few years, it is seen that the capital expenditure has been witnessing less than 40 percent of allocation almost every year which is definitely not a good indicator considering the modernization plans of the three Armed Forces.

The comparative sub allocation in the defence budget 2020-21 to the three defence services is as given in the Table.

Continuing its trend as in previous years, this year also the Indian Army's overall share has been highest amongst the three Defence Services though witnessing a decline of 1% as compared to previous year followed by Indian Air Force and Navy respectively with both of them witnessing no increase or decline in their respective share. Looking at allocation for Research and Development (R&D), it has been increased indicative of a good sign of emphasizing indigenization. The pie diagrams depicted below gives the percentage shared by defence services and R&D Organizations in Defence Budget 2020-21.

Capital Budget

The Capital Budget, basically, is the expenditure spent on acquiring new weapon systems and platforms required for modernization of the Armed Forces and also includes expenditure on acquisition of land, development of civil infrastructure and the entire capital expenditure of the Research and Development (R&D) and the Ordnance Factories. In the budget for 2020-21, the capital outlay has been scaled up to Rs 113734 Crores up from the revised capital expenditure of Rs 110394.31 Crores allocated in 2019-20 witnessing a paltry 3% from last year. The below given pie chart depicts the share of the Defence Services in the capital budget.

Amongst the three services, the Indian Air Force has been allocated the largest share of the capital budget about Rs 43281.91 Crores witnessing a decline of Rs 1587.23 Crores from previous year's allocation, with most of the money allocated expected to go toward payments for previous orders of 36 Rafale fighters from France, S-400 missile system from Russia, 22 Boeing Apache attack helicopters & 15 Chinook heavy lift helicopters from US and thus not leaving much scope for new procurement. This is followed by the Army's budget which stands at Rs 32392.38 Crores witnessing the largest hike in capital spending; but this 8% rise of Rs 2725.10 Crores will be insufficient to pay for the artillery guns, tanks and air defence systems the Army requires urgently. And lastly followed by Navy which has been allocated Rs 26688.28 Crores making it in no position to process important procurement such as the production of six advanced submarines under Project 75 I and the building of a second indigenous aircraft, early-warning helicopters, landing platforms docks (LPDs) and maritime reconnaissance aircraft, owing to budget constraints.

Revenue Expenditure

The Revenue Budget mainly caters to the 'operating' expenditure of the three services and comprises of military pays and allowances, pension etc. and the allocation under 'stores' budget head, is meant for ration, clothing, ammunition, spares and the like. For the fiscal 2020-21, the Revenue Budget stands at Rs 209319 Crores witnessing an increase of Rs 3417.24 Crores from previous Revised Budget allocation of Rs 205901.76 Crores in 2019-20. As always the salary and wages for the Defence Force personnel accounts for about half of this budget. While the remaining is spent on stores and equipment, revenue works maintenance and transportation among others. Refer Table. With a meager increase for Army, Navy and Air Force this time, it is to be seen how they will manage.

Impact Analysis

The increase in the overall defence allocation seems to be inadequate and not in sync with the modernization plans of the Armed Forces. The defence wages and pensions have also risen this year, making even less money available for modernization. The meager Rs 3340 Crores increase in capital allocation is definitely not enough and will leave no room for any big-ticket weapons purchase. As it will merely compensate for inflation and pay for past committed liabilities (75-80% of the total allocation capital funds will be spent for past commitment contracts), practically leaving practically leaving no room for any major weapons and equipment purchase.

Considering last few years, it is seen that has been that the allocation for modernization has been less than even the Committee Liabilities. Refer Table. This can be attributed to the fact that there is a disassociation seen between the capital budget and its spending approach.

Due to the shortage of funds, numerous defence contracts of the three Armed Forces will experience delays or will be cut down from the required number they want. These include:

  • Plan to acquisition of only six of P8Is, earlier Navy had proposed to buy10.
  • The Army has cut down its long-standing requirement of for 5,719 new-generation sniper rifles by two-thirds to just about 1,800 guns now. The Army also previously cancelled its tender for light machine guns owing of paucity of funds.

Further, the Indian Army has proposed to cut down on the purchase of expensive items, as well as discontinue the purchase of spares for vintage platforms to save money. Among the expensive items the army has identified for the proposal are heavy multiple rocket launchers, 9M113 Konkurs, the Anti Tank Guided Missile system, smerch missile systems and the T-90 battle tank. It was reported that the Indian Army did not have enough funds to procure more of these weapon systems.

The Army will also consider whether they should altogether stop buying spares for a certain type of air defence missile and certain type of high-mobility vehicles to transport machinery, which are considered to be of vintage.

  • It has been reported that Army was falling short of funds for its 25 "Make in India" projects. As a result, many of these may end up foreclosed.
  • Due to the fund crunch, the requirement of Indian Navy for 200 ships has been brought down to 175 for the 15 year perspective plan of Indian Navy. The projects that are most likely would not see a go ahead soon for the lack of funds of Indian Navy include mine countermeasure, LPDs, construction of the third aircraft carrier, procurement of 12 ShinMaywa US-2i Amphibious and Rescue (SAR) aircraft .

Due to the shortage of funds, at least a dozen pending defence contracts will experience delays. These include:

  • 2,600 Future Infantry Combat Vehicles for Indian Army
  • 44,000 Light Machine Gun
  • Light utility Helicopters for Indian Navy
  • 114 Multi Role Combat Aircrafts for Indian Air Force
  • 6 Mid-air refuellers
  • MQ-9 Reaper (Predator B) drones
  • 2 Gulfstream 550 aircraft for intelligence, surveillance, target acquisition and reconnaissance
  • One unit of the National Advanced Surface-to-Air Missile System II
  • Acquisition of 56 C-295 transport aircraft from Airbus for Indian Air Force
  • 4 Landing platform docks for the Indian Navy from domestic shipyards
  • 6 Apache helicopters for the Indian Army
  • Advanced Medium Combat Aircraft (AMCA) for Indian Air Force
  • 6 Airborne Warning & Control System for Indian Air Force
  • Anti-tank guided missiles for the Indian Army
  • Second indigenous aircraft carrier (IAC-2) for the Indian Navy
  • Six conventional submarines under Project 75-I
  • 200 Kamov-226T light utility helicopters for Indian Air Force
  • 12 Mine Countermeasures Vessels

Further, the defence industry was expecting some big announcements for further incentivizing the manufacturing in India to give boost to 'Make in India' by domestic manufacturing of defence equipment. A meager allocation of Rs 70 Crores for providing assistance to the development agencies for prototype development under the 'Make' procedure and no mention about Defence Technology Fund is not in line with the hype of 'Make in India'. The miserable thing is that the centre has just utilized Rs 78 Crores (Revised Estimate) out of total 94.50 Crores under Technology Development Fund assistance for prototype development in the year 2019-20. The limited procurement spending is expected to directly impact “Make in India" defence projects, a policy meant to boost the local economy.

India needs USD 233 Billion to meet its weapons and equipment requirements in the next 11 years, according to the MoD's "Long Term Integrated Perspective Plan 2012-27." As such, the country will need to hike its spending each year by 10 percent which has not been the case. To achieve this, committed funding through substantial Budget allocation is the need of the hour which has not been the case and the insufficient funding this year as well as in line with previous year substantiates this fact. It is not only insufficient to cover the procurements of new weapons and equipment but also does not even adequately cover inflation costs.

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