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ANALYZING INDIAN DEFENCE BUDGET 2018-19

Indian military modernization is on the early stage, hence it requires more funds in each financial year. However, setting aside the huge outlay is not possible as there are many other crucial areas to cater as well. Therefore, government should work on other measures to make the adequate funds by working on strategies to maintaining fair number of manpower and indigenization.

Union Budget for the financial year 2018-19, presented by the Finance Minister envisaged  a  total  outlay  of  Rs. 24,42,213  crore. Out of this, Rs 2,95,511 crore has been earmarked for Defence, which accounts for 12.10 percent of the total Central Government expenditure for the year 2018-19. A hike of about 5.92 percent in with an allocation of Rs.2,95,511 Crores as compared to previous year Revised Budget of Rs 2,79,004Crores, after including Miscellaneous. The allocation is estimated at around 1.58 per cent of the country's Gross Domestic Product (GDP), which is lower than the last year's GDP. An increase of about Rs. 16508 Crores, excluding pensions Rs. 108853 Crores for year 2018-19. After analyzing the current defence budget one can clearly diagnose an increase in pensions and salaries bills (Revenue) due to huge manpower. (Refer Bar-Graph above).

The comparative increase in the defence budget of 2018-19 as against previous 2 years is shown in Table below:-

The YoY increase in overall, capital and revenue segment is shown in Fig below.

Sub Allocation

The Services and organizations wise allocations out of the Rs 295511 Crores earmarked towards defence spending this year, the comparative sub allocation in the defence budget 2018-19 to the three defence services is as given in the Table.

The pie diagrams depicted below gives the percentage shared by defence services in Defence Budget 2017-18 and 2018-19.

As previous years, this year also the Army's over all share has been highest amongst the three services; followed by Indian Air Force and Navy respectively.  Whereas, the Army's share has declined by 1% as contrast to previous year share, but Navy and Air Force are at same ratio. Looking at allocation for 'Research and Development' and Technology Dev Fund, both have increased indicating a good sign of emphasizing indigenization.

Another category of 'Technology Development' - Assistance for prototype development under 'Make' procedure has a capital of Rs. 141.84 crores this year, which is 218 % above than the previous allocation of Rs. 44.63 Crores (Budget Estimates). The miserable thing is that the centre have just utilized Rs. 14.55 crores (Revised Estimate) out of total 44.63 Crores under Technology Development fund in the year 2017-18.

The Capital Vs Revenue Expenditure

The Capital and Revenue Expenditure are the two main components of the defence budget with the Revenue heading taking the giant share in the budgetary allocations year on year. Out of the total budget, Rs 185323.19 Crores has been allocated for Revenue expenditure and Rs 93982.13 Crores has been earmarked for Capital expenditure. The share of percentage of capital allocation in defence budget as compared to revenue allocation is 34:66 this time. As compared with revised estimates of last year's defence budget, it is seen that the revenue budget has witnessed a decrease of one percent from the previous year share of 67 percent of the total budget. On the other hand, the capital expenditure has witnessed an increase of one percent this year and comprises 33 percent of the entire budget for the fiscal 2017-18.

Capital Budget

The Capital Budget is divided into two notional categories: 'Capital Acquisition and 'Other-Than-Capital Acquisition'. While the capital acquisition budget is spent on acquiring new weapon systems and platforms required for modernization of the Armed Forces, the other than capital acquisition segment of the capital budget caters for 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 2018-19, the capital outlay has been scaled up to Rs 93982.13 Crores up from the revised capital expenditure of Rs 86488.01Crores allocated in 2017-18 witnessing a hike of 8.66 percent, i.e Rs. 7494.12 Crores from last year which is still not substantial considering the number of billion dollar deals in the pipeline to be signed.

Amongst the three services, the Air Force has been allocated the largest share of the capital budget about Rs 35755.62 Crores though witnessing a increase of last year's revised allocation of Rs 33555.62 crores, followed by the Army's budget which stands at Rs 26688.42crores and then Navy's who has been allocated Rs 20848.16 Crores. The above given pie chart depicts the share of the defence services in the capital budget.

The capital allocation has increased from last year but a closer examination suggests that there has been an increment in the Air Force acquisition of land, Aircrafts and Aero engines, other equipment and Heavy and Medium Vehicles. For the Army also there is scope for Construction work, Aircrafts and Aero engines and for Navy for acquiring new fleet which has resulted in this increment in the year but is still minimal.

Impact Analysis    

The increase in the overall defence allocation seems to be inadequate and not in tune with the military modernization, as the amount sanctioned generally gets partially neutralized by the annual inflation and the exchange rate variations. The military modernization will keep languishing for years to come.

Recently the Vice Chief of Army Staff, Lt Gen Sarath Chand, while deposing before the Parliamentary panel has stated that the budget estimated projections for 2018-19, by Army was Rs 1,96,387 crore and the allocation is Rs 1,53,875 crore- a shortfall of almost  23% less than projected and does not support the inevitable needs of the Army. The so called increase in the defence budget only accounted for inflation. The Under Capital head Army, got just 60% of its projected requirement of Rs 44573 Crores for modernisation and new weapon systems. In this category Navy got Rs 20,004 crore, just 56 per cent of its requirement.  The Air Force, has been allocated Rs 35,770 crore against its projection of Rs 77,695 crore barely 45 per cent of its needs.

A modern military should typically have 30% of its equipment in the state-of-the-art technology category, 40% in current category and 30% in vintage category. But the grappling with an alarming 8% (state-of-the-art), 24% (current) and 68% (vintage) weaponry mix.

Army Budget for modernization has been allocated 14% against the need of 20-25%. The allocation for modernisation is insufficient even to cater for to pay installments committed Liabilities payments of Rs 29.033 crore for 125 ongoing schemes, emergency procurement and other requirements, leaving virtually nothing for new modernisation projects. The committed liabilities of 2017 will now pass over into 2018.This may end in the foreclosure of 25 'Make in India' Defence projects that are currently in the pipeline such as FRCV and FICV.  The Armed services have critical gaps in artillery, infantry weapons light helicopter, night-fighting, fighters, mid-air refuellers, AWACS, drones, submarines, multi-role helicopters, minesweepers etc.

Article published in Magazine issue “Mar-Apr 2018 “

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