Defence Budget 2016-17: The Bigger Worry

The presentation of the Union Budget has often been an occasion for the broader strategic community to express its worries about the government’s so-called ‘apathy’ towards national defence. The 2016-17 budget, presented on 29 February, is no exception in this regard. This time, however, the worries are somewhat nuanced and focus on three major issues: Finance Minister Arun Jaitley’s break from the established tradition of saying a few words on defence services in the budget speech; defence’s historically low share as a percentage of the Gross Domestic Product (GDP); and the sharp reduction in defence capital expenditure, most of which is incurred on the procurement of hardware such as tanks, fighters, radars, missiles, ships, and submarines, to name a few. A close examination of these worries, however, reveals that they are either emotive in nature or unreasonable on hard facts.

It is a fact that the Finance Minister did not mention defence allocation in his budget speech. Only the minister himself is entitled to defend why he did not. Pending his reply, it won’t, however, be unreasonable to say that he had enough justification to do what he did. Unlike past budgets, the 2016-17 budget has undergone a change in format for the purpose of resource allocations among the various ministries and departments. For the defence ministry, the change in format has resulted in consolidation of total allocations into four demands, in comparison to the eight earlier. Significantly, what has so far been commonly referred to as India’s defence budget, consisting of six out of eight demands, is now reflected in three demands, leaving defence pension as the only demand that remains unaffected in the realignment.

To put it differently, the realignment of demands has ensured that what has been treated so far as the defence budget no longer retains its distinct identity. The Finance Minister could not have possibly ignored this development and announced a figure that would have no veracity for the purpose of comparison with the allocation he had made in his previous budget (of 2015-16). The following figures illustrate this clearly. The three realigned demands add up to Rs. 2,58,589 crore, which is Rs. 9,490 crore higher than what would otherwise have been India’s defence budget 2016-17 as per the conventional format. Since the change in format has taken place, the inflated figure’s inclusion in the budget speech would have misled the general public.

It has been stated by various analysts that the latest share of defence in the GDP is one of the lowest in India’s history. Estimated at 1.65 per cent of the GDP, India’s defence budget 2016-17 (calculated as per the conventional format) is, in fact, the lowest since 1950-51. However, like many pieces of statistics, this too hides more than it reveals. India’s defence budget has constantly been evolving over the years, and, in the process, has included some new elements while excluding several others which should ideally be counted as part of defence expenditure. Two excluded elements having a great deal of significance are defence pension and allocations for the four border guarding forces: Assam Rifles (AR), Border Security Force (BSF), Indo-Tibetan Police Force (ITBP) and Sashastra Seema Bal (SSB).

Defence pension was a part of the defence budget till 1987-88 when it was taken out and shown as part of the defence ministry’s civil expenditure. The public discourse, post-exclusion, has, however, been as if the pension bill is funded outside the public exchequer and has no relevance to the central government’s overall budget or the defence budget in particular. The expenditure on the border guarding forces has always been through the Ministry of Home Affairs although the Army does not hide its interests to bring some of them under its operational control. Adding up these two elements of expenditure would take India’s larger defence expenditure to at least Rs. 3,68,024 crore or 2.4 per cent of the GDP. This amount does not seem unreasonable, especially for a country where around 30 per cent of the population are still stated to live below the official poverty line.

The worry about the reduction on defence capital expenditure is also similarly one sided. It is true that the capital outlays for 2016-17, measured again through the conventional format, has been reduced by a whopping Rs.8,208 crore to Rs. 86,340 crore. However, the worry should not be about the amount of reduction alone, rather the reasons for it, especially when the defence ministry’s overall allocations have been increased by a mammoth Rs. 30,842 crore (or nine per cent).

A few calculations of the budget figures would reveal that the capital expenditure has been cut primarily to accommodate the rise in salary and pension bills arising out of the implementation of the One Rank One Pension (OROP) scheme and the Seventh Central Pay Commission (CPC) recommendations. Had this been a one-off affair, it would not have evoked much of a concern. A few more calculations of past budgets would reveal that a substantial portion of the annual capital outlays is being repeatedly cut since 2008-09 – when the recommendations of the Sixth CPC was implemented – with the bulk of the surrendered amount footing the mid-year rises in the manpower bill. This disquieting development has ensured a steady erosion in the defence ministry’s ability to fund new procurements which are vital for force build-up. With the OROP and the Seventh CPC likely to further erode the capital spend in the coming years, this assumes a matter of serious concern for defence preparedness. Ironically, nobody seems to be focussing on this vital development which is India’s bigger defence worry at present.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India