What the Defence Budget Misses

Preshit Parihar 8st August 2018

The budget and revised estimates allocation for defence has been between 16.3 to 17.1 per cent of the total Union Budget for the past five years. This year, it accounts for 16.6 per cent of the Union Budget presented by Minister of Finance in Parliament. Expenditure on defence has been a major part of India’s budget, just like any other developing country. Funds are allocated on basis of demands for grants, collated by the department of defence accounts. Expenditure is grouped under various major account heads like Capital Outlay, Research and Development and more. A big chunk of this is spent under the head ‘Pensions’, which this financial year is approximately 26.92 per cent of the total defence budget (Figure 1). 
There has been an increase in expenditure on pensions over the last two years. It continues on an upward trend in the current financial year as well. Financial year 2014-15 saw a dip of 0.36 per cent compared to 2013-14. However, financial year 2015-16 onwards expenditure on Pensions has gone above 20 per cent of the total defence budget. This trend has been attributed to the demands of retired armed forces personnel to be paid as per rank under One Rank One Pension (OROP) scheme. This rise in expenditure incurred on pensions has affected other parts of the defence budget where provisioning is necessary and expansion is desirable, namely on Capital Outlay.

Figure 1: Defence Pension as percentage of Defence Budget.

It is extremely necessary for armed forces to be well equipped. The current scenario calls for our armed forces to be ready to fight two front wars and another half front counting internal confrontations with insurgents on home ground. Capital Outlay is the provision for procurement of equipment and systems manufactured by domestic industries or foreign original equipment manufacturers (OEM). It is interesting that the allocation for defence pensions (26.92 per cent) surpasses that of capital outlay (23.22 per cent) by almost 4 per cent in the total budget. Higher allocations for capital outlay will be wise, as this expenditure will contribute to capacity building in material terms, for the defence and security of the nation.

Figure 2: R&D expenditure as percentage of Defence Budget

All leading super powers and regional powers in the world have advanced and ‘state-of-the-art’ weapon systems and platforms. The strength of a nation’s armed forces is no longer judged by number of personnel but by their capabilities in terms of technological edge in combat. Technology building requires intensive research, for which the allocation has never exceeded 2.23 per cent (Figure 2) in the past five years. This year it is a mere 2.01 per cent of the total defence budget. There are 9 defence public sector undertakings (DPSUs) and 41 ordinance factories (OFs) with a separate organisation (the Defence Research and Development Organisation or DRDO) undertaking technological research in defence sector.

Overall, allocation for expenditure has more or less imitated earlier empirics. Trend lines for demands for grants of major account heads show that either defence spending should increase or alternative allocation strategies need to be adopted. This will help build capacities to meet aspirational standards. Any increase in the budget allocation for defence will have a negative impact on factors of socio-economic development such as health and education. Factoring in rising inflation which will further have effects on currency valuation is important. Therefore dedicating more thought to the strategy to balance both modernisation and maintenance is the need of the hour.



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