Budget 2016: Has Arun Jaitley done a reality check on defence sector?

By Deba R Mohanty Allocations for defence have been made a part of Union Budget 2016-17. An outlay of Rs 2,49,099 crore has been proposed as budget estimates (BE) for the financial year 2016-17, which is more than Rs 3,000 crore from last year’s BE of Rs 2,46,727 crore, but a modest increase from last year’s revised estimates (RE) of Rs 2,24,636 crore.  A sum of Rs 1,62,759 crore has been allocated as ‘revenue’ expenses, while ‘capital’ account has received Rs 86,340 crore. Revenue has increased by nearly Rs 20,000 crore against the revised estimates of Rs 1,43,236 crore (which was revised against a BE of Rs 1,52,139 crore, while capital account has witnessed a modest increase of Rs 5,000 crore from last year’s revised estimates of Rs 81,400 crore (capital BE was Rs 94,588 crore in FY 2015-16). Non-plan outlays for ‘defence pensions’, which is not included in the defence budget, have accounted for nearly 65 percent of total pension liabilities of Rs 1,23,368 crore, while outlays for Defence (Miscellaneous) is Rs 1,18,466 crore. These broad categories of expenses are for ‘national defence’ purposes which only cater to armed forces and their needs. If one enlarges the scope of national defence into larger ‘national security domain’, cumulative expenses (allocations for police, paramilitary forces, military related investments in atomic energy, space, etc.) could account for nearly 27 percent of central government expenditure. Items like ‘network for defence services (Rs 2,710 crore), atomic energy industry (Rs 2,778 crore), atomic energy research (Rs 3,123 crore), border infrastructure and management (Rs 3,560 crore) that have national security dimensions witnessed reasonable investments. How does then one look at India’s defence budget? Is it sufficient, deficient or reasonable? There are no easy answers. Allocation of resources may provide certain clues in terms of trends and forecasting, but it is a Herculean task to gauge the degree of effectiveness of investments on the armed forces. If one looks at previous budgets for the last one decade or so, one would really be disappointed. Capital expenditure has witnessed massive ‘unspent syndrome’. Revenue expenses have increased. Pensions and other liabilities, thanks primarily to implementation of 7th pay commission as well as OROP, have increased. MoD has approved more than Rs 3,00,000 crore worth of projects. Technological and system obsolescence has put Indian arsenal in a difficult situation. Needs of the armed forces, both conventional systems as well as advanced ones, are increasing. Against such a backdrop, the current defence allocations seem inadequate. But Defence Minister Manohar Parrikar seems to be having other ideas. Let’s consider the following: he has chided his armed forces as ‘erratic buyers’, instructed his service chiefs to review pending and existing projects and weed out the old and irrelevant proposals, has emphasised more on indigenous projects, argued that fighter and other big ticket items could save money through collaborative or domestic production. And if this not all, he made a definitive statement in Parliament, just prior to budget day, that if pensions are included in defence expenditure, it can account for 2.2 percent of GDP, hinting that budgetary jugglery can lead to confusing perceptions. Parrikar’s assertions and arguments need to be placed in the larger context of resources allocations that need rationalization and re-orientation. A pruned budget this year is indicative of three inter-related points: a) if the budget is used properly, it can always be reasonable, which otherwise means that demands from the forces will receive in-depth scrutiny from now on; b) unspent money from capital account need not witness a huge increase, contrary to perceived demands, which can be adjusted against purchases from within, preferably through ‘Make in India’ and collaborative routes; and c) there could be further rationalization of resources allocations in time to come as there is an attempt to reduce import dependency. Parrikar stated in Parliament that MoD has been able to reduce the import bill by Rs 1,000 crore (from Rs 35,000 crore in 2014-15 to Rs 34,000 crore in 2015-16). This year’s budget appears inadequate for defence sector against perceived demands. However, there is an attempt by the current government to rationalize allocations, a process that is likely to continue well into future. What kind of results are we likely to see in future remains to be seen. However, a new approach to resources allocations through a realistic prism is what is indicated in this budget.