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New Delhi. The Indian Budget 2011-12, presented
to the Parliament on February 28, 2011, has allocated
Rs. 1,64,415.49 crore ($36 billion) for the Defence
Services that include three services (Army, Navy
and Air Force), Defence Research and Development
Organisation and Ordnance Factories (OFs). This
is apart from Rs. 38,156.81 crore ($8.4 billion)
which has been earmarked to defray civil expenditures
of Ministry of Defence (MoD) and its affiliated
organisations, including, the Coast Guard, and
for defence pension (Rs. 34,000 crore or $7.5
billion).
In other words, the total amount available for
the MoD and its various establishments is Rs.
2,025,72.3 crore ($44.4 billion). By convention,
only budgetary provisions for the Defence Services
(i.e., Army, Navy, Air Force, DRDO and OFs) constitute
India’s defence budget.
Key Statistics
As compared to the defence budget 2010-11, the
new budget has grown by 11.59 per cent. However
the growth rate comes down to 8.47 per cent over
the revised estimate for 2010-11. That means the
Ministry of Defence (MoD) has overspent (at the
time of revised estimate) Rs. 4,237.69 crore ($0.9
billion) from the original allocations made in
2010-11. However, the overspending unlike in the
previous years is on both the sides of revenue
and capital expenditure (while the former has
grown by Rs 3,404.43 crore (3.9 per cent) from
the original allocation, the capital expenditure
has grown marginally, but significantly by Rs
833.26 crore (1.4 per cent)).
The 12 per cent growth in the defence budget
has resulted in an additional allocation of Rs.
17,071.49 crore ($3.7 billion) over the previous
budget.
Of the additional amount Rs 7,872.68 crore ($1.7
billion) is earmarked for Revenue Expenditure
and the balance Rs. 9,198.81 crore ($2.0 billion)
for Capital Expenditure, the latter means the
money allocated for acquisitions and modernisation.
The Revenue Expenditure therefore has grown
by 9.01 per cent to Rs 95,216.68 crore ($20.9
billion) and the capital by 15.33 per cent to
Rs. 69,198.81 crore ($15.2 billion). On the revenue
side, the growth has although been necessitated
because of the increase in pay and allowances,
yet there has been an increase in budgetary provision
for other revenue items such as stores, transportation,
etc.
The decent increase in the defence budget has
a favorable impact on key statistics (see Table),
except for its shares in total central government
expenditure and GDP.
The declining share of defence in these key
parameters can be ascribed to relatively faster
growth of Indian economy and the resultant increase
in total central governmental expenditure. On
the positive side, the ratio between Revenue Expenditure
and Capital Expenditure has been further improved
towards the latter, showing a greater focus of
the government towards modernisation of the armed
forces.
Share of Services
In 2011-12, the Army with an approximate budget
of Rs. 83, 415 crore ($18.3 billion) accounts
for 51 per cent of total defence budget, distantly
followed by Air Force (Rs. 46,151.78 crore or
$10.1 billion), Navy (Rs. 25,246.89 crore or 5.5
billion), Defence Research and Development (DRDO)
(Rs 10,253.17 crore or $2.2 billion), and Ordnance
Factories (OFs) (Rs -776.79 crore or -$0.2 billion).
The Minus budget for the OFs is because of their
excess earnings over expenditure.
The majority share for the Army is because of
large scale provision under Revenue Expenditure,
which is primarily driven by pay and allowances.
In terms of capital expenditure, the Air Force
with a budget of Rs 30,223.83 crore ($6.6 billlion)
is the most capital-intensive, followed by the
Army (Rs. 19,163.07 crore or $4.2 billion), Navy
(Rs 14,657.83 crore or $3.2 billion), DRDO (Rs.
4,628.3 crore or $1.0 billion), and OFs (Rs. 399.96
crore or $0.1 billion)
Re-appropriation in Capital
Expenditure
As the new defence budget reveals, the MoD has
spent more than its 2010-11 budgetary allocations
under the capital head.
On the face of it, the utilisation of capital
fund is credible given the MoD’s past record
of surrendering funds. However a closer examination
of the budget reveals that the spending has not
been done as intended in the original budget,
leading to underutilisation in some heads and
overutilization in others.
For instance, 30 per cent of allocation under
the head of ‘Other Equipment’ has remained
underutilised, whereas the allocations under the
‘Aircraft and Aero-Engine’ and ‘Naval
Fleet’ have over-utilised by 24 per cent
and 11 per cent respectively. It is however not
clear whether the overspending is necessitated
due to change of plan midway, or because of parking
of funds with the state-owned enterprises so as
not to surrender funds. (As regards parking of
funds, there have been several occasions in the
past, where the MoD deliberately transferred funds
in excess of annual budgetary provisions to its
production agencies.)
The readjustment (or re-appropriation as it
is known in the budgetary parlance) is allowed
with certain conditions, but it does not however
absolves the MoD of its responsibility to stick
to its plan to the extent possible.
A deliberate digression from the plan in order
to utilise the money is not always efficient or
desirable. For instance, the budgetary provision
to buy radars would lose its relevance if the
said budget is ended up buying missiles, which
can not be used without effective surveillance.
In this context, the efficiency of the MoD lies
not only in spending the capital head in stipulated
time period but also spending it as the per the
original plan. .
Rise in Pay and Allowances
In 2011-12, total pay and allowances of the
three services (Army, Navy and Air Force) and
the DRDO are estimated to grow by 10.3 per cent
to Rs. 51,591.27 crore ($11.3 billion). (The pay
and allowance of Ordnance Factories is not included
in the calculation because of lack of availability
of data at the time of writing). This pay component
represents 54.2 per cent of the total Revenue
Expenditure, 31.4 per cent of the total defence
budget, and is responsible for 28 per cent of
the total defence budget’s growth.
It is noteworthy that pay and allowances are
obligatory in nature and the government has little
control over its growth, given the mandatory increase
in annual pay and dearness allowances.
Moreover most of the pay and allowances today
constitute tomorrow’s defence pension, on
which the government has also little control.
The uncontrollable growth of these components
(pay and allowances and defence pension) has however
vital implication on others aspects of the defence
budget.
This is more so, given the government’s
ceiling approach to defence allocation, which
invariably affect the non-obligatory components
of the budget, particularly the capital acquisition,
stores, transportation and revenue works. Keeping
this in view, there is a need to ensure that the
pay component remains within the controllable
limits.
It is in this context, the MoD needs to bring
in concepts of Zero Based Budgeting (ZBB) and
outcome budgeting in its budgeting process, so
as to ensure that some of the inefficient activities
are done away with and precious resources diverted
to needed areas.
Impact on Modernisation
India lives in a difficult neighbourhood, infested
by state-sponsored terrorism. To meet the myriad
security challenges, the defence forces need to
modernise their assets on a continuous basis,
so that the defence preparedness of the country
is one step ahead of its adversaries.
However as reported by various oversight agencies,
such as Comptroller and Auditor General of India
(CAG) and Parliamentary Standing Committee on
Defence, there are glaring voids in defence preparedness,
which need urgent attention.
For instance, the CAG in a recent report mentions
that the submarine force of the Indian Navy, a
key component of naval warfare, is below the expected
force level. It also mentions that the Indian
Air Force, which is already down to less than
30 combat squadrons from the authorised level
of 39.5, also does not possess adequate number
of surveillance radars needed for providing efficient
and reliable detection capabilities for ensuring
credible air defence. The Army has glaring deficiencies
in its artillery force and night fighting capabilities,
and shortages of even in its stock of bullet proof
jackets.
In this backdrop, it is pertinent whether defence
allocation for 2011-12 is enough to fill up the
capability gap that exists today.
The answer to the above question however does
not lie in one year’s budget figures, as
capability build-up is a long-drawn process requiring
a steady and sustained level of funding on a continuous
basis. But building futuristic capabilities, by
a mix or indigenous and imported solutions, is
a must, with emphasis on the former.
From the perspective of the new defence budget,
there has been a modest attempt to step up the
modernisation process.
This is evident from the size of the capital
acquisition budget, which has been increased by
more than 25 per cent to Rs. 55,604 crore ($12.2
billion). Among the services, the Air Force has
been given the largest share (Rs. 28,354.54 crore
or $6.2 billion), followed by Army (Rs. 14,100.44
crore or $3.1 billion) and Navy (Rs. 13,149.02
crore or $2.9 billion).
Assuming that 60 per cent of the capital acquisition
budget goes for committed liabilities, the MoD
would have around Rs. 22,240 crore ($ 4.9 billion)
to pay for new acquisitions including the Medium
Multi-Role Combat Aircraft (MMRCA) (for Air Force),
C-17 Globamaster (Air Force), and advanced helicopter
(for Air Force and Army), and patrol vessels (for
Navy).
Conclusion
The defence budget 2011-12 is nonetheless an
impressive one.
Its growth of 12 per cent is in fact one of
the highest in recent years, if one excludes the
year 2009-10 when the budget was increased by
34 per cent, due mainly to the effects of the
Sixth Central Pay Commission.
The hike in the defence budget has provided
extra resources, particularly for the modernisation
of the armed forces. The growth of over 25 per
cent capital acquisition budget to Rs. 55,604
crore ($12.2 billion) would provide the much needed
resources for some of new acquisitions such as
MMRCA, and C-17 Globemaster, among others.
On the revenue side also, the budget has made
increased provisions for pay and allowances (which
are obligatory in nature) and also for other items
such as stores, transportation and other revenue
items.
The impressive growth in the defence budget
notwithstanding, there are some concern areas.
Although, the MoD has been able to over-spend
its 2010-11 capital budget, it is not clear why
it was necessitated. As the budget reveals, the
spending has not been done as per the plan in
the original budget. Keeping in view the past
instance of parking of funds with state-owned
enterprises, it is doubtful whether the over-spending
was necessitated due to genuine mid-way change
in the plan. Given the hefty increase in the capital
acquisition budget in 2011-12, the MoD’s
challenges therefore lie not only in spending
it in the stipulated timeframe but also spending
it for the purposes intended in the budget.
Another concern area is the hefty growth in
pay and allowances of the defence services. In
the new budget alone, the pay and allowances of
the three services and DRDO has grown by more
than 10 per cent and is responsible for 28 per
cent of total defence budget’s growth. Given
the size of pay and allowances, its mandatory
annual increase and its implication on other components
of the defence budget, there is a need to need
to ensure that this component remains within the
controllable limits.
The author is a Research
Fellow at the Institute for Defence Studies and
Analysis (IDSA), New Delhi.
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DPP 2011
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