Defence budget: still behind a veil

by Ajai Shukla
Business Standard, 6th Mar 07

On 28th February the Finance Minister took 100 minutes and 12,808 words to present his budget proposals before parliament. The defence budget was dealt with in just 36 words: “I propose to increase the allocation for defence to Rs.96,000 crore. This will include 41,922 crore for capital expenditure. Needless to say, any additional requirement for the security of the nation will be provided.”

Mr Chidambaram’s brevity blurs some important issues.

The first piece of obfuscation centres around the total amount being spent by the government on defence. The figure of Rs 96,000 crores includes only the revenue expenditures on the Army (Rs 34,086 crores), Navy (Rs 6968 crores), Air Force (Rs 10,193 crores), Ordnance Factories (a profit of Rs 356 crores), the Defence R&D Organisation (Rs 3186 crores), and capital expenditure for modernising the military (Rs 41,922 crores). These comprise Demands No 22 to 27 in the Demands for Grants. Inexplicably omitted from the calculation is the expenditure on the Ministry of Defence (MoD) and on defence pensions, which form Demands No 20 and 21.

As a result, the figure of 96,000 crores underestimates actual spending on defence. If the sums of Rs 2046 crores allocated for the MoD and Rs 14,649 crores allocated for defence pensions are taken into account, India will actually spend Rs 1,12,695 crores on defence in 2007-08. That amounts to over 16% of government spending, not 14% as portrayed.

The logic for keeping the MoD and pension allocations out of the defence budget is incomprehensible. The MoD budget is not spent entirely, or even mainly, on civilian employees and the ministry secretariat. Hundreds of crore rupees are allocated to regular combat units like the Jammu and Kashmir Light Infantry, which the budget notes categorise as “a full fledged Regiment of Indian Army having 15 battalions apart from a Regimental Centre.” Hundreds of crores are allocated to the coast guard, defence-affiliated units whose budget used to earlier be hidden in the Revenue Department allocations. Similarly, defence pensions are directly related to military manpower expenses; excluding pensions from the defence budget is as justifiable as excluding soldiers’ salaries.

Fudging the defence budget is now institutionalised, a trend that began with Indira Gandhi in 1970, and picked up pace in the late 1980s. In each budget speech from independence up to 1969 finance ministers began their enumeration of government expenditures by dividing them into defence and civil. India’s first finance minister, RK Shanmukham Chetty, set the trend on 28th February 1948: “The total expenditure for next year is estimated at Rs 257.37 crores of which Defence Services will account for 121.08 crore and Civil expenditure for Rs 136.29 crore. Following the customary procedure, I shall first deal with the Defence estimates.”

That transparency was thrown overboard in 1970 when Prime Minister Indira Gandhi, presenting the budget as Finance Minister, indulged her penchant for secrecy by avoiding any mention of defence expenditure. And secrecy gave way to full-blown deception in the late 1980s, when external conditions imposed on India in a foreign exchange crisis forced the government to disguise defence spending. With no such imperatives today, the habit continues.

Mr Chidambaram’s brief statement raised another important point. He mentions only the capital expenditure of Rs.41,922 crore, forcing the observer into a back-of-the-envelope calculation to deduce the military’s revenue expenditure of Rs 54,078 crores. That is an increase of Rs 2,538 crores, or just 5%, over last year’s revenue expenditure of Rs 51,540 crores. With salaries, stores and raw material prices rising at an average of 10% annually, the indications are that the Finance Minister could have under-allocated the revenue budget. This would force the Finance Ministry to resort to supplementary budgeting later in the year, raising defence expenditure further.