“One-third of national capital budget already goes to military” says MoD

Govt offers a telling new metric: defence capital allocation as percentage of national capital spending

By Ajai Shukla

Business Standard, 2nd Aug 18

Traditionally, the government has measured defence allocations as a percentage of the Gross National Product (GNP), or as a share of total government spending. In recent years, the total defence budget, inclusive of pensions, has been slightly over 2 per cent of GDP and 16-18 per cent of government expenditure.

But now the government has put forward in Parliament a new, and more telling, metric: which is the defence capital allocation as a percentage of the national capital spending. Facing pressure to increase the capital budget, which buys new weapons and equipment, the government is arguing that defence already accounts for one-third of the national capital spend.

A defence ministry written response, tabled in Parliament on Wednesday, stated that the defence capital budget had already been increased from Rs 915.79 billion in 2017-18 to Rs 995.63 billion in the current year – a rise of 8.72 per cent.

“Significantly, the capital allocation for Ministry of Defence in the current fiscal is 33% of the total Central Government Expenditure on capital account and the total Defence Budget is 16.6% of the Central Government Expenditure,” said Minister of State for Defence Subhash Bhambre, in a written response to a question on defence spending.

Senior defence ministry officials have told Business Standard it is meaningless to evaluate defence spending as a percentage of GDP, since the bulk of that figure is in the informal economy and outside the tax pool.

These officials argue that defence revenue expenditure – with the bulk of it spent on salaries, pensions and running costs – is a fixed liability. Only in capital allocations does the government have the leeway to increase or decrease defence spending. And with the military already the highest recipient of capital expenditure, there is little scope for allocating significantly more.

Nor does the defence ministry believe there is an urgent need to allocate more money to defence modernisation. “There is adequate stocks of arms and ammunition with the Armed Forces who are well equipped for meeting any operational requirements,” said Bhambre, responding to anther question.

“In the last three financial years (2015-16 to 2017-18), 58 contracts worth about Rs 1,17,656 crore (Rs 1,176.56 billion) were signed with foreign vendors for procurement of defence capital equipment for defence forces,” said a defence ministry response, elaborating that these vendors are from Russia, Israel, USA and France.

A Business Standard analysis indicates that, while capital allocations to defence have held steady as a proportion of the national capital spend, defence allocations as a whole have declined over the last three years. From 17.8 per cent of government spending in 2016-17, defence was allocated 16.9 per cent last year and 16.6 per cent in the current fiscal. As a percentage of GDP, defence spending declined from 2.2 per cent to 2.16 per cent during the same period.

Defence allocations in percentages

In Rupees crore: (Rs billion in brackets alongside)

	2016-17 (Actual)	2017-18 (RE)	2018-19 (BE)
Defence capital allocation	91,483 crore (914.83 billion)	91,461 crore (914.61 billion)	99,563 crore (995.63 billion)
Total defence allocation	351,550 crore (Rs 3,515.5 billion)	374,003 crore (3,740.03 billion)	404,364 crore (4,043.64 billion)
Total govt capital budget	284,610 crore (2,846.1 billion)	273,445 crore (2,734.45 billion)	300,441 crore (3,004.41 billion)
Share of govt capital spend	32%	33%	33%
Total govt expenditure	1,975,194 crore (19,751.94 billion)	2,217,750 crore (22,177.5 billion)	2,442,213 crore (24,422.13 billion)
Share of total govt spend	17.8%	16.9%	16.6%
Gross Domestic Product	15,075,429 crore (159,754.29 billion)	16,784,679 crore (167,846.79 billion)	18,722,302 crore (187,223.02 billion)
Share of GDP	2.20%	2.23%	2.16%