Modest 6.35 per cent hike in defence budget, lowest allocations since the 1962 war

By Ajai Shukla

Business Standard, 2nd Feb 19

With larger allocations to the agricultural and social sectors in an election year, the defence budget plumbed the lowest levels since 1962 – the year when an ill-equipped Indian Army was roundly defeated by China.

Including money allocated to defence pensions and the defence ministry, the defence allocation for 2019-20 rose to Rs 4,31,011 crore, just 6.35 per cent more than the revised estimates for 2018-19. This will be insufficient to cover even cost inflation and foreign exchange depreciation during the year.

The defence allocation for the coming year will account for 15.5 per cent of the central government’s expenditure, and 2.05 per cent of the estimated Gross Domestic Product (GDP). This is significantly lower than this year’s revised estimates of 16.5 per cent of government expenditure and 2.15 per cent of GDP.

As in preceding years, various budget documents calculated the defence allocations differently. The detailed Expenditure Budget took a comprehensive view of defence spending, with its Demands for Grants and the Notes thereto, including all allocations to the Ministry of Defence (Demand No.19); revenue allocations to the three services, Defence R&D Organisation (DRDO) and Ordnance Factories (Demand No.20); capital allocations to these entities (Demand No.21) and also defence pensions (Demand No.22). These four allocations amount to Rs 4,31,011 crore.

Defence allocations: falling share

(In Rupees crore)

	2017-18 (Actual)	2018-19 (BE)	2018-19 (RE)	2019-20 (BE)
Total revenue allocation	197266	201529	204436	215551
Total capital allocation	90438	93982	93982	103380
Total pension allocation	92000	108853	106775	112080
TOTAL DEFENCE BUDGET	379704	404364	405193	431011
Central government spending	2217750	2442213	2457235	2784200
Share of government spending	17.1%	16.6%	16.5%	15.5%
Total GDP	16784679	18722302	18840731	21007439
Percentage of GDP	2.23%	2.16%	2.15%	2.05%

(Source: budget documents)

However, Acting Finance Minister Piyush Goyal’s budget speech, and a government statement released through the Press Information Bureau, treated the pension and MoD allocations as outside the defence budget. By that count, the defence budget amounts to Rs 3,01,866 crore.

Addressing Parliament, Goyal said “Our defence budget will be crossing Rs 3,00,000 crore for the first time in 2019-20. For securing our borders and to maintain preparedness of the highest order, in necessary, additional funds would be provided.”

Underlining the political backdrop to the Interim Budget, Goyal’s speech also made reference to the One Rank, One Pension (OROP) scheme, which the government has implemented during its tenure.

“The previous governments announced it (OROP) in three budgets but sanctioned a mere Rs 500 crore in 2014-15 interim budget. In contrast we have already disbursed over Rs 35,000 crore after implementing the scheme in its true spirit,” said Goyal.

For the first time ever, the defence capital budget crossed the one lakh crore rupee mark, with the Rs 1,03,380 crore capital allocation for 2019-20 exactly 10 per cent higher than the current year’s revised estimate of Rs 93,982 crore. Given the significant pay-outs impending for fighter aircraft, missiles, warships and other systems, there is likely to be a demand for an increase at the revised estimates stage later this year.

“The capital allocation of Ministry of Defence under Budget Estimates 2019-20 is 32.19% of the total central government capital expenditure, which is Rs 3,36,293 crore,” stated an MoD release.

Welcoming the budget, Bharat Forge chairman, Baba Kalyani, said: “We hope that “Make in India” in Defence will result in greater role for the private industry in this critical sector of the country’s economy. The thrust on MSMEs is also welcome…”