Defence budget inches lower towards 2% of GDP

Allocations are Rs 50,640 crore lower than 2014-15 levels of spending

By Ajai Shukla

Business Standard, 6th July 19

Finance Minister Nirmala Sitharaman has allocated Rs 4,31,011 crore for defence spending (including military pensions), the same as in the February 1 interim budget. As a proportion of the Gross Domestic Product (GDP), however, the allocation is inching steadily lower, towards the two per cent mark.

In 2014-15, defence allocations, including pensions, accounted for 17.1 per cent of Central government spending, or about 2.28 per cent of the GDP. This year, the defence budget will comprise 15.5 per cent of government expenditure and just 2.04 per cent of the GDP.

In countries like India that face significant security threats, the norm is for defence spending to rise at least in tandem with GDP. Were allocations to have remained at the 2014-15 level of 2.28 per cent of GDP, the military would be getting Rs 50,640 crore more this year than it has received.

Defence budget: falling share

(In Rupees crore) 

	2016-17 (Actual)	2017-18 (Actual)	2018-19 (RE)	2019-20 (BE)
Revenue allocation	177367	192273	199945	210683
Capital allocation	86357	95431	98473	108248
Pension allocation	87826	92000	106775	112080
TOTAL DEFENCE ALLOCATION	351550	379704	405193	431011
Central government spending	1975194	2217750	2457235	2786349
Share of government spending	17.8%	17.1%	16.5%	15.5%
Gross Domestic Product (GDP)	15075429	16784679	18840731	21100607
Defence as a percentage of GDP	2.33%	2.23%	2.15%	2.04%

(Source: budget documents)

Defence spending is falling in percentage terms even though all military purchases are now subject to Goods and Services Tax (GST). For many items, such as vehicles, this is levied at the higher rates of 18 and 28 per cent.

Nor do the defence allocations cater for the addition of 100,000 more soldiers to the army over the preceding decade, which the government sanctioned to cater for the rising threat from China. Over the last dozen years, the salary bill has risen six-fold, with swelling manpower numbers compounded by the salary and pension hikes of the Sixth and Seventh Central Pay Commissions and the One Rank One Pension award of 2014-25.

Providing some relief to the military, the finance minister announced customs duty exemption for the import of defence goods. “Defence has an immediate requirement of modernisation and upgradation. This is a national priority. For this purpose, import of defence equipment that are not being manufactured in India are being exempted from the basic customs duty”, she said.

Capital allocations, which fund the purchase of new weapons and equipment for modernisation, remains at 1,08,248 crore, or just one quarter of the total defence budget. The Indian Air Force (IAF) has again been allocated the bulk of the capital budget – Rs 39,303 crore or almost 37 per cent of the total.

Yet, this is unlikely to suffice, with the IAF paying annual instalments for the Rafale fighters which will start joining the fleet this year; and for ongoing purchases of Sukhoi-30MKI and Tejas fighters and upgrades to its Mirage 2000 and Jaguar fleets.

The 1.26 million-strong army, which includes 85 per cent of the military’s manpower and is in combat round the year, has been allocated Rs 31,815 crore, or 29 per cent of the modernisation budget.

The 83,500-strong navy has been allocated Rs 25,656 crore for modernisation, or about 24 per cent of the capital budget. This includes Rs 2,500 crore for the Coast Guard. Navy planners will struggle to fund the planned purchase of six conventional submarines and a second indigenous aircraft carrier. Payments are also being made for the first indigenous carrier, INS Vikrant, which Cochin Shipyard promises to deliver by 2021.