Interim defence budget keeps spending below 2% of GDP

The budget for FY 24-25 continues trend of keeping defence spending below 2% of GDP

 

By Ajai Shukla

Business Standard, 2nd Feb 24

 

In the interim Union budget presented in Parliament on Thursday, Finance Minister Nirmala Sitharaman, herself a former defence minister, allocated just over Rs 6.21 lakh crore to the Ministry of Defence (MoD).

 

That is a 4.72 per cent rise over the defence allocation in the current year’s budget, i.e. for financial year 2023-24 (FY 24). However, compared to the revised allocation for the current year, it was a marginal fall in allocation.

 

As a percentage of government expenditure, Sitharaman allocated just 13 per cent to defence, continuing a multi-year trend of falling allocations.

 

Even so, the MoD continues to receive the highest allocation among the ministries. A major share of 14.82 per cent goes on revenue expenditure (on sustenance and operational preparedness), 30.68 per cent goes on salaries and allowances, 22.72 per cent on defence pensions and 4.11 per cent on civil organisations under MoD. 

 

As a percentage of gross domestic product, this year’s defence allocation remained firmly below the two per cent level.

 

Under the capital allocation head, which caters for modernisation of the country’s arsenal, defence was allocated Rs 1.72 lakh crore -- or 27.67% of the total defence budget. Most modern militaries spend about 50-60 per cent of their total defence budget on the capital account, to ensure they go into combat with superior weaponry and equipment.

 

However, India’s military – and especially the army – continues with a personnel-heavy structure that sucks up more than half the defence allocations into payment of salaries and pensions.

 

A major cause for the inadequate capital expenditure that the military makes do with is because, at the national level, there is inadequate expenditure on the capital account. 

 

The finance minister announced with a flourish during her Budget speech that the government would spend a total of Rs 11,11,111 crore under the capital head. Given that, the DRDO’s R&D spend of Rs 23,855 crore has been criticised as inadequate. 

 

Amongst other heads, Rs 6,500 crore have been earmarked to build border infrastructure; Rs 7,652 crore have been allocated to the Coast Guard, which is emerging as a service in its own right. A corpus of Rs one lakh crore has been catered for long term loans to youth/companies that are working on deep technologies.

    

In veterans’ affairs, the allocation to the Ex-servicemens’ Welfare Scheme for FY 2024-25 is 28 per cent higher than the allocation for FY 23-24, having been raised from Rs 5,431 crore to Rs 6,968 crore. This is in addition to the allocation being raised at the revised estimates  stage during the current year, where the budgetary allocation to ECHS was enhanced by 70 per cent. 

 

On the increase of capital expenditure outlay, Rajnath Singh described it as a massive push, which will provide a big boost to making India a five trillion dollar economy by 2027. 

 

Defence allocations: 2022-25

 

(Rs crore)

	2022-23 (Actual)	2023-24 (RE)	2024-25 BE
Ministry of Defence (civil)	20568	25897	25563
Revenue expenditure	256183	298669	282772
Capital expenditure	142940	157228	172000
Pensions	153407	142095	141205
TOTAL DEFENCE BUDGET	573098	623889	621540
Central government spending	4193157	4490486	4765768
Percentage of govt spending	13.25%	13.2%	13%
Total GDP		30175065	32771808
Percentage of GDP		2.08%	1.90%

                                                      (Source: budget figures)