Modest 6.8 per cent hike pushes India Defence Budget to $46.5 B

Defence imports exempted from Customs duty, boosting modernisation kitty by $3.6 B over 5 years; Central Police budget hikes India's security spend by another $14.4 B

July 5, 2019 By Vishal Thapar Photo(s): By Indian Navy
The modest increase in Defence spending is unlikely to ease the resource crunch for the armed forces in a scenario which demands high levels of military readiness.

The Government on July 5 announced a Budgetary allocation of 3,18,931.22 Crore ($46.5 Billion) for Defence services as part of the overall 27,86,349 Crore ($406 Billion) Union Budget for 2019-20, marking a modest 6.87 per cent increase in India's spending on the Defence services.

In addition, 1,12,079.57 Crore ($16.3 Billion) were allocated for Defence Pensions, which pushes up the aggregate Defence spend to 4,31,010.79 Crore ($62.8 Billion). This aggregate figure amounts to 15.47 per cent of the total budgeted Central Government expenditure for 2019-20.

The armed forces have been pushing for much higher allocations for military procurements. The Indian military has been facing a resource crunch, and it has emerged that budgetary allocations are falling short of even their committed liabilities. Analysts reckon that a 6.87 per cent hike is inadequate to meet India's requirements for military readiness despite capability gaps being exposed in the military confrontation with Pakistan post the Balakot air strike in February.

The armed forces have been pushing for much higher allocations for military procurements. The Indian military has been facing a resource crunch, and it has emerged that budgetary allocations are falling short of even their committed liabilities. Analysts reckon that a 6.87 per cent hike is inadequate to meet India's requirements for military readiness despite capability gaps being exposed in the military confrontation with Pakistan post the Balakot air strike in February

What brought some cheer to Defence planners was Finance Minister Nirmala Sitharaman announcement of an exemption of Customs duty for imported military equipment. The Ministry of Defence later claimed that this exemption would effectively boost the military modernisation budget by 25,000 crore ($3.6 B) over the next five years.

The allocation of 3,18,931.22 Crore includes 13,635.15 Crore ($2 Billion) for the 'Civilian' side of the Ministry of Defence, including the Ordnance Factories and the Defence Research and Development Organisation.

At 1,08,248.80 Crore, the kitty for Capital Expenditure or modernisation of the armed forces accounts for 33.9 per cent of the budget for the Defence services. The Revenue expenditure on recurring expenses stands at 2,10,682.42 Crore, accounting for 66.1 per cent of the Defence spend.

Of the three armed forces, the Indian Air Force and Navy have higher allocations for modernisation than for recurring Revenue expenditure on fixed costs. At 39,302.64 Crore, the IAF gets the lion's share of the Capital allocation for modernisation. It's Revenue Budget is 29,601.69 Crore. The Navy gets 23,156.43 Crore under the Capital head against a Revenue allocation of 22,211.71 Crore. But this favourable Capital-Revenue ratio is reversed by the Army's huge allocation of 1,41,501.19 Crore for fixed costs, mainly on account of its huge manpower bill. Against this, the Army's Capital allocation for modernisation stands dwarfed at 29,461.25 Crore

"The Capital Allocation of Ministry of Defence under BE (Budget Estimates) 2019-20 is 31.97 per cent of the total Central Government Capital Expenditure, which is 3,38,569 Crore," a Defence spokesperson stated.

Of the three armed forces, the Indian Air Force and Navy have higher allocations for modernisation than for recurring Revenue expenditure on fixed costs. At 39,302.64 Crore, the IAF gets the lion's share of the Capital allocation for modernisation. It's Revenue Budget is 29,601.69 Crore. The Navy gets 23,156.43 Crore under the Capital head against a Revenue allocation of 22,211.71 Crore. But this favourable Capital-Revenue ratio is reversed by the Army's huge allocation of 1,41,501.19 Crore for fixed costs, mainly on account of its huge manpower bill. Against this, the Army's Capital allocation for modernisation stands dwarfed at 29,461.25 Crore.

The allocation for Central police under the Budget for the Ministry of Home Affairs pushes up India's spending on security by another 98,202.23 Crore ($14.4 Billion), of which the modernisation spend amounts to 10,790.28 Crore ($1.6 Billion).

There's no major departure from the allocations in the interim Budget presented in February this year ahead of the General Elections. A reduction in the allocation for MoD (Civil) by about 3,430 Crore ($500 Million) is offset by an increase in the monies for the defence services by a similar amount. This increase is mostly on the Revenue side.