Defence Budget's Arcane Format Makes It a Largely Unresolved Puzzle

If the definition of India’s defence budget is suitably aligned with analogous international practice, it can do away with the ambiguity that presently prevails.

Like most official documents, India’s defence budget is a mystifying puzzle, necessitating a mix of patience, intellectual dexterity, experience, and informed guesswork to decipher it. Even then, one is almost certain to not get an accurate picture. Fundamental questions like how much has been allocated for defence expenditure during a particular fiscal and what has been the increase vis-à-vis the previous year can elicit varying responses.

The Press Information Bureau (PIB) release on February 1, after the budget was tabled in the Lok Sabha, for instance, states that the defence allocation for the financial year 2021-22 (FY22) had been increased to Rs 4.78 lakh crore without mentioning the base figure for measuring the extent of increase. This is significant because one can measure the increase with reference to the budget estimate (BE) or the revised estimate (RE) of the previous year, and come to a vastly divergent conclusion.

The term BE refers to the allocation made in the Union Budget which is reassessed normally by the end of the fiscal’s third quarter based on the actual utilisation of funds as also the unforeseen requirements that may have cropped up during this period. This reassessment forms the basis of the RE. The BE 2020-21 was Rs 4.71 lakh crore but the RE went up to Rs 4.87 lakh crore, due largely to the military stand-off with China in eastern Ladakh which emerged in May 2020.

The increase for FY22 works out to 1.45% with reference to the BE 2020-21 but it would be in the negative if it is related to the RE 2020-21 which is arguably more representative of the actual requirement for any given year. This uncomfortable fact can, however, be veiled by asserting that the BE 2021-22 amounts to 2.15% of the estimated gross domestic product (GDP) and 13.73% of the total Central government expenditure (CGE) for the upcoming fiscal.

Meanwhile, what makes it more complicated to understand the defence budget is the inclusion of military defence pensions. If this large amount of Rs 1.35 lakh crore were excluded from it, the defence budget for FY 2021-22 would fall to Rs 3.62 lakh crore or to 1.63% of the GDP and 10.4% of the CGE for the next fiscal. The PIB release mentions this figure and claims that it represents an increase of Rs 24,792.62 crore over FY 2020-21. This is true only if the increase is calculated with reference to the BE 2020-21; relative to the RE 2020-21, the increase is only Rs 2,609.56 crore.

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But even this entire amount of Rs 3.62 lakh crore is not exclusively available to the armed forces, as it also includes allocations for ancillary defence-related organisations: ordnance factories (OFs), Defence Research and Development Organisation (DRDO), the Armed Forces Tribunal (AFT), the Indian Coast Guard, the Border Roads Organisation, the Defence Estates Organisation, and the Ministry of Defence’s vast secretariat staffed by civilians.

It also includes allocations for Rashtriya Rifles (RR), Military Farms (MFs) despite their closure being announced in 2017 the National Cadet Corps (NCC), Ex-Servicemen’s Health Scheme (ECHS), and the Director General of Quality Assurance, responsible for ensuring the desired quality levels of defence equipment procured, or in use, by the military.

If allocations for all these sundry organisations listed above and defence pensions is subtracted from the total defence outlay, the armed forces will be left with only Rs 3.12 lakh crore for their revenue and capital expenditure. Consequently, this totals to a mere 1.4% of the GDP and 8.96% of the CGE substantially lower than the overarching defence budget which, as stated earlier, is 2.15% of the GDP and 13.73% of the CGE.

As would be evident by now, several permutations are possible, each one leading to a different conclusion. Its plasticity also results in analysts selectively bandying around these computations to defend, or assail, India’s defence budget, depending on their political and ideological persuasions.

Limited information

Such confusion can be avoided if the definition of India’s defence budget is suitably aligned with analogous international practice. The Stockholm International Peace Research Institute (SIPRI), for instance, calculates various countries’ military expenditure by incorporating all current and capital expenditure of the armed forces, defence ministries and other government agencies engaged in military-related projects. Paramilitaries, when deemed to be trained and equipped for military operations, and defence-related activities too are included by SIPRI in their computations.

Further, SIPRI calculates current and capital expenditure by including expenditure on salaries of military and civil personnel, retirement pensions and social services of defence personnel, operations and maintenance and materiel procurement. Military research and development, military infrastructure spending, and military aid also comprise the defence budget, according to the Stockholm-based Institute. Employing such standardisation in India can greatly simplify matters and do away with the ambiguity that presently prevails.

Defence minister Rajnath Singh inspect weapons at the Sukna Army Camp in Darjeeling on October 25, 2020. Photo: Twitter/@DefenceMinIndia

The arcane format in which India’s defence budget is presented too is problematic, as this provides no explanation for the increase or decrease in allocation compared to the previous fiscal. Limited information on this count is captured in the Standing Committee on Defence (SCoD) reports mercifully available online but for the most part, the information is disjointed, inconsistent and unstructured, leaving the budget riddle largely unresolved.

Budget documents on the Ministry of Finance (MoF) website too do not reveal the amounts separately allocated for military rations, clothing, ammunition, spares and related items, all of which are bewilderingly clubbed under an imprecise head: stores. In fact, this omnibus budget head caters for expenditure as diverse as airframes and engines to research and development projects of the Army Training Command (ARTRAC) headquartered in Shimla.

For sure, some broad details elaborating on ‘stores’ and other budget heads can be culled out from the detailed demands for grant (DDG) that are presented by the MoD to the parliament following the presentation of the Union Budget. But this too is complicated as the DDGs are presented in two booklets: defence services estimates, or DSE, and DDG for the MoD, which confusingly also includes defence pensions. Unfortunately, these documents are unavailable on the ministry’s website, or at any other outlet, despite being unclassified.

Even the DSE, at any rate, is of little or no assistance. For example, if one is seeking information on how much additional expenditure has been incurred on ‘emergency purchases’ of platforms, ammunition, missiles and varied high altitude clothing following the recent Chinese intrusion into Ladakh, the DSE would offer no disclosures.

Similarly, the DDG booklets are unlikely to contain any explanation as to why the allocation for defence pensions for FY22 is Rs 17,975 crore less than the BE 2020-21, or why the RE 2020-21 is Rs 8,825 crore less than the BE of the same year. This unexplained decrease has already given rise to much speculation over the past few weeks since the budget was presented, among serving and retired military personnel and further wrapped the riddle of the defence budget into an enigma.

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Military modernisation

The most eagerly awaited part of the defence budget, however, is the capital outlay which, at times, is mistakenly equated with the ‘modernisation’ budget. The putative ‘modernisation budget’ is an imaginary or notional subset of the capital outlay catering for expenditure on new acquisition programmes and for defraying payment related to ‘committed liabilities’ arising from the previously concluded contracts.

The other subset, with no fixed nomenclature but at times referred to simply as ‘other than capital acquisition’ budget, covers expenditure on acquisition of land and execution of military-related civil works. But all these categorisations are missing from the budget document leaving the amount allocated for ‘military modernisation’ to informed speculation for any given year.

Returning to the present, the capital defence outlay for FY22 is Rs 1.35 lakh crore, some 18.75% higher than the BE for the present fiscal and appears to be a ‘healthy hike’, till one examines the fine print.

First, as indicated earlier, the overall capital outlay includes allocations for acquisition of land and execution of military-related civil works, as well as for the workings of DRDO, OFs, RR, MFs, ECHS, NCC, DGQA and for prototype development. If all these elements are excluded, the ‘modernisation budget’ would drop to approximately Rs 1.13 lakh crore.

Secondly, the total capital outlay was increased by Rs 20,776 crore in the RE 2020-21. Comparatively, the BE for FY22 is only Rs 550.72 crore more than the RE for FY21, an increase of just 0.41%. This is a far cry from the 18.75% hike declared by the PIB, seemingly based on a relatively speculative BE-to-BE comparison.

Intriguingly, within this total capital outlay, the ‘modernisation budget’ also seems to have come down marginally by about Rs 318 crore when compared with the RE 2020-21. Service-wise distribution, on the other hand, reveals an increase of more than Rs 4,500 crore for the Indian Army, but obviously this has been at the cost of the other two services whose modernisation allocation is less than the RE for FY 2020-21.

Thirdly, the entire capital outlay is unavailable for new acquisitions as a large portion 80 to 90% of it is committed to payments for past procurements. More pertinently, barring some exceptions, fund allocation for specific projects and acquisition programmes are also not indicated in the budget documents, leaving everyone guessing about the funds available for new acquisitions.

The net result of all this confusion is that it is impossible to assess even for insiders what the MoD sets out to accomplish at the beginning of every financial year, and what it ends up achieving 12 months later. With the intention of addressing this concern, the MoF had restructured budget formats of several departments, including the MoD, in FY17 for ‘effective outcome-oriented monitoring of implementation of programmes and schemes and projects and to ensure optimum utilisation of resources’.

But this reform seems to have bypassed the defence budget which continues to approximate an entangled jalebi.

Amit Cowshish is former financial advisor (acquisitions), Ministry of Defence.