Having made no reference to the defence budget in his budget speech last year, much to the chagrin of many, Finance Minister Arun Jaitley made an almost passing reference to it when he presented the Union budget on February 1. At Rs 2,74,114 crore, excluding the outlay of Rs 85,740 crore for defence pensions, the allocation is prima facie inadequate, though not surprising.
In his medium-term fiscal policy statement last year, the FM had stated that the total defence expenditure is estimated at about 1.6 per cent of GDP in 2017-18 and 2018-19. If that is any consolation, the proposed defence outlay does not disappoint at least on that score. Many defence analysts, and even the standing committee on defence, have been rooting for defence outlays to be pegged at three per cent of GDP — while that seems unlikely in the near future, focus on this demand overshadows many other concerns.
The first reaction has been how it would adversely affect modernisation of the armed forces. Unfortunately, repeated underutilisation of the capital budget weakens the case for higher allocations for new acquisitions. It is not uncommon to hear that underutilisation of the capital budget is because of the finance ministry’s machinations, which wouldn’t let big contracts be approved, so it could withdraw huge sums from the MoD to meet the fiscal target.
Even if this is true, the MoD needs to address this problem before it can make a convincing case for more funds. Going by the revised estimate for the current year, underutilisation of the capital budget is likely to be close to Rs 7,000 crore; for the last year, it was double. There is no doubt the allocated amount would be insufficient if all contracts in the pipeline get signed during the next fiscal. But this is not as serious as the apparent inadequate allocation for maintenance of equipment currently in use. There is an immediate requirement for funds for this purpose. This is also the case with war wastage reserves, including ammunition stock. The allocation on this for 2017-18 is largely the same as last year — it is difficult to visualise how the situation is going to be managed.
There has been focus on “Make in India” in defence as well. An important component re projects that can be undertaken by Indian industry for indigenous design and development of prototypes of defence products with government funding. Since its introduction, no development contract has been signed so far for any “Make” project and with a meagre allocation of Rs 44.63 crore for assistance to prototype development, it seems the MoD isn’t expecting many projects.
The budget is not just about numbers. It is also a statement of the government’s vision. It is intriguing that while the finance minister chose to refer to two quite innocuous schemes, the Centralised Defence Travel System and the interactive Pension Disbursement System, there was no mention of important policy issues like the strategic partnership scheme and defence technology fund. That more than 50 per cent of the total expenditure on defence will go in salaries and pensions — ironically, without resulting in high satisfaction — is also serious enough to warrant a statement on how the government intends to cope.
What is needed is an outcome-oriented monitoring of utilisation of outlays, as recommended by the standing committee last year. This is the only way to ensure that the focus shifts from ensuring full utilisation of funds to spending these wisely on the desired outcomes — there is no indication that this is going to happen in the coming year. It is possible that these impressions are wrong, in which case the ministry owes it to the services, the common citizen, and indeed, to itself, to set the record straight.