The meagre jump in defence Budget, which continued the trend of the past few years, has driven home a point for the Defence Ministry — it will have to resort to alternative means to generate funds for military modernisation.
“Let us note two facts. First, 57 per cent of the allocation for the ministry (of defence) goes towards salaries and pensions — defence pensions alone are 4.4 per cent of total CGE (central government expenditure). And second, one-third of the central government’s capital expenditure goes towards ministry’s capital expenditure. This is the double-bind to which there is no easy answer,” a top ministry official told The Indian Express.
Senior military officials say modernisation of the forces has taken a backseat because of shortage of funds. This issue has been repeatedly highlighted by the parliamentary standing committee on defence in its reports but an economic slowdown has meant that enough funds are not available for existing contracts and no major new contracts for military equipment have been inked.
“The ideal military equipment profile is 30:40:30, i.e., 30 per cent vintage equipment, 40 per cent current and 30 per cent state-of-the-art equipment. That profile is worsening by the year, with massive bias in all three services towards vintage equipment. Its effect is bound to be felt. Can we fight and win tomorrow’s wars with yesterday’s capabilities?,” asked a senior military official.
Ministry officials argue that with the creation of the post of Chief of Defence Staff and Department of Military Affairs, more accurate inter-service priority for procurement and better utilisation of funds is likely to happen and this will take care of the challenges to modernisation to some extent. But even they concede the answer lies in greater allocation of funds.
“Whenever the issue of funds has been flagged at the highest levels, we have been assured that over and above the funds needed for salaries and pensions, we will get a 5 per cent increase in modernisation budget. This year, it is less than 3 per cent. There is price escalation due to inflation, and rupee is weaker too, which means the allocation is flat. It is tough to execute any new schemes…in many cases, we are struggling with committed liabilities which have to be delayed as no funds are available. We have to find alternatives,” the top ministry official explained.
The Centre had last July amended terms of reference of the 15th Finance Commission “to address serious concerns regarding the allocation of adequate, secure and non-lapsable funds for defence and internal security of India”. Under the amended terms, it was proposed to ensure an assured allocation of resources towards defence and internal security imperatives.
Most significantly, the commission was asked to “examine whether a separate mechanism for funding of defence and internal security ought to be set up and if so how such a mechanism could be operationalized”.
In its interim report for 2020-21 presented to Parliament, the Finance Commission has stated that it has received communication from Defence Ministry about continuous inadequacy of funds. The ministry also told the commission that “current provisions are inadequate to fund these and hence the need for alternate sources of additional funding”.
The commission is contemplating setting up an expert group with representatives of Home, Finance and Defence ministries to come up with detailed modalities for either “setting up a non-lapsable fund, levy of cess, monetisation of surplus land and other assets, tax-free defence bonds and utilising proceeds of disinvestment of defence public sector undertakings”.
The proposal for a non-lapsable fund has been made over the past two decades by the defence ministry but has been rejected by the finance ministry, as mentioned in numerous reports of the parliamentary standing committee. Levying of a defence modernisation cess on the lines of the education cess or issuing tax-free defence bonds have not been proposed earlier and will come with their own political challenges.
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