Cut in Defence budget likely, upset Forces rush to George

In the inter-ministerial meetings in the run-up to the Budget, Finance Ministry officials called for a 10-per cent cut in the current allocation in a bid to reduce the fiscal deficit. It seems that the Finance Ministry said that these cuts were partly to offset the financial impact of the 10-month Operation Parakram.

The current defence budget is pegged at Rs 65,000 crore. Over two-thirds (Rs 43,589 crore) goes towards payment of wages, allowances and pensions. Capital expenditure is only a third or Rs 21,411 crore, which includes Rs 5,972 crore for equipment brought from ordnance factories.

According to sources, if the cut is 10 per cent in the overall allocation then it translates into a drop of Rs 6,500 crore. If this happens, the capital equipment procurement will be hit by 30 per cent as the Ministry will have to continue footing the wage bill. As a majority of the defence acquisitions is cleared towards the end of the fiscal year, the cut means that the armed forces will have to put their procurement plans on hold. As it is this year, defence acquisitions have been need-based. Strategic purchases like advanced jet trainer, upgradation of the naval fleet and procurement of high-tech weaponry for the Army could be derailed.

Stung by the cuts, Army Chief General N.C. Vij, Navy Chief Admiral Madhavendra Singh and Air Force Vice Chief Air Marshal M. McMahon met Defence Minister George Fernandes earlier this month. They were unhappy with the proposed cuts in the Budget that would come at a time when the focus of the armed forces is to build precision capability.

It is understood that the service chiefs also had informal meetings with Finance Minister Jaswant Singh and used the platform to voice their concern. Apparently, Singh assured them that the government had no intentions of blocking the modernisation programme. He argued that as the modernisation programme was spread over five years, the Finance Ministry will make up next year for the loss of fiscal support this year.

South Block officials swear that the Finance Ministry has also hinted at cuts in the capital expenditure in the forthcoming defence budget. On the other hand, there are chances that the government might indirectly support the armed forces procurement effort by waiving the customs duty on military imports. The Kelkar Committee report on indirect taxes recommends that the Government consider waiving customs duty on sovereign imports. Assuming the median rate of 15 per cent import duty, the Defence Ministry stands to gain about Rs 2,500 crore.