While presenting the regular budget for the current fiscal on July 5, the finance minister made no mention of, and proposed no additional funds for, defence. Consequently, the total outlay for defence remains at Rs 4.31 lakh crore, as proposed earlier in the interim budget presented to Parliament in February.
This works out to 2.04 per cent of the gross domestic product (GDP) and accounts for 15.47 per cent of the total expenditure of the central government envisaged in the budget. On both these counts, the allocation for defence shows a downward trend vis-à-vis the last year’s outlay. The question, however, is whether additional funds could have been provided by the finance minister at this stage.
Considering that the die had already been cast by the interim budget and the finance minister had barely five weeks to prepare the regular budget after the present government was sworn in, it was never going to be easy to make any substantial change in the budget already allocated to various ministries and departments.
This is evident from the fact that in the budget presented last week, the total estimated receipt of the government has gone up by a measly sum of Rs 2,149 crore vis-à-vis the interim budget. This was the only additional income of the government that was up for grabs.
Last year (2018-19), the allocation for the armed forces was approximately Rs 1.12 lakh crore less than what they had demanded. Assuming that this year the gap would be half of that, it would still be more than Rs 55,000 crore. So, even if the entire additional income of Rs 2,149 crore were to be passed on to defence, it would have been just a drop in the ocean.
The finance minister could, of course, resort to higher taxation, disinvestment and borrowing, or reduce the allocation for other schemes in order to generate more income or savings and then set aside a substantial portion of that for defence. But no one can seriously argue that it would have been pragmatic to exercise one or more of these choices to provide additional funds for defence in the regular budget.
Seen in this backdrop, it is just well that the finance minister did not make routine statements in her speech about the government’s commitment to defence and security of the nation and its willingness to make additional funds available for the armed forces, if required. There is no point making promises that ring hollow when made and difficult to keep when the time comes.
It is also just as well that she did not announce setting up of the long-talked-about non-lapsable fund for modernisation of the armed forces, which she is known to have been supportive of when she was the defence minister. The practicality and utility of setting up such a fund is questionable, notwithstanding the fact that even the standing committee on defence (SCoD) has been supporting the idea.
The crux of the matter is that the funds have to be raised by the finance ministry through one or more of the means mentioned above, regardless of whether these are made available via a non-lapsable modernisation fund or out of the budget outlay for the year in which these are required by the armed forces.
Bemoaning inadequacy of the budget outlay for defence is of no help. Serious efforts have to be made to figure out how the level of defence funding can be raised in a sustainable manner without causing an adverse impact on the funding for health, education, agriculture, infrastructure development, and other social sector schemes. While everyone talks about the need to raise the defence budget no one seems to have a clue as to how this can be done.
Successive finance ministers have avoided taking the issue head on, even in the face of repeated recommendations by SCoD to peg the defence budget at three per cent of the GDP. Since the budget speech was largely devoted to laying out the government’s vision for the future, it would have been nice had the finance minister announced setting up of a task force of defence economists to suggest how the defence outlay could be increased to meet the expectations of the defence establishment.
It would also have been nice if in her speech the finance minister were to give an account of the outcome of several measures announced in the past five years: Constitution of the defence planning committee, commencement of the industrial corridor project, unrolling of the defence technology fund, setting up of an investor cell, promulgation of the strategic partnership scheme, and several Make in India projects, just to mention a few.
That she did not mention any of this in her speech needs to be taken in its stride, though. The most pragmatic thing to do at this stage would be to quickly reformulate the modernisation roadmap for the next five years making sure that it conforms to the likely availability of funds. This has happened but rarely in the past.
Even as recently as in July 2017, the armed forces had sought Rs 27 lakh crore over the next five years. This would have required defence budget to be more than doubled. No serious discussion ensued to figure out how this feat could be achieved, or if it could not be achieved, what would be the best alternative.
It is time to get real and work according to a financially viable plan, which recognises that money is going to be the biggest challenge till the experts find a solution to the problem or India’s economy hits the $5-trillion mark and starts yielding higher receipts for the government.
The writer, former financial advisor (Acquisition), Ministry of Defence, is a distinguished fellow with the Institute for Defence Studies and Analyses