Thursday, 2 February 2017

Govt refuses to bite the bullet: Rs 7,000 crore of capital budget underspent, level flat since 2013-14

Finance Minister Arun Jaitley outside parliament with the customary briefcase holding the budget speech he will soon deliver

By Ajai Shukla
Business Standard, 2nd Feb 17

On the face of it, the government has hiked defence allocations by Rs 14,748 crore, with the current year’s revised estimates (RE) of Rs 345,106 crore enhanced to Rs 359,854 crore in the coming year. That modest rise of 3.5 per cent is well below the inflation level.

Inclusive of pension, the defence budget accounts for 16.8 per cent of government spending in 2017-18, which will be 2.14 per cent of the Gross Domestic Product. This figure is down from 17.1 per cent of spending and 2.29 per cent of GDP this year.

The drop comes despite the significantly increased salary outgo expected in the coming year, once the recommendations of the 7th Central Pay Commission are implemented. Added to the increased pension bill triggered last year by the implementation of the One Rank, One Pension formula, the 1.6 million-strong military’s manpower bill will account for over half the defence allocation.

As has become the norm over the last 15 years, the capital budget --- which pays for new equipment and force modernisation --- has been dressed up for the budget party. While apparently increased by Rs 7,281 crore, from Rs 79,207 crore this year to Rs 86,488 crore in 2017-18, about a nine per cent hike, this has been achieved by under-spending the current year’s capital allocation.

The Rs 86,189 crore capital budget allocation this year, is scaled down in the revised estimates to Rs 79,207 crore, which means the defence ministry has underspent its equipment modernisation budget by almost Rs 7,000 crore, some 8 per cent of its allocation.

Defence allocations from 2015-16


2015-16 (Actual)
2016-17
(BE)
2016-17 (RE)
2017-18 (BE)





Ministry of Defence (MoD)*
11828
13060
15612
14852





Revenue budget (Army)**
100175
110314
114935
121027
Revenue budget (Navy)
14992
17425
17814
18494
Revenue budget (IAF)
21021
23656
23817
24803





Capital spend (Army)
20602
26791
23709
25175
Capital spend (Navy)
19875
22000
19596
19348
Capital spend (IAF)
31198
29795
28210
33556
Total Capital Budget^^
79846
86189
79207
86488





Ordnance Factory Board (revenue)
422
1218
1432
1184
DRDO (revenue)
5798
6728
6663
7266





Pensions
60238
82332
85626
85740





Total defence allocation
294320
340922
345106
359854





Total government spending
1790783
1978060
2014407
2146735
Share of government spend
16.4%
17.2%
17.1%
16.8%





Total GDP
13675331
15065010
15075429
16847455





Share of GDP
2.15%
2.26%
2.29%
2.14%

*    Includes budget for Border Roads Organisation, Coast Guard
**  Includes budget for Rashtriya Rifles and National Cadet Corps
^^  Includes capital allocation for DRDO and Ordnance Factory Board (OFB)

The preceding year, 2015-16, was even more worrying, with the defence ministry under-spending Rs 13,188 crore from its capital budget, almost 14 per cent of the year’s allocation.

There is little to suggest that this year’s allocation will be fully spent. With financial sanctions for procurement controlled by civilian bureaucrats in the defence and finance ministries, the military’s procurement officers openly complain that, towards the end of each financial year, the bureaucrats place an informal block on most procurements, causing the earmarked funds to lapse on March 31.

After the Bharatiya Janata Party (BJP) manifesto promised to expedite procurements, the military hoped this might change. However, the reverse has happened. Compared to the Rs 79,128 crore spent on capital procurements in 2013-14, the last year of the United Progressive Alliance government, the National Democratic Alliance spent Rs 80,884 crore in 2014-15; Rs 79,846 crore in 2015-16; and Rs 79,207 crore in 2016-17, according to the revised estimates.

“The capital budget has flat-lined, which is inexplicable for a country that is growing at 7 per cent. We talk of building military strength, but the reality comes home with every budget”, says a senior general, talking anonymously.

India’s fledgling defence companies, which are critically dependent on stepped up procurement, are similarly unenthused. Says Rahul Chaudhary, who heads Tata Power (Strategic Engineering Division), a company that is at the forefront of defence indigenisation: “The meagre rise in the capital outlay is inadequate for a country with active borders and a two-front threat. India is spending even less on defence that some NATO countries that face no security threats.

In contrast, micro, small and medium enterprises (MSMEs) in defence are welcoming the tax rebate of 5 per cent available to qualifying companies. “The tax rate reduction will lead to greater development of MSMEs and increased participation in defence”, says Puneet Kaura, chief of Samtel Avionics.

While the 1.3 million-strong army faces active counter-insurgency operations and mans a hostile border round the year, its procurement allocation of Rs 25,175 crore for the coming year is significantly lower than that of the Indian Air Force (IAF), which will get Rs 33,556 crore.

Service-wise budgetary allocation

Service
Revenue
Capital
Total
Revenue-to-Capital Ratio





Army
121027
25175
146202
82 : 18
Navy
18494
19348
37842
48 : 52
Air Force
24803
33556
58359
42 : 58


The army, which only recently sign its first contract for critically needed helmets for soldiers, finds itself struggling to provide basic equipment like rifles, bulletproof jackets and helmets. Only 18 per cent of the army’s budget goes on new equipment, compared to 52 per cent of the navy’s and 58 per cent of the IAF’s budget.

The political focus, however, remains on providing sops, rather than equipment. The finance minister had nothing to say on equipment modernisation in his budget speech, mentioning instead a “Centralised Defence Travel System” that the government had set up to allow soldiers to book railway tickets on-line. With soldiers often travelling on leave without reservations, such a facility is likely to be welcomed.

================ 

9 comments:

Mahendra Singh said...

Has the Govt. given the go-ahead to the AMCA project? Have any funds been earmarked in the budget for development of prototypes?

Alok Asthana said...

Just like railway accidents can simply not be reduced without allocating extra money to Rlys specifically ( 1 lakh crore corpus over 5 years announced in this budget), life losses in army can not be reduced without a similar measure. Our chaps simply don't have a good chance- active or passive - of surviving a bullet.The only difference is that life losses in army is simply not a problem for Indians. So, the politicians don't care and nor does the army.

Anonymous said...

When money is not spent then why increase the budget?

Anonymous said...

There is no point in increasing the defence capital budget without structural improvements in the MOD. best example is the contradiction in your article itself. why increase when you are not able to spend?? this is bizarre logic. we must learn to exhaust the full capital budget and then ask for more as all finance ministers have stated that anytime more funds are required they will be allocated.
take the case of Rafale - it took 18 months to close the deal from the time PM announced it, that's the fastest we ever have done to close a large deal and that too the PM got involved!! look at the track record of this govt in the last 2.5yrs - MCMV, L&T K9, LPD, Ka-226, P-75i, carbines, sr-sams, vshorad, mmrca etc etc the list is huge and these all indicate that contracts are in limbo for years. with the present set-up you cannot predict how many deals you can close and when you will sign them and without that info, how can you even estimate the capex for the year. hence everyone takes the tried and tested route of a nominal 7-10% increase and that's about it.

victor raj said...

I always say we need a well equipped military with lesser military personnel. We need around 10 lacks military personnel. We need to reduce it immediately

Anonymous said...

Why compare apples to oranges? If there has been a RE stage every year, so will there be one this time as well. Focus on substance.

Anonymous said...

There is more bad news in the offing, the present def minister is dying to return to goa so this ministry could well be left neglected as has been the case for the last 70 years.
By the way, are you planning to cover the Aero India 2017?

Anonymous said...

There could be a couple of reasons for this
1 the rate at which deals are decided. Today it takes a long time though Rafake was double quick by previous standards. It still took 18-20 months from the time PM annouced it .
2 the increased indegina ation means more bang for buck. E.g artillery is off import list except Tracked and mountain. The assualt rifle (7.62x51) could be a local derivative of ghatak. That means import is limited to few tne thousand for anti insurgency operations.
3. Most big deals are done and are being paid for. We need to see what happens to P75I a, light helicopters and the 4 Russians ships.

Anonymous said...

It could also be the case that MOD wants to implement Shekatkar committees report and hence foresee savings which in turn would already have been factored in this years budget??