Old tricks, New Year

The Indian ministry of defence continues to route capital allocations for revenue expenses.

Manu Pubby reports in the Indian Express earlier this week that the Indian ministry of defence may divert about Rs. 6,500 crore from the capital budget of the armed forces towards revenue expenses.

While the ministry has spent over 80 percent of the capital budget of Rs. 86,740 crore allotted this financial year for purchase of new equipment, it is seeing a shortfall in revenue expenditure from the estimated Rs. 1.2 lakh crore.

Sources say that the shortfall is mainly due to unexpected rise in fuel costs that led to rationalisation of equipment usage and exercises this year. As the armed forces are one of the largest consumers of fossil fuel, the hike in global prices coupled with exchange rate variation resulted in a huge hike in government expenditure. Also, the government announced new measures this financial year for increased pensions that put an additional burden on expenditure.

[Full article: Budget hike turned down, MoD to juggle capital funds, Indian Express, January 12, 2014]

On the face of it, this makes a lot of sense – the fall of the rupee a few months ago hurt both the public and private sectors in India significantly and coupled with the global fuel prices it served as a shock that the country is recovering from.

However, this is not the first year that revenue expenses have eaten into the defence modernisation (capital) budget. As I’d written in Pragati last September, this has been routinely happening, especially in the army budget.

DefenceSpending1

Full Infographic: Understanding India’s Defence Spending

The defence ministry should not be having recurring difficulty in accurately estimating its revenue expenses for the year, especially salaries, pensions and fuel. Also, the demand for grants that most ministries submit to the finance ministry are usually 5-10 percent higher than allocations they end up receiving for the budget. The army’s low capital-to-revenue cannot further be weakened every year. And going for perilously expensive ventures like the proposed mountain strike corps which can worsen the situation.

With the defence of the realm at stake, we need better defence planning that is more robust in estimating spending.

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9 Responses to Old tricks, New Year

  1. Ajai Shukla January 19, 2014 at 1:59 PM #

    The graphic seems to have erroneously interchanged “Revenue” with “Capital”. The lower percentage is capital, not revenue!

    • Pavan Srinath January 20, 2014 at 10:11 PM #

      Ah, thanks for the catch! Have now rectified the same.