Tag Archives | Capital budget

In Pragati: Spending for a Modern Armed Force

I write in Pragati–The Indian National Interest Review along with Rohan Joshi on the sorry state of defence modernisation in India:

As Ajai Shukla highlighted in February, only 4 percent of the 2013-14 capital budget is allocated for new acquisitions, down from 38 percent in 2010-11. The interim defence budget announced in February 2014 appears to do little to alleviate this systemic decline. Although a 10 percent increase in the defence budget was announced, there was only a paltry 3 percent increase in capital outlay, with revenue expenses garnering a large part of the increase. What little money will go towards defence modernisation from the overall capital outlay is as of yet unknown.

In the context of the budget, Mr Antony’s admission that there was no money left for the MMRCA deal in FY 2012-13 is surprising. Capital allocation for the IAF was increased in FY 2012-13 by 22 percent, conceivably in order to account for the first installment of Rs. 10,000 crore due to be paid to Dassault after the deal was to be signed in FY 2013.  If we are told that the IAF has spent all but 3 percent of its allocated capital acquisitions budget for FY 2013, where has the rest of the money gone?  The interim budget for FY 2014 has decreased the IAF’s capital allocation budget by about 15 percent (over FY 2013 beginning estimates) to Rs. 31,818 crore.  Worse, if the worrying trend of committed liabilities accounting for 95 percent of the capital acquisition budget lingers, this effectively means that the MMRCA deal cannot be concluded in FY 2014-15 either.
[Full Article: Spending for a modern armed force, March 14, 2014]

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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.

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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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