Defence Budget needs restructuring to facilitate modernisation of forces
by Ashok B Sharma on 02 Aug 2014 1 Comment

Defence is a critical area the country needs to address with a clear defined policy and sense of urgency. Modernisation of Armed Forces is the need of the hour in the face of contemporary challenges; it can be speeded up through public-private partnership. Appropriate technology flow should be ensured by inviting foreign direct investment (FDI) and co-production. The government has begun realising this, but more action is needed in the right direction.


The focus should also be to encourage domestic technology and indigenous production. On the whole, the Armed Forces should be equipped with state-of-the-art technologies. To achieve the goal in a time bound manner, adequate allocations must be made and earmarked funds spent accordingly.


A lot is being said about the Defence Budget being raised by Rs 5,000 crore over the interim Budget, with now stands at Rs 229,000 crore, a hike of 12.43% over the previous year’s revised estimate. This is the highest year-on-year hike since 2005-06, excepting the back-to-back increase of about 25% in 2008-09 and 2009-10 necessitated by the Sixth Pay Commission.


But the allocation and expenditure of the defence sector need to be looked at as percentages of the GDP and total government expenditure. A cursory look at the Defence Budgets in the past shows that the defence expenditure has fallen from 2.24% of GDP in 1997-98 to 1.79% of GDP in 2013-14 and to 1.78% of GDP proposed in 2014-15. Similarly defence expenditure as a percentage of the Central Government’s total expenditure has fallen from 15.24% in 2004-05 to 12.76% budgeted expense in the year 2014-15.


However, stressing the need for modernisation, Finance Minister Arun Jaitley said: “Modernisation of the Armed forces is critical to enable them to play their role effectively in the defence of India’s strategic interests. I, therefore, propose to increase the capital outlay for Defence by Rs 5000 crore over the amount provided for in the interim Budget. This includes a sum of Rs 1000 crore for accelerating the development of the Railway system in the border areas. Urgent steps would be taken to streamline the procurement process to make it speedy and more efficient.”


Does the finance minister actually want to hasten the pace of modernisation by this hike by Rs 5000 crore over the interim Budget? He has already admitted that out of this sum, Rs 1000 crore is for accelerating the railway system in border areas. Out of the remaining Rs 4000 crore, the Defence Research and Development Organisation (DRDO) has been allocated Rs 3,323 crore and the Ordinance Factories Rs 677 crore. This will help both the DRDO and the Ordinance Factories to hasten the process of indigenisation and developing new technologies. Thus, this additional allocation of Rs 5000 crore is not intended for the purchase of the state-of-the-art platforms and big ticket items from abroad, which are in the pipeline.


The finance minister has acknowledged the role of small and medium sized enterprises (SMEs) in defence production. He has proposed setting up of a Technology Development Fund with an initial corpus of meagre Rs 100 crore. Apart from SMEs this fund will assist both the private and public sector companies.


The finance minister has made a new inclusion in the Defence Budget by setting aside Rs 1000 crore for accelerating the railway system in the border areas, which should have been reflected in the Railway Budget as allocation for the Border Roads Organisation (BRO) forms part of the Demand for Grant of the Ministry of Road Transport and Highways. BRO is administratively controlled by the Border Roads Development Board under the Ministry of Defence, but allocation for border roads do not form the part of the Defence Budget. If it is the intention of Mr Jaitley to bring the railway network in border areas under the Defence Budget, he should have done the same for border roads also.


In the budget for the Ministry of Road Transport and Highways, the allocation for works to be executed by BRDB has been pegged at Rs 3,226.44 crore. In the previous year Rs 3,387.12 crore was allocated, but only 2,882.76 crore spent for development of border roads.


While presenting the Railway Budget, Minister DV Sadananda Gowda mentioned enhancing rail connectivity to remote areas and raised the outlay for projects in North-East India by 54% to Rs 5,116 crore. However, many rail projects for remote and border areas announced earlier are yet to be completed.


In the budget for the Home Ministry, Mr Jaitley allocated Rs 2,250 crore for modernising border infrastructure and Rs 990 crore for socio-economic development of the villages along the borders. A sum of Rs 150 crore has been ear marked for construction of Marine Police Stations, jettis and for purchase of boats. It would be better if all infrastructure development in border areas including roads and railways are brought under one administration with provision for time-bound implementation and monitoring.


There is no clearly defined comprehensive policy or strategy for time-bound modernisation of the Armed Forces, and no mechanism to monitor the modernisation programmes. Consequently it is left to the Services to chalk out their own modernisation plans, which is often equated with capital acquisition. “Modernisation” Budget is actually a notional subset of the capital budget which the Ministry of Defence presents as a separate Detailed Demand for Grant (DDG). There is no distinct modernisation or capital acquisition budget head in the DDG for capital outlay for the defence services under which funds are provided exclusively for modernisation. Over the years there is no consistency in classification of items intended for modernisation. There should be explanatory notes to the Budget heads to clearly state that it is intended for modernisation.


It is not just increase in allocation that can aid modernisation, but the ability to spend the amount allocated. In the previous year Rs 86,740.71 crore was allocated to the Defence Services on capital account, out of which only Rs 78,872.23 crore was spent. However, this year the total capital budget for Defence Services has been fixed at Rs 94,587.95 crore. Last year there was an over spending from revenue account of Defence Services pushing it to Rs 124,799.89 crore from the original estimate of Rs 116,931.41 crore. This year the revenue account is fixed at Rs 134,412.05 crore.  


It now depends on Finance Minister Arun Jaitley, who is also the country’s Defence Minister, to restructure the Defence Budget in the next year to boost the pace of modernisation and indigenisation of the defence industry.  

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