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Budget FY17; A Different Beginning

by Deba R Mohanty
Manohar Parrikar Revenue expenditure has increased by nearly R20,000 crore because of obvious reasons like 7th Pay Commission liabilities, etc. (PTI)
Allocations for national defence (Defence Budget), as part of Union Budget FY17, were pegged at Rs 2,49,099 crore—a marginal increase of less than 1.2% from last year’s Budget estimates (Rs 2,46,727 crore), but a modest increase of 9.8% from revised estimates (Rs 2,24,636 crore). Revenue expenditure rose from revised Rs 1,43,236 crore (against estimates of Rs 1,52,139 crore in FY16) to Rs 1,62,759 crore. Capital expenditure, estimated at Rs 94,588 crore last year, which was revised at Rs 81,400 crore, got a meagre increase to touch Rs 86,340 crore this year.
A preliminary comparison between this year’s Budget estimates with last year’s revised estimates (last year’s revised estimates could have a further increase or decrease, depending on accounted spending, which will be reflected in the next Budget as ‘actuals’) is mere indicative, but a trend analysis of last 10 years suggests fluctuating assessments on resources allocations. For example, revenue expenses have grown at an expected pace of about 11% per annum, but capital expenses have grown exponentially for the very simple reason that massive purchase orders of military equipment have been placed for modernisation purposes in the past few years. Revenue expenditure has increased by nearly R20,000 crore because of obvious reasons like 7th Pay Commission liabilities, etc.
This year’s Defence Budget must have surprised everybody with a lot of heartburn for armed forces, military equipment suppliers and major stakeholders. Unlike a definitive statement from the finance minister on the floor of Parliament on national defence, it has not found its location in nine stated national priorities this time. Neither has it pleased its major stakeholder—the armed forces—on aspirations of meeting capital requirements. If this is not enough, it has certainly disappointed on the R&D front as the DRDO is likely to receive less that it would have otherwise aspired. On the face of it, the Defence Budget has enough reasons for surface-level disappointment.
However, let’s look at another side, which is slowly evolving and whose implications may be far and wide in coming times. A set of four pointers is placed here for further debate.
First, defence minister Manohar Parrikar made a statement on the floor of Parliament that if pension is included in the Defence Budget, the total will account for 2.2% of GDP. Exclusion of pensions and miscellaneous expenses from Defence Budget were a part of traditional method of accounting, which pegged the Budget in a ‘narrow’ range so that the Budget would always be shown deficient despite increased allocations. Parrikar, in a single stroke, exposed inconsistencies in defence budgeting.
Second, less allocation on capital expenditure (a meagre increase from previous year’s revised estimates) is indicative of a different approach by the current government. Parrikar has not only admonished his armed force of being ‘erratic buyers’, but also instructed them to be reasonably tightened. He has argued on the floor of Parliament and elsewhere that armed forces must re-evaluate their demands and priorities. His leadership, despite private murmurs, seems absolute through such assertions.
Third, Parrikar seems to be rightfully hell-bent on reducing the defence import bill, which will slash India’s disproportionate arms import dependency. His statement on the floor of Parliament that the ministry of defence has been able to reduce import bill by R1,000 crore (from R35,000 crore in 2014-15 to R34,000 crore in 2015-16) may serve as small yet important step in this direction. His decision to remove the chief of DRDO and bifurcating multiple roles, consistent strong reminders to defence PSUs and ordnance factories are important indicators of his larger intent of bringing in substantive reforms within state-owned organisational structures.
Fourth, Parrikar argues that industrial substitution will reduce unnecessary bills. He has already stated that production and supply of fighter aircraft could be undertaken under the ‘Make in India’ project. His approved projects have a dominant indigenous component. He has instructed his forces to re-evaluate procurement proposals with an emphasis on indigenous designs. He has stated on the floor of Parliament that such efforts will save money for the country. Of course, such assertions must be translated into facts to be argued further.
This unique Defence Budget is going to be a defining one for the very simple reason that it has put brakes on conventional aspirations. It has, for the first time in the history of defence budgetary calculations, questioned the method, strived to rationalise allocations and put forth a tentative model for import substitution. In the process, it strives to put in place a relatively better transparent procurement procedure. As the next Defence Procurement Procedure (DPP) is round the corner, most aspects of Indian Defence Budget will find answers to queries raised, at least on capital acquisitions.
Parrikar, it may be right or wrong, will be judged by history for his deeds in the Indian defence sector.
The author is with Indicia Research & Advisory, Society for the Study of Peace and Conflict, New Delhi

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