Detailed Analysis of The Defence Budget 2018-19

This year Rs 4,04,365 crore allocated for the Ministry of Defence (MoD) out of which Rs 2,79,305 crore is earmarked for India’s defence budget and the balance was distributed between MoD (Miscellaneous) (Rs 16,206 crore) and Defence Pensions (Rs 1,08,853 crore).

The growth in the defence budget and in the MoD’s overall allocation has been driven by manpower cost, a feature that has been seen in the past several years, particularly after the implementation of the One Rank One Pension (OROP) and the 7th Central Pay Commission (CPC) recommendations. The manpower cost driven growth in defence resources has led to an undesirable situation for both military modernisation and operational preparedness in India.

The overall increase in the defence allocations or the Budget Estimate (BE) for 2018-19 has been 7.7 per cent. However, the growth declines to six per cent in comparison to the Revised Estimate (RE) of the previous financial year. However, it is due to an increase in revenue expenditure, while the capital expenditure remains exactly the same. It is also important to note that of the total increases in the revised revenue expenditure, nearly 79 per cent is due to the increase in the pay and allowances (P&A) of the three armed forces. It is also the same P&A that accounts for 70 per cent in the total revenue expenditure and 44 per cent of the overall defence budget in 2018-19.

 Figure 1: Defence Budget Allocations for 2017-18 and 2018-19

Revenue                       Capital Expenditure
Expenditure (Rs in Crore) Total (Rs in Crore)
2017-18 (BE) 1,72,774 86,488 2,59,262
2017-18 (RE) 1,76,516 86,488 2,63,004
2018-19 (BE) 1,85,323 93,982 2,79,305

The 7.7 per cent hike in the defence budget and the 12.4 per cent growth in MoD’s total allocation in 2018-19 have affected the key defence parameters in many ways. Among all the parameters, defence pension, which caters to roughly 2.5 million pensioners, including some 5,62,000 defence civilian pensioners, has seen the highest growth, also it is the biggest contributor to the growth in MoD’s overall allocation. However the share of the defence budget in both GDP and CGE have declined. So far as the defence budget-GDP ratio is concerned, the latest ratio of 1.49 per cent is, in fact, the second lowest since 1950.

The capital expenditure as a percentage of the total defence budget of 2018-19 has increased, it has not been increased enough to correct the imbalance seen in the revenue-capital mix during the last several years. As can be seen in figure 1, the present share of capital expenditure is still six percentage points lower than it was in 2011-12. The capital expenditure actually needs an extra allocation of Rs 29,560 crore, which, at the moment, seems next to impossible.

And among the defence services, the Army has the largest share in the defence budget 2018-19. The Indian Air Force comes at second, followed by the Navy, the Defence Research and Development Organisation (DRDO), and the Ordnance Factories (OFs).

The Army’s increased share is because of its enormous numbers of personnel. It accounts for over 85 per cent of the total manpower in the armed forces and is responsible for 69 per cent of the total revenue expenditure earmarked. Its pay and allowance alone accounts for 70 per cent of its total revenue expenditure and 58 per cent of its total budget.

Figure 2. Share of Defence Services in Defence Budget 2018-19

It can be conclude that the overall allocation for 2018-19 has not only grown marginally over the previous outlays but also is almost fully utilized at the revised estimate stage. It is, however, not yet clear that if the full utilization of the previous allocation is due to the efficiency of the procurement machinery or because the allocation was barely enough to meet all the committed liabilities. It is true that because of the resource crunch, the total allocation under the modernisation budget has been consistently less than even the projected committed liabilities.

Sources  IDSA  Press Information Bureau PRS India Ministry of Defence Wikipedia (References)

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