Why in news?
Demands for increasing the defence expenditure to at least 3% of GDP has come from various quarters.
What is the current scenario?
- India’s defence expenditure currently stands at 1.49% of GDP, stated to be at its lowest ever.
- This is even lower than what it was prior to the disastrous 1962 war with China.
- But this figure of 1.49% does not include defence pensions and Defence Ministry spending.
- If both are included, the total defence expenditure rises to 2.16% of GDP.
- Data for the past decade show that this figure, too, had been falling (2.78% in 2009-10).
How relevant is GDP a metric?
- The defence expenditure is currently 16.6% of the central government expenditure (CGE).
- This has been stable in the range of 16-18% over the past decade.
- But defence expenditure as a percentage of GDP has been falling.
- This is because CGE as a percentage of GDP has come down from 16% to 13% over the past decade.
- This makes GDP, possibly, a misleading metric for fixing defence expenditure.
What are the constraints in raising the expenditure?
- Capital - Raising the defence budget to 3% of GDP would mean an increased allocation of around 23% of CGE.
- The increase would necessarily have to be on the capital side of the defence budget.
- As, salaries, pensions and other operating expenses have full fund allocation, with little scope to absorb extra funds.
- But defence capital expenditure is 33% of the government’s total capital expenditure in 2018-19.
- Raising the defence capital expenditure to the tune of the proposed 3% would increase this ratio to 85%.
- This would leave the government with very little money for other capital spending.
- Notably, it includes that for infrastructure and asset creation, outside of the procurement for the defence services.
- Import - Most defence equipment is procured from foreign countries.
- So an increased capital budget would increase the defence import bill.
- This could, in turn, add to the current account deficit.
- Tax - The existing allocation for defence for 2018-19 is 27% of the total tax revenue.
- This would shoot up to 38% if the allocation is raised to meet the target of 3% of GDP.
- This will require either an increase in the current tax rates, or a widening of the tax base.
- Logically, both of these are difficult to achieve in the short term.
- It will thus not be feasible to substantially augment government’s non-borrowing revenues.
- Allocation - So if revenue collection is not increased, defence expenditure can go up only if allocation to other heads is reduced.
- But there is already very little for education, health, police and public infrastructure.
- Notably, India is at a juncture of increasing the socio-economic expenditure manifold.
What are the concerns?
- An increasingly large share of resources is going towards human resources costs.
- This, resultantly, leaves very little for defence modernisation.
- With One Rank One Pension and the new Pay Commission, defence pensions have risen.
- This has increased from around 18% of defence spending in 2013-14 to 27% in 2018-19.
- This stands unfavourably high in comparison with total civilian pension.
- Overall, the share of manpower costs (pay and allowances, and pensions) in the total defence expenditure has increased.
- It has gone from 44% to 56% between 2011-12 and 2018-19.
- This increase has largely come at the cost of capital procurement going down from 26% to 18% of defence expenditure.
What is to be done?
- The challenge is to optimise the existing defence allocations, instead of a quantum jump in funds.
- A solution probably lies in fixing the current imbalance in the defence budget.
Source: Indian Express
