For defence expenditure excluding pensions, the budget has provided a sum of Rs.2,74,114 crore including Rs.86,488 crore for defence capital.
What are the implications for defence expenditure?
The budget estimate of defence pensions this year is Rs.86,000 crore i.e 1.6% of GDP - a drop from last year’s low of 1.74% of GDP.
When the defence pensions is included, the overall defence budget amounts to Rs.3.59 trillion, or 2.1% of gross domestic product (GDP).
There is a nominal increase of 10% in the capital acquisitions.
But this is a net reduction in capital spending once you account for inflation and slashed expenditures in the revised estimate.
Around90% of the expenditure is allocated to paying off instalments of money for past purchases of Sukhoi fighter craft, aircraft carrier Vikramaditya, transport planes like the C130J Super Hercules and more.
The available budget for future acquisitions will only be about Rs10,000 crore.
Outside of the budget, the government has done a fine job in liberalizing foreign direct investment (FDI) in defence, allowing up to 100% foreign ownership, with any FDI up to 49% foreign ownership under the automatic route.
This move was long overdue and a necessary step in providing competition to a moribund public defence production sector and avoiding an excessively high defence import bill.
But with barely Rs10,000 crore allocated towards new capital acquisitions, Make-in-India-Defence might remain a slogan and nothing more.
What reforms can be done?
The Indian Armed Forces (especially the Indian Army) is too person-heavy and needs some force rationalization.
Even China decided to reduce its troop size by 300,000 people in 2015.
Apart from this, the defence ministry needs to urgently follow the railway ministry in adopting accrual accounting.
It is evident that the true pension liabilities of the Indian Armed Forces are unknown.
Therefore the Armed Forces need a good calculation of their assets and liabilities to be prepared for future conflict.
