Till the mid-1980s, defence pensions were counted as part of the defence budget.
Later pensions were taken out to avoid adverse international scrutiny of burgeoning defence expenditure.
It was only re-included in the budget last year.
The Supreme Court stated that the pensions are deferred wages, and technically this means that these are payments paid for active military service rendered in the past.
Since there is no way to estimate the future pension budget of 14.7 lakh armed forces personnel currently in service, including it in the defence budget is a pragmatic way of accounting for the expenditure.
What are the features in current budget?
The total defence budget for Financial Year 2017-18 is therefore around Rs 3,60,000 crore.
Pensions apart, the salary bill for the armed forces this year would be around Rs 1,07,000 crore.
This takes up a bulk of the defence budget.
This only partially accounts for the Seventh Pay Commission recommendations, as allowances are yet to be fixed as per the new scale.
If the five core demands of the military chiefs on the anomalies of the Pay Commission are conceded by the government, the salary bill will shoot up further.
In FY2017-18, Rs 86,488.01 crore has been earmarked for capital expenditure of the defence services; and Rs 1,82,534.42 crore is for revenue expenditure.
Revenue expenditure is for operating expenses of the Defence Ministry while the bulk of the capital expenditure is for procurement of military equipment to modernise the armed forces.
As finance secretary explained to the parliamentary standing committee on defence, the Finance Ministry is not really concerned with this division of expenditure.
It only allocates the total money and leaves the revenue and capital allocations to the discretion of the ministry.
What has been for defence modernisation?
Over the years, governments have taken to making budgetary announcements with high allocation for capital acquisition to ward off any criticism about forsaking defence modernisation.
By the time revised estimates are prepared, a portion of that allocation is transferred towards revenue expenses or returned to the government.
E.g In the 2016 budget around Rs 78,ooo crore was allocated for capital expenditure at the budgetary stage, which came down to Rs 71,000 crore at the revised estimates stage.
The amount was transferred to revenue expenditure to meet the increased salary bill.
In the current defence budget of Rs 3.6 lakh crore — which is 2.14 per cent of India’s GDP — only Rs 5,000 crore is left for new defence deals.
If these defence deals are assumed to have an upfront payment of 10%, the total cost of equipment that can be bought in the coming financial year is Rs 50,000 crore.
But one single deal for 36 Rafale fighters signed last year was alone worth Rs 59,000 crore.
Therefore any expectations of greater defence modernisation in the coming year would thus be futile.
What is the way ahead?
The bureaucracy and the armed forces take a lot of flak for stalled defence procurements, but the real constraint is finding resources.
In a slowing economy with multiple competing demands, it is always a challenge for the government to find additional resources for defence.
The only other option is to rebalance and restructure the armed forces.
