India’s Defence Budget Analysis 2017-18

	Revenue Expenditure (Rs. in Crore)	Capital Expenditure (Rs. in Crore)	Total (Rs. in Crore)
2015-16	145937	79958	225895
2016-17 (BE)	162759	86340	249099
2016-17 (RE)	168635	79370	248005
2017-18 (BE)	175861	86529	262390

Note: BE: Budget Estimate; RE: Revised Estimate. Figures for 2015-16 are actual expenditure. Rs. 1.0 crore = Rs. 10 million = US$ 148772 (alternatively, $1 million = Rs. 6.7 crore) as per the average exchange rate for the first 10 months of 2016-17.

An attempt is made in Table 1 to reconcile the defence-related allocations provided in the Union Budget with the traditional format used by the MoD and compare it with the previous years’ allocation and expenditure. Using the MoD format, the defence budget for 2017-18 amounts to Rs. 2,62,390 crore. The difference in amount (between FM’s and MoD’s figures) of Rs.11,724 crore is allocated under what is considered Defence (Civil Estimates) which, inclusive of defence pension of Rs. 85,740 crore, does not form part of the official defence budget.

A noticeable aspect of the Table 1 is the underutilisation of capital allocations provided in the 2016-17 budget, resulting in a surrender of Rs. 6,970 crore (8.1 per cent). The surrendered amount has largely been absorbed in the revenue expenditure which has increased from its original estimates by Rs. 5,876 crore.

Comparative Statistics of Defence Budget: 2016-17 & 2017-18

Note: *: approximate figure.

Table 2 provides comparative statistics of defence budget and related figures for 2016-17 and 2017-18. The noticeable feature of the table is the further decline in the defence budget’s share in both central government expenditure and the GDP. With a share of 1.56 per cent of the estimated GDP of 2017-18, the defence budget is the lowest since 1956-57.

The increase is primarily due to the hike in the manpower cost of the armed forces, which accounts for over 83 per cent (or Rs. 11,071 crore) of the overall growth of Rs. 13,291 crore in the defence budget. It is significant to note that the manpower driven defence budget is not unique to 2017-18. In the last several years, it has been a recurring feature with a debilitating effect on two vital elements of the defence budget: revenue stores and capital modernization which together play a vital role in the operational preparedness of the armed forces.

As Figure 1 succinctly illustrates, the combined share of these two elements has declined from 55 per cent in 2007-08 to 40 per cent in 2016-17. This does not augur well, especially when there exists a huge void in India’ defence preparedness, and the armed forces have grave shortages in many areas ranging from ammunition, assault rifles, bullet-proof jackets, night fighting-devices to howitzers, missiles, helicopters, fighters and warships. Needless to say, for adequate defence preparedness, the present ratio needs to change for the better, for which allocation under revenue stores and capital modernisation needs to be augmented substantially.

 Among the defence services, the Indian Army with a budget of Rs. 1,49,369 crore accounts for the biggest share in defence budget, followed by the Air Force, Navy, Defence Research and Development Organisation (DRDO) and Ordnance Factories (OFs) (Figure 2).

The lion’s share for the Army is primarily because of its overwhelmingly numerical superiority over the sister services. Accounting for over 85 per cent of the uniformed personnel, bulk of the Army’s budget goes into meeting the pay and allowances of the personnel. In 2017-18, only 17 per cent of Army’s total allocation has been earmarked for capital expenditure. The comparative figures for the Air Force and Navy are 58 per cent and 51 per cent, respectively.

Tables 3-6 provide the modernisation budget (or the capital procurement budget) of the three forces. As can be seen, the overall allocation in the 2017-18 budget has declined, although marginally, over the previous allocation. Among the three forces, Air Force is the only service whose modernisation budget has increased whereas both the Army and Navy have witnessed a decline in their respective budgets. The increase in the Air Force’s budget is in view of its signing several mega contracts, including for the Rafale fighters, and Apache attack and Chinook heavy lift helicopters.

Note: *: Figures for army are approximate