Modest hike in defence budget, pensions see sharp rise

This year’s defence allocation accounts for 12.1% of the total Central Government expenditure

A file photo of Rafale aircraft.

The allocation for defence in this year’s Budget saw a modest hike at ₹2.95 lakh crore, excluding pensions, raising questions if any major new acquisitions can be made this year.

Meanwhile, defence pensions have for the first time crossed the ₹1,00,000 crore mark and even surpassed the quantum of capital allocation.

Compared to 2017-18, this year’s allocation represents a 7.81% increase over the Budget estimate of ₹2.74 lakh crore and 5.91% increase over the revised estimate of ₹2.79 lakh crore.

“A number of initiatives have been taken to develop and nurture intrinsic defence production capability to make the nation self-reliant for meeting our defence needs. Ensuring adequate budgetary support will be our priority,” Finance Minister Arun Jaitley said in his Budget speech.

Of the overall allocation, ₹1,95,947 crore was the revenue component while ₹99,563 crore was the capital allocation. The allocation for defence pensions was ₹1,08,853 crore, which is 14.26% higher than the revised estimates of last year at ₹95,000 crore, far outweighing the growth in defence outlay.

This year’s defence allocation accounts for 12.1% of the total Central government expenditure.

Capital allocation

In the capital allocation, a majority of it would go for committed liabilities, which is payments for contracts that have already been signed. This would leave very little for fresh procurements.

For instance, for the Navy, the allocation in Budget estimate for 2017-18 under capital head was ₹18,603.71 crore, which includes committed liabilities for capital acquisition amounting to ₹14,004.76 crore. This meant there was just about ₹4,599 crore.

For the Air Force, the allocation in Budget estimate 2017-18 under Capital Budget was ₹33,570.17 crore, which includes committed liabilities for capital acquisition amounting to ₹26,899.90 crore and an amount of ₹4000.00 crore has been kept for new schemes.

Some of the major deals for which payments are being made are the 36 Rafale fighters, six C-130J transport aircraft, AH-64 attack helicopters, CH-47 Chinook heavy left helicopters, M-777 Ultra-Light Howitzers among others.

In addition, the Navy and Air Force have lined up multi-billion defence deals for procurement of submarines, single-engine fighter aircraft and hundreds of helicopters among others to be procured under the strategic partnership policy. The procurement process is at the initial stages.

Mixed response

The industry gave a mixed response to the Budget. While welcoming the establishment of defence industrial corridors, there was scepticism on how new procurements can be made with very little funds left.

Kabir Bogra, Partner at Khaitan & Co. called the budget a mixed bag for the defence sector. “The increase of spending by about 8% to ₹2,95,511 crore implies that the focus continues to remain in addressing existing revenue expenditure requirements rather than allocation of capital for acquisition of new equipment. The modernisation process seems to have taken a backseat this year,” he said.

In a departure from practice, Mr. Jaitley did not announce the budgetary allocation for defence in his speech. Instead, he only made a brief reference to the government’s emphasis on defence modernisations and push for domestic manufacturing.