India’s Defence Budget 2017-18: An Analysis
(Source: Institute for Defence Studies and Analyses; issued Feb 03, 2017)

By Laxman K Behera
While presenting the Union Budget 2017-18 on February 01, 2017, the Finance Minister (FM), Arun Jaitley, allocated Rs. 3,59,854 crore (US$ 53.5 billion) to the Ministry of Defence (MoD). As in his previous budget, the FM also made certain changes in the format of the defence Demand for Grants (under which defence money is distributed among the armed forces and other defence agencies), bringing further complexity to the task of estimating the various heads that make up India’s official defence budget.

The complexity apart, the bigger question that faces the defence community is whether the latest allocation is adequate to meet the security needs of the country. This Issue Brief examines the latest defence allocation in the light of its possible impact on modernisation and operational preparedness of the defence forces.

It, however, begins with a macro survey of Indian economy and the context of the Union Budget, both of which have a direct bearing on defence.

Macroeconomic Scenario and the Context of the Union Budget 2017-18

Despite a gloomy global economic environment, the Indian economy continues to a bright spot, with the initial estimates of the Gross Domestic Product (GDP) showing a growth of over seven per cent per annum for three consecutive years between 2014-15 and 2016-17. The growth momentum is likely to be sustained at around 6.75-7.5 per cent in 2017-18, as projected by the latest Economic Survey.

Besides the GDP growth, the economy has also witnessed other robust macro-economic indices pertaining to inflation, fiscal consolidation, current account deficit, rupee-dollar exchange rate, foreign exchange reserves and foreign investment inflows.

The impressive macro fundamentals notwithstanding, the Indian economy is widely perceived to be growing at much slower than its growth potential of 8-10 per cent. There is a growing concern that the sluggish recovery of world economy and recent anti-globalisation tendencies seen in the West could affect India’s effort to push for an export-led economic development. Back home, the subdued corporate investment and depressing private final consumption expenditure are major markers of concern which, if left unaddressed, would likely halt the growth momentum.

It is in this context that the Union Budget has focussed on a government-led investment approach to spur the domestic economy. Investment on infrastructure, rural economy and the like have been the primary focus of the Union Budget 2017-18. The emphasis on these sectors is such that the government has deviated from its promised fiscal consolidation path to provide extra resources on these fronts. More significantly, the deviation has come even after a hefty 17 per cent growth in the estimated gross tax receipts. From the MoD’s point of view, however, the Union Budget 2017-18 is a missed opportunity as neither the fiscal expansion nor the revenue buoyancy has resulted in a significant hike of resources.

Defence Budget: Reconciling the Figures

While presenting the Union Budget to the Parliament, the FM stated that “[f]or Defence expenditure excluding pensions, I have provided a sum of Rs. 2,74,114 crores including Rs. 86,488 crores for Defence capital.” The FM’s overall stated figure of Rs. 2,74,114 is, however, not what the defence ministry considers as India’s official defence budget. 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. (end of excerpt)


Click here for the full report (10 PDF pages, with tables) in the IDSA website.

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