Indian Defence Budget 2021-22 – Is it Enough?

The total defence budget for 2021-22 saw only a marginal hike of around 1.4 percent. But the good news was that the Capital budget for modernisation jumped by nearly a 19 percent raise. Interestingly the figures released showed that an unbudgeted Rs 20,776 crore was additionally spent to buy military hardware to immediately beef up military requirements in view of the skirmishes and face with China in Ladakh.

2021-22 Defence Allocation

The total allocation for the Ministry of Defence (MoD) ministry now is Rs 4.78 lakh crore compared to Rs 4.71 lakh Crore (US$ 64.5 Billion) in the 2020-21 budget. This allocation includes all expenditures of the MoD. It also covers the pay and pensions of all military personnel and civilians, including DRDO and ordnance factories. The Defence budget comes to around 1.63 per cent of the GDP. The budget can be further broken down to Defence Services Revenue at Rs 2,12,027.56 Crore (US$ 29.05 billion); Defence Services Capital Outlay at Rs 1,35,060.72 Crore (US$ 18.5 Billion); MoD Civilians Revenue at Rs 10,083.93 Crore (US$ 1.38 Billion); MoD Civilians Capital Rs 5,173.41 Crore (US$ 0.7 Billion); and Defence Pensions at Rs 1,15,850 Crore (US$ 15.87 Billion). The real defence expenditure also referred to as defence estimates, includes only the Capital and Revenue expenditures of the Armed Forces, and this amount is Rs 3,47,088.28 Crore (US$ 47.55 Billion). This amount is just 1.21 per cent of the GDP.

Defence Capital Budget

The Capital budget had gone up from the Revised Estimate for 2020-21 of Rs 1,34,510 crore as against last year’s budgetary allocation of Rs 1,13,734 crore. Nearly Rs 20,000 Crore additional Capital at been released in the middle of the year for sudden procurement of ammunition and weapons from several countries after face off with China. Capital expenditure includes purchasing new weapons, aircraft, warships and other military hardware. The capital outlay for 2021-22 is thus an increase of 18.75 percent compared to last year’s original allocation of Rs 1,13,734 Crore. The nearly 19 percent hike in the capital expenditure is the “highest ever” increase in the last 15 years.

The Army gets capital outlay of Rs 36,481 crore as against Rs 33,213 crore in 2020-21, as per the revised estimates. Navy’s capital outlay is Rs 33,253 crore against Rs 37,542 crore in the previous budget. The Indian Air Force (IAF) traditionally gets the highest capital budget as the airborne platforms and sensors are more liable to early obsolescence. Air Force capital outlay is Rs 53,214 crore. This is a drop of Rs 1,840 crore compared to the money it spent under capital expenditure in the current fiscal. The budgetary capital outlay for the IAF for 2020-21 was Rs 43,281.91 crore but the revised estimate put the figure at Rs 55,055 crore. One good decision has been that the “capital defence budget” will be non-lapsable as advised by the Finance Commission.

The capital allocation for the Defence Research and Development Organisation (DRDO) has been pegged at Rs 11,375 crore which is an increase of eight percent over the amount earmarked in 2020-21. The allocation for Border Roads Organisation (BRO) has been increased to Rs 6,004 crore which is 7.48 percent more than the amount given in 2021-22.

Revenue Budget

The total revenue expenditure, which includes expenses on operations, training, maintenance, and salaries of serving personnel is pegged at Rs 2.12 lakh crore.

Pensions Budget

Interestingly, the outlay for defence pensions at Rs 1.15 lakh Crore has come down from last years budgeted Rs 1.33 lakh Crore in the previous budget. The drop in the pension is reportedly because last year there was an additional out go of pension arrears under OROP.

Defence Budgets and Global Ambitions

Military budgets often reflect how strongly a country perceives the likelihood of threats against it, or the amount of aggression it wishes to conjure because of its global ambitions. A military budget (or military expenditure), also known as a defence budget, is the amount of financial resources dedicated by a state to raising and maintaining armed forces or other means essential for defence purposes. The size of a budget also reflects the country’s ability to fund military activities. Factors include the size of that country’s economy, other financial demands on that entity, and the willingness of that entity’s government or people to fund such military activity. Generally excluded from military expenditures is spending on internal law enforcement and disabled veteran rehabilitation. While often military expenditure is a boost to local economies, still military expenditure is a drag on development.

China and Pakistan Defence Spending

China’s May 2020, defence budget was $178.6 billion, according to data from the Center for Strategic and International Studies. China also has a huge out of budget defence funding. Some analysts put this figure close to 35 percent. For 2018, IISS estimated Chinese defense spending to be $225 billion, while SIPRI put the number at nearly $254 billion. The official budget that year was just $167 billion. Comparing the defence budget by GDP ratios, other than China and Japan all the other major countries analysed above spend more than India despite having lesser threat. Pakistan’s budget (announced in June 2020) for 2020-21 was Rs1.289 trillion (US$ 8.1 billion) which is almost 12 per cent higher than the year before.

Is the Funding Adequate for Modernisation?

Despite Covid 19, the increase is reasonable, and most military experts expressed satisfaction at the overall allocation. Undoubtedly there is a need for further increases considering the increasing external threats, and boundary disputes with two nuclear neighbours.

Military has a long delayed modernisation requirements. There are a large number of past committed liabilities like payments for Rafale, S-400, LCA variants, MH-60 Romeo helicopters, among others. The services are look forward to long delayed purchases like the medium multi-role helicopters, combat drones, aircraft carrier, tanks and howitzers, submarines, among others.

Currently, the Indian Capital budget is 28 percent of the total Defence budget. Modern armed forces spend close to 50 percent. Even manpower-intensive China spends close to 35 percent of the budget on Capital acquisitions.  This skew must be changed gradually by better manpower planning. If indiginisation has to be pushed, it will require greater R&D spend. Surely the Capital budgets still need to go up further. An amount of Rs 1,50,000 Crore would have been realistic for the current threat.

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