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FAQs – India’s Defence Budgeting

Published Nov 26, 2019
Updated Feb 06, 2020

15th Finance Commission- Can this lead to accretion for central funds for defence?

The paucity of funding for the armed forces having been recognised the Government of India is attempting some creative solutions, one of which is to seek a restructuring of the overall pool that is available for defence and security funding with the central government. Fifteenth Finance Commission, headed by Shri N.K. Singh was tasked to review the allocations for Centre and the states.

A notification was brought out by the Ministry of Finance on 29 July, 2019 following an Order made by the President of India. By this Order, the Terms of Reference (ToR) of the 15th Finance Commission was amended and Paragraph 9A was inserted in the ToR namely: “The Commission shall also examine whether a separate mechanism for funding of defence and internal security ought to be set up, and if so, how such a mechanism could be operationalised.”

The Ministry of Defence [MoD] gave its Fund Projections for the period 2020-2025 which is also the award period of the 15th Finance Commission.

The Ministry informed the Commission about the allocated budget for MoD in comparison to the projections made. The Finance Commission assured MoD that it would take into consideration all the suggestions made that would help to increase the overall capital space of the Ministry, bring about predictability and help the Ministry in its defence preparedness. Recommendations from the Commission are now awaited.

What are the Measures suggested for accretion of budget for capital acquisitions?

One of the basic measures to enhance capital acquisitions for a developing country as India which has limited budget that can be allocated for the defence is to restructure the armed forces so as to reduce the expenditure on manpower so that the same can be offset for capital expenditure.

There is a need for rationalisation of the manpower in the armed forces which is a primary measure that can be undertaken to ensure that there can be a gradual reduction of the expenditure on revenue which is recurring in nature which can then be allocated to capital acquisitions. Capital acquisitions are having an initial expenses that can be then offset over a longer period thus this can go a long way in accretions. 

A roll on capital acquisition plan which is project based is another option that can be considered. This will ensure that specific projects are allocated a certain amount of funds so that assured acquisitions can take place. Indigenisation is another way of saving on capital acquisitions as Make in India is cheaper than imports.

How can Armed Forces sustain modernisation in the era of scarce budgetary allocations ?

There is a need for the services to prioritise the requirements based on the budgetary allocations to acquire what is required to fight a war tomorrow. This is essential as for India war is not a choice but can be forced upon by adversaries who have a belligerent posture.

Thus the needs of inducting immediate requirements is paramount as was witnessed with the requirement of inducing Spice aerial bombs immediately after the Pulwama attack by the Indian Air Force. In this inducting cheaper but weapon systems having higher payoffs could also be considered thus ensuring that the armed forces are well capable of meeting the current challenges with equanimity.

Indigenisation is another measure that can but back on capital costs as imports are invariably more expensive. Finally, the armed forces have to define what is state of the art – this should be what is available or likely to be available with the adversaries in the next five to ten years rather than with forces as from the West who are equipped modernisation.