Defence budget may be slashed by 40%, may save Centre Rs 80,000 crore

Military spending, minus the payroll, would probably be cut by at least 20 per cent from the allocations for the financial year 2020-21 and possibly by as much as 40 per cent, said a senior Ministry of Defence (MoD) official on Tuesday.

Cutting 20 per cent would save the exchequer about Rs 40,000 crore, while the deeper 40 per cent cut would save as much as Rs 80,000 crore.

Addressing an audience of defence analysts in Delhi, the MoD official confirmed reports that the government had ordered the military to limit its first quarter (April-June) spending to 15-20 per cent of the entire year's budget. She predicted the same cut would be extended to the next three quarters as well.

The official said the Ministry of Finance (MoF) sent a memorandum to other ministries and departments, ordering an expenditure ceiling of 20 per cent on the military and a spending limit of 15 per cent on civilian ministries.

The spending cap did not apply to defence salaries. In a later communication, the MoF also removed spending limits on defence pensions and the veterans' health scheme.

With this year's salary and pension bill of Rs 276,117 crore exempted from the 20 per cent spending limit, the ceiling is applicable only to the rest of the defence budget — or Rs 195,261 crore out of the overall Rs 471,378 crore. By the end of the fourth quarter, the 20 per cent cut would save Rs 39,052 crore.

The official said a contraction in the Gross Domestic Produce (GDP) could not be ruled out, in which case the spending limit for each quarter might be reduced further – from 20 per cent of the annual allocation to just 15 per cent. That would result in the military under-spending about Rs 80,000 crore over the financial year.

Making the three services' financial situation even tighter is what the official termed a “carry-forward Rs 40,000-crore liability in the revenue and capital budgets”. That is from bills unpaid in previous years, which must be paid this year.

The official ascribed the major spending cuts to a “major rejig of the government's spending priorities” as a result of the Covid-19 pandemic. “The government has been allocating only 0.3 per cent of GDP for expenditure on health. If more has to be spent on health, on agriculture and on reviving the economy, lower priority sectors like defence will have to take a hit,” she said.

On a day when the authoritative Stockholm International Peace Research Institute named India the world's third largest defence spender, the official stressed that overseas procurement of foreign weaponry would have to make way for indigenous equipment to boost the local defence industry.

“We need to defer weapons imports so that we push money into our own economy, not into other countries' economies. The import contracts we have already signed can be discharged, but new contracts must be with domestic producers,” said the
MoD official. The official also underlined the need to cut expenditure by prioritisation and by synergising between the three services — a job that must be done by the chief of defence staff (CDS). “Each service has its own separate training institutions. Each unit has its own officers' mess. In the same station you will have 20 messes. We need to avoid duplication of resources and activities,” she said.

Confirming what Business Standard reported on April 25 (“Armed forces told to take optimisation measures amid Covid-19 crisis”), the official revealed that the CDS has already made out and disseminated expenditure reduction proposals and asked the three service chiefs to revert to him with their own proposals.

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