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Marginal rise in defence Budget

Record underspend on equipment modernisation; lack of clarity on implementing One rank, One pension scheme

Business Standard 

Underlining the National Dem-ocratic Alliance (NDA) government's focus on job creation and development, the finance minister on Saturday allocated Rs 2,46,727 crore ($40 billion) towards the defence for 2015-16, a rise of 10.95 per cent over the revised estimates for the previous year.

At 1.75 per cent of the estimated GDP for the coming year, this continues a steady decline over the last two years. In percentage terms, this allocation approximates those made in the lead up to 1962. Even this modest rise was possible because the government failed to spend Rs 2,29,000 crore that it had allocated for 2014-15. The revised estimates of Rs 2,22,370 crore for the current year indicate the defence remained underspent by Rs 6,630 crore..

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That spending shortfall came entirely in the crucial capital procurement head, where the defence ministry spent only Rs 81,965 crore of the current year's capital allocation of Rs 94,588 crore - a shortfall of Rs 12,623 crore.

Besides the Rs 6,630 crore that will be returned unspent from the capital head, the defence ministry transferred another Rs 6,000 crore from the capital to the revenue head. (SPENDING AT 1962 LEVELS)

This record underspend on equipment modernisation comes after Defence Minister Manohar Parrikar twice claimed before the media that sticking to procurement targets was "his specialty".

The coming year's capital is Rs 94,588 crore, coincidentally the same figure as last year's capital allocation. The revenue Budget, meanwhile, has gone up from Rs 1,34,412 to Rs 1,52,139 - a rise of Rs 17,727 crore, or 13 per cent.

Defence: All guns blazing

Among the three services, the air force has been allocated the lion's share of the capital Budget - Rs 31,481 crore, compared to the navy's Rs 23,910 crore and the army's Rs 21,574 crore. Even so, the air force allocation remains stagnant, indicating the government has not budgeted for buying the Rafale medium fighter, which would have required about Rs 15,000 crore as the signing amount.

Interestingly, the allocation for defence pensions has risen by Rs 4,500 crore to Rs 54,500 crore for the coming year. It remains unclear how the government will implement the One rank, One pension (OROP) scheme that the defence ministry sanctioned last week. OROP has been variously estimated to require Rs 8-12,000 crore to implement. The army, which has been allocated over 50 per cent of the overall defence Budget, remains the smallest spender on equipment modernisation. Its salary Budget has risen from 68,871 crore to Rs 74,119 crore, almost 60 per cent of its overall Rs 1,25,733 crore allocation.

In contrast, the navy will spend Rs 23,910 crore on new equipment, a healthy 60 per cent of its overall Rs 39,436 crore allocation. The air force enjoys a similar ratio, spending Rs 31,481 crore on modernisation out of an overall allocation of Rs 54,481 crore.

An interesting feature of the Budget that suggests the defence ministry intends to push indigenous equipment projects is the allocation of Rs 144 crore for "Make procedure" projects. Under this, indigenous industry-led consortia develop cutting-edge defence equipment with the MoD paying 80 per cent of the development costs. During the current year, a mere Rs 50 lakh had been allocated under this head.

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First Published: Sun, March 01 2015. 00:37 IST