13% Hike In Defence Budget After Major Overshoot In Spending

Vishal Thapar Feb 02, 2023

A 13 per cent increase in the budgetary allocation for Defence for 2023-24 underscores the emphasis to sharpen India’s battle readiness in the face of the continuing border stand-off with China. It also reflects a continuity in the steady commitment to the build-up of military capacity through the process of modernization.

This follows a major overshoot in Defence spend over the allocated budget in the current year. When compared to revised estimates of spending for 2022-23, the increase in the Defence allocation is a modest 1.5 per cent.

With a Rs 5,93,537.64 Crore – or a $72.6 Billion – allocation to its war chest, India maintained its position as the world’s third highest military spender after the US and China. This is 13.8 per cent of the total Union Budgetary outlay of Rs 45,03,097 Crore - the highest for any single Ministry of the Government of India - and an enhancement of Rs 68,371.49 crore in absolute terms over the Budgetary provision for 2022-23.

While manpower costs – salary and pensions - continue to consume over 50 per cent of the Defence budget, a big boost has been given to availability of operating funds to close critical gaps in warfighting capability in order to sharpen battle readiness.

“Non-Salary revenue outlay has been enhanced significantly from Rs 62,431 crore in Budget Estimates (BE) 2022-23 to Rs 90,000 crore in BE 2023-24, representing a 44% jump. This expenditure is expected to close critical gaps in the combat capabilities and equip the Forces in terms of ammunition, sustenance of weapons & assets, military reserves etc,” the Ministry of Defence explained.

The long-term thrust on military modernization through capital procurements was sustained with a Rs 10,230 Crore or a 6.7 per cent increase in Capital allocation for the armed forces, which now stands at Rs 1,62,600 Crore ($19.8 Billion).

“The increase in the Capital Budget since 2019-20 has been Rs 59,200 crore (57%). This increase is a reflection of the Government’s commitment towards sustainable augmentation in the area of modernization & infrastructure development of the Defence Services,” the Government pointed out.

Augmentation of Border infrastructure, particularly along the Northern borders, continues to get attention, with a 43 per cent increase in capital allocation for the Border Roads Organisation to Rs 5,000 Crore. “The allocation under this segment has doubled in two years since FY 2021-22. This will boost the Border infrastructure thereby creating strategically important assets like Sela Tunnel, Nechipu Tunnel & Sela-Chhabrela Tunnel and will also enhance border connectivity,” the Ministry of Defence statement flagged.

Defence Research and Development got a 9 per cent hike, taking its allocation to Rs 23,264 Crore.

Manpower Cost Imbalance

But manpower costs continued to be the elephant in the room, reducing fiscal space for modernization. Salary for the three armed forces and Defence Pensions together consume over 50 per cent of the Rs 5,93,537.64 Crore Defence Budget. The Army’s share of the cumulative salary bill for the armed forces is 75 per cent. Fifty-four per cent of the Indian Army’s total budget of Rs 2,19,891.51 Crore goes to salaries.

The share of Revenue spending, Capital Expenditure and Pensions in the pie is 45.5, 27.4 and 23.3 per cent respectively. Its Revenue-Capital ratio is about 83:17. In comparison, the Navy’s ratio is about 38:62 and the Indian Air Force’s is about 44:56. The biggest percentage increase amongst all cost heads listed in the Defence allocation of the Union Budget is for Pensions (15.5 per cent), pushing it to Rs 1,38,205 Crore in absolute terms.

Indeed, ballooning manpower and pension costs forced a big overshoot in Defence spending over and above the budgetary allocation of Rs 5,25,166.15 Crore for 2022-23. Budget figures reveal that the major factor in the spike of Rs 59,624.95 Crore – an increase of 11.4 per cent over the Budget estimates – was on account of a whopping 28.2 per cent (Rs 33,718 Crore) upward revision in military pensions. A 42 per cent (Rs 26,000 Crore) padding up of the non-salary Revenue funding to the armed forces to sharpen military readiness accounted for the rest of the overshoot.

A remarkable feature revealed in revised estimates for 2022-23 was Pensions (at Rs 1,53,414.49 Crore) outscoring Capital expenditure (Rs 1,50,000 Crore). From the capital outlay, Rs 2,369.61 Crore has been declared unspent.

True Measure of Defence Spending

When measured against the Revised Estimates for Defence spending for 2022-23, the increase in the Defence budget for 2023-24 is a marginal 1.5 per cent, an incremental increase of only Rs 8,746.54 Crore. As a percentage of the projected GDP for 2023-24, Defence accounts for 1.97 per cent. If Pensions are taken out, then the projected percentage is about 1.5 of the GDP. Military planners have consistently called for India’s Defence spending to be raised to 2.5 per cent of the GDP.