Union finance minister Arun Jaitley on Monday outlined the nine priority areas for the government that will transform the country. "The agenda for next year is to undertake transformative measures based on 9 pillars for India," finance minister Arun Jaitley said. The nine priority areas of the government are: 1. Agriculture and farmer welfare 2. Rural sector 3. Social sector 4. Education skills and job creation 5. Infrastructure investment 6. Financial sector reforms 7. Governance reforms and ease of doing business 8. Fiscal discipline 9. Tax reforms to reduce compliance burden Surprisingly the finance minister made no mention of India’s defence allocation for 2016-17 in his Union Budget speech on Monday, 29 February 2016. This raised immediate curiosity, over why, the country’s military spending was not revealed. This is in fact the first time when defence allocation has not been revealed during the annual budget speech. Interestingly the budget uploaded on the official web site (indiabudgetnic.in) reveal interesting figures which in no way suggest a rosy pic . A set of four perceptions needs to be deconstructed. First, India is spending much less in comparison to its known adversaries as well as (known) major powers. This is largely true in terms of military expenditure in both current and constant prices. In both terms, the percentage of US military expenditure has come down from 53 to 42 percent in the last five years, while the same has graduated from 8 to 12 percent China in the corresponding period. Many such data based inferences can be drawn. India’s share is slightly below 2 percent of global military expenditure, an improvement from 1.4 percent from 2010. Such figures are confusing for the very simple reason that bulk of military expenses, as provided by countries on a yearly basis, disclose little of their resources allocations and hide some details. Second, at the national level, India is supposedly spending less on national defence. Parrikar deconstructed this notion in his statement in Parliament, unprecedented in the history of budgetary estimates in India. As repeatedly argued in my previous pieces on resources allocations for national defence over a period of time, India’s spending on national defence has been reasonable, keeping in mind our cumulative national resources and priorities. India’s declared devotion to national defence stands roughly at 14 percent of central government expenditure (CGE) and about 1.7 percent of GDP, which excludes pensions and a few other items. I am told by members from responsible quarters that items like ‘military stores’ contain items that should actually be in ‘capital’ side. Taken together, as Parrikar said, India’s defence budget would account for 2.2 percent of GDP. Please note that last year’s defence pensions was close to Rs 56,000 crore. You have to factor in OROP (Rs 12,000 crore), ex-welfare health insurance (close to Rs 2000 crore) and 7th pay commission liabilities (exact figure yet to be in public domain) in time to come. Such expenses, if included in ‘revenue’ side of expenditure, could actually radically deconstruct our earlier assumptions about a 55 (revenue): 45 (capital) ratio, in favour of revenue expenditure – a horrendously imbalanced national defence budget. Parrikar must be applauded for bringing this anomaly in defence budget calculations. Third, Parrikar’s statements on eight squardons of fighters, emphasises fighter aircraft production through indigenous means, transparent procurement procedures for pruning of capital expenses and abandoning of long-pending and irrelevant purchases, point to one simple point with three connotations – tighten your belt, be ready for collaborative approach but make products and systems here, and most importantly, be ready for a pruned budget. He has already given a hind that against an import bill of Rs 35,000 crore in 2014-15, a Rs 1,000 crore reduction has already been witnessed in 2015-16. This indicative trend is likely to continue till he is at the helm of affairs. Last but certainly not the least, Parrikar, a minister who seems to ask basic questions and has demonstrated a habit of shaking rank and file of organs he heads (sacking of the head of DRDO without much murmur in public, branding armed forces as ‘erratic buyers’, instructing armed forces to review their defence procurement plans, to cite a few), must have advised his colleague Arun Jaitley on what kind of a budget he wants. Participants: Ziauddin (Economist/Analyst) Brig. Ishaq Khattak (Defence Analyst) Host: S. M. Hali

• published: 04 Mar 2016
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