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Rahul Bhonsle

Mar 28, 2012

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India’s Defence Budget 2012-13: A Holistic Analysis

General. India’s economic growth story suffered a set back of sorts in 2011 with the cumulative growth of GDP for 2011-12 anticipated to fall below 7 percent. This had led to some skepticism of the ability to sustain a high defence budget in the coming year 2012-13.  Thus when the Finance Minister, Mr Pranab Mukherjee announced India’s Defence Budget 2012-13 Estimates at Rs 193407.29 Crore/Rs 1.93 trillion or  US $ 38.7 Billion[1], it came as a surprise and relief to many. Defence Minister Mr A K Antony even went to the extent of calling it the best budget under the current circumstances.

First the details of the Defence Budget 2012-13, the revenue and capital component of are Rs 1, 13,829 Crore and Rs 79,578 Crore respectively. The breakdown is Army (Rs 78114.36 Crore), Navy (Rs 12548.02 Crore), Air Force (Rs 17705.81 Crore), Ordnance Factories (Rs (-) 535.09 Crore), Research and Development (Rs 5995.56 Crore) and Capital outlay on all the three services as well as R & D and Ordnance Factories (Rs 79578.63 Crore).

Annual Comparison. The Rs.1,93,407 Crore $38.6 billion/Rs.1.93 trillion Budget for 2012-13 is a 13 percent increase  of Rs.22,470 Crore ($4.5 billion) over revised estimates of Rs.1,70,937 Crore for the fiscal 2011 – 12 ending March 31 2012 and  17.6 percent over the Rs.1,64,415 Crore ($32.8 billion) budget estimates announced in February last year. Thus there is an increase of Rs.6, 522 Crore (over $1 billion) in the revised estimates. The 13 percent raise is marginally higher than the 11.59 percent hike in the budget for 2011-12.

The increase in the past two years comes about after defence budget rose by a mere 3.98 percent in 2010-11. In terms of Percentage of GDP, the Defence Budget for the past two years has remained well below the 2 percent limit that the government seems to have set for itself. Defence Expenditure is also set to be below 13 percent of the overall central government expenditure which is also in keeping with the existing trends. The ratio of revenue to capital expenditure has also remained constant at approximately 60:40 even though the Ministry of Defence has been claiming that it is making efforts to achieve a 50:50 ideal ratio this will apparently take some more years to fructify. The annual comparison of defence budgets from 2009-10 is as per Table follows.

Item 2009-10 2010-11 2011-12 (BE) 2011 – 12 (RE) 2012-13 (BE)
Defence Budget $  Bn (Rs. in Crore)* 31.93 (1,41,703) 33.20 (1,47,344) 37.05 (1,64,415.49) 37.99 (1,70,937) 38.68 (1,93,407)
Growth of Defence Budget (%) 34.19 3.98 11.59 - 13.1 ex RE 2011 – 12 & 17.1 ex BE 2011 - 12
Revenue Expenditure  $ Bn (Rs in Crore) 19.31 (86,879) 19.41 (87,344) 21.16 (95,216.68) 21.81 (109039.8) 22.77 (113829)
Growth of Revenue Expenditure (%) 50.85 0.57 9.01 - 4.39
Revenue Expenditure in Defence Budget (%) 61.3 59.28 57.91 - 59
Capital Expenditure  $  Bn (Rs. in Crore) 12.18 (54,824) 13.33 (60,000) 15.38 (69,198.81) 13.23 (66143.81) 15.92 (79578.63)
Growth of Capital Expenditure (%) 14.20 9.44 15.33 - 20.31
Share of Capital Expenditure in Defence Budget (%) 38.7 40.7 42.09 - 41
Share of Defence Budget in GDP (%) 2.30 2.12 1.83 1.80 1.9
Share of Defence Budget in Central Government Expenditure (%) 13.88 13.29 13.07  [Total expenditure budget of GOI  US Dollars Billion 279.50 (Rs.12,57,729 Crore)  for 2011-2012] 12.96 12.97

[Note comparison in terms of percentage and ration is based on Rupees Crore Values]

GDP Percentage. The defence outlay constitutes 1.90% of GDP (estimated to be Rs101, 59,884cr). This is a marginal increase from the 1.83 percent of the GDP in 2011-12 and follows the general trend.

Percentage of Government Expenditure. Total government expenditure budgeted for 2012-13 is Rs 1490925 Crore. This is an increase over Rs 1318720 Crore budgeted for 2011-12 by Rs 172205 Crore. The Defence Expenditure for 2011-12 (Revised) and 2012-13 is Rs 170937 Crore and Rs 193407 Crore respectively.  This is only a marginal increase from 12.96 percent of the total government expenditure in 2011-12 to 12.97 percent in total government expenditure in 2012-13.

Assessment of Budget – Functional Fulfillment

A defence budget is required to perform three main functions, statement of expenditure of the past year and envisaged estimates for planning for the ensuing year, outline the main areas of capacity building achieved and finally provide the trajectory for capacity building through resourcing. An evaluation of the Budget based on these three parameters is carried out as follows:-

Statement of Expenditure. As a statement of expenditure the Defence Budget denotes that in 2011-12, the Revenue Budget of the services has been skewed with excess expenditure by the Army and the Navy. At the same time capital expenditure has not been as per expectations denoting that there have been a number of shortfalls in acquisitions by all the three services. The Ordnance Factory and DRDO expenditure state is also not satisfactory; the net receipts of the Ordnance Factories in particular are poor as compared to the capacity that is created for this purpose with over 40 establishments. Thus the overall management of budget by the services leaves much to be desired, however there has been not correctives denoted either as incentives or penalties in this direction. There is also no attempt to balance the ratio of revenue and capital towards an ideal 50:50 for 2011-12. The statement by the Finance Minister that additional funds will be provided for as and when required may in fact have negative connotations with services taking this as a licence for continued profligacy.

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