Given that allocations for revenue expenditure are likely to become lesser in coming years, defence managers need to initiate immediate measures to control the rising revenue expenditure.

If the Finance Ministry’s emphasis on fiscal prudence and inclusive growth has resulted in a smaller increase in the latest defence budget, the Report of the Thirteenth Finance Commission does not paint a very optimistic scenario for India’s future defence spending.

The orientation of the existing administrative set up in Service Headquarters and in departments under the Ministry of Defence is to plan for the utilization of defence budget allocation. They are not in a position to pay attention to the aspect of defence receipts.

The present global economic crisis has slowed down the growth of the Indian economy, affecting among others, the fiscal situation and the revenue mobilisation potential of the central government. Defence being one of the largest recipients of central government expenditure, the present crisis casts a doubt on the adequacy of future resources. This commentary discusses some major options that India’s Ministry of Defence needs to consider in order to withstand the likely resource constraints in the coming years.

In its interim budget for 2009-10 the Union Government has allocated Rs. 1,41,703 crores for the country’ Defence Services that include three Armed Forces (i.e., the Army, the Navy and the Air Force), and other Departments, primarily Defence Research and Development Organisation (DRDO) and Defence Ordnance Factories. This is apart from Rs. 24,960 crores which have been earmarked to defray civil expenditures of Ministry of Defence (MoD) and its affiliated organisations, including, the Coast Guard, and for defence pension (Rs. 21,790 crores).

Every year as India approaches the Budget session of Parliament, there are debates in various forums about the adequacy of Budget allocation to meet the modernization plan of the Services considering the threat perceptions/scenario. Due to the economic slowdown world-wide which is likely to affect the revenue collection of the national exchequer this year, the Government may face difficulty in meeting the increased demand from the Defence Forces. Further, we should not forget that electoral compulsions are also likely to play an important role in the coming budget.