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Defence Budgetary Allocation 2010-11: Adequacy vs. Usage

Narinder Gupta is on Deputation to Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • March 18, 2010

    The question of a fairly adequate yearly budget allocation coupled with the extent of usage during the financial year always looms large on many counts. There has been a continuing insistence from the armed forces for linking the defence allocation to GDP. According to many, the defence budget should be around 3 per cent of the GDP. In support of this argument, the percentage of budgetary allocation for defence prevalent in other countries is evidently quoted. No doubt, this percentage is an important yardstick to judge the adequacy of defence allocation from the macro point of view, but it may not be the only factor to determine the adequacy of defence allocation. The term “adequacy” is relative and not absolute since it can be in relation to a project, specific objective, plan, strategy and usage, etc. The experience of usage is importantly drawn from the data of the past years. Therefore, both adequacy and usage are interlinked in this sense. The Indian experience in the past few years also amply brings out this linkage. Notwithstanding this, the requirement of defence allocation as a percentage of GDP cannot be overlooked to meet the desired goals from the macro point of view.

    The defence outlay for the financial year 2010-2011 has been increased to Rs. 147,344 crore. In comparison to allocation during the financial year 2009-2010, the current allocation is higher by 3.98 per cent. However a better picture is observed if the current allocation is compared with revised estimates (RE) of 2009-10, as the growth comes to around 8.13 per cent. Therefore, before jumping to the conclusion about adequacy or otherwise of defence outlay for the current year, the revised allocation at RE stage of the previous year becomes an important factor. In fact, this comparison brings into play the manner as well as extent of utilization of the allocated sum to achieve various strategic and other targets and objectives. A look at the revised estimates fairly reflects the absorption capacity, notwithstanding either the constraints or shortcomings in financial planning at the beginning of the financial year. Therefore sound financial planning by the Armed Forces right at the beginning of the financial year based on the operational and strategic needs is of utmost importance not only to achieve the planned targets but also to influence the fund allocating authorities through maximum and full utilization of defence outlay. It is stated during the presentation of every budget that any additional requirement for the nation’s security will be provided for. In view of this statement, inadequacy concerns at the macro level at least should ease to some extent. Moreover it sounds quite logical that the Armed Forces may need to initiate steps to utilize the allocated outlay in full so that some enhanced allocation at the RE stage or as and when a contingency arises can be projected by them at the time of need. In other words, a need based system is already in place and it is only a matter of making use of the existing system or provision. Therefore, the defence outlay for 2010-11, which is considered a marginal increase, should really be not a cause for worry.
    If a look at defence capital outlay for 2010-11 is given, the allocation is pegged at Rs. 60,000 crore, which is almost 9.4 per cent higher over the allocation of the previous year. If this figure is compared with the revised estimates of 2009-10, the allocation becomes almost 25 per cent only on the capital side, which in no way can be adjudged as inadequate. Therefore, here also, it is a question of usage of the allocated sum. For this purpose, the need for effective and timely utilization of the capital budget cannot be overlooked. The procurement process needs to be streamlined and made simpler to ensure fulfilment of Defence Acquisition Plans speedily and through a better management strategy either indigenously or through procurement from foreign vendors.
    As far as Revenue budget during 2010-11 is concerned, its effective utilization particularly in store and equipments, transportation, works, etc. hardly needs mention. It is well known that performance based logistics strategy has been quite successful in countries like USA and UK. The same approach can be considered in India as well to achieve cost effectiveness. In addition to the use of information and communication technology, it may be high time that outsourcing in many non-core activities is resorted to achieve higher levels of economy. This approach may also result in saving of more funds which can easily be diverted to meet the capital requirements of the Services. Therefore the defence budget management through efficient and effective utilization seems to be the top priority for planners and budget holders right from top to the unit level. To achieve this, the concepts of zero based budgeting and outcome budgeting become quite relevant. The zero based budgeting concept is relevant both on the Revenue as well as Capital side. The application of this concept greatly helps the executive to decide as to whether any item is really required or not, or the maintenance of an existing item is justified or not. Similarly, outcome budgeting may help in monitoring the planned objectives vis-à-vis the expenditure incurred over a period of time. In other words, the budgeting tools need to be invoked during the stage of expenditure as well.

    Thus, adequacy or inadequacy of defence allocation largely lies in the manner it is spent keeping in view the defence requirements for meeting the operational and strategic goals and to have the needed defence preparedness to deal with threats. Therefore in view of the need for fiscal consolidation and all inclusive growth as well as the recommendations of the Thirteenth Finance Commission to bring about a reduction in defence expenditure as a percentage of GDP in a phased manner, the utilization aspect becomes all the more important.