Union Budget 2021 | 18.75% hike in capital outlay for Defence

In the backdrop of the ongoing standoff with China and impetus for military modernisation, the allocation for capital expenditure in the Defence Budget saw an increase of ₹21,326 crore or 18.75% compared to Budget Estimates (BE) of last year.

Budget data also shows that the armed forces got an additional allocation of ₹20,776 crore under capital expenditure last year for emergency procurements in the face of massive mobilisation along the Line of Actual Control (LAC).

The total allocation for defence in the Union budget at ₹4.78 lakh crore including defence pensions, is a marginal hike compared to ₹4.71 lakh crore last year, an increase of 1.48%.

Dip in pensions

The allocation for 2021-22 stands at ₹3.62 lakh crore excluding defence pensions which stood at ₹1.16 lakh crore. Excluding defence pensions, the hike is about 7.34%, up from 3.37 lakh crore to 3.62 lakh crore. However, data shows that defence pensions have gone down significantly from the Budget Estimates of last year.

The capital allocation in BE last year at ₹1.13 lakh crore went up to ₹1.35 lakh crore in the BE this year, an increase of ₹21,326 crore. Referring to the almost 18.5% increase, a Defence Ministry statement said. “This is the highest ever increase in capital outlay for defence in the last 15 years.”

The defence pensions saw a significant dip from ₹1.34 lakh crore in Budget Estimate last year to ₹1.25 lakh crore in Revised Estimates and further to ₹1.15 lakh crore allocated this year. From BE 2020-21 to BE 2021-22 this represents a decrease of ₹17,775 crore or about 13.4%.

The capital allocation in BE last year was ₹1.13 lakh crore which went up to ₹1.35 lakh crore in the BE this year.

Budget data shows that last year the armed forces got an additional allocation of ₹20,776 crore under capital expenditure in the Revised Estimates, largely to cater to emergency procurements due to the LAC standoff.

As the standoff in May last year, the Army deployed 50,000 troops and equipment along the LAC in Eastern Ladakh. The Indian Air Force (IAF) too forward deployed its frontline fighters. The services also went in for a series of emergency procurements including equipment and extreme weather clothing for the troops deployed in the high altitude areas in the peak winter.

Emergency allocations

Last month, Army Chief Gen. Manoj Naravane had said last year 38 deals were made through ‘emergency and fast track’ route worth about ₹5,000 crore and in addition capital procurements worth ₹13,000 crore were also concluded. The procurements included light machine guns, light special vehicles and protective gear for infantry, infantry combat vehicles for mechanised infantry and long range vectors for artillery and also equipment for Engineers and Signals regiments.

On the decrease in defence pensions, a Defence official said, “Last year it was more because approximately ₹18,000 crore was to be paid on account of pension arrears. Also salary and pension are based on actuals.”

The capital allocation for DRDO has been increased to ₹11,375.50 crore, an increase of 8% over 2020-21, the Ministry said. The allocation for Border Roads Organisation (BRO) has been increased to ₹6004.08 crore which is 7.48% increase over 2021-22.

The 15th Finance Commission observed it its report that the expenditure on defence services as a proportion of GDP declined from 2% in 2011-12 to 1.5% in 2018-19 and to 1.4% in BE 2020-21.

Between 2011-12 and 2018-19, defence revenue expenditure grew faster, 10%, than the increase in defence capital outlay, 4.7%, and resulted in a reduction of the share of defence capital outlay in total defence services expenditure (excluding defence pension) from 40% in 2011-12 to 33% in 2018-19, the main report observed.