<ul><li>The union budget 2011-12, presented to the parliament on February 28, 2011 </li></ul><ul><li>increased the defence allocation to Rs 1,64,415.49 cr. ($36.03 billion). </li></ul><ul><li>The allocation, which represents an 11.59 % growth over the previous year’s budget </li></ul>
<ul><li>the defence budget has not been unduly impacted by the government’s fiscal consolidation process. </li></ul><ul><li>the defence budget shows, at least on the face of it, the ministry of defence’s (MoD) ability to spend the resources, particularly the capital portion, within the stipulated time. </li></ul>
<ul><li>the government has succeeded in bringing the estimated fiscal deficit down to 4.6 per cent of the GDP in 2011-12, the defence budget has been shielded from its effects. </li></ul><ul><li>The return to the pre-crisis nine per cent growth path has given the finance ministry the hope of stepping up its revenue collection. In fact, the government’s net revenue is expected to rise by nearly 16 per cent to Rs. 7,89,892 crore in the coming fiscal, </li></ul><ul><li>mainly on account of increase in tax revenue which is projected to grow by 24 per cent to Rs. 6,64,457 crore. </li></ul>
2010-11 2011-12 Defence Budget (Rs. in Crore) 1,47,344 1,64,415.49 Growth of Defence Budget (%) 3.98 11.59 Revenue Expenditure (Rs. in Crore) 87,344 95,216.68 Growth of Revenue Expenditure (%) 0.57 9.01 Share of Revenue Expenditure in Defence Budget (%) 59.28 57.91 Capital Expenditure (Rs. in Crore) 60,000 69,198.81 Growth of Capital Expenditure (%) 9.44 15.33 Share of Capital Expenditure in Defence Budget (%) 40.72 42.09 Share of Defence Budget in GDP (%) 2.12 1.83 Share of Defence Budget in Central Government Expenditure (%) 13.29 13.07
<ul><li>The announced increase in the defence budget has resulted in an additional allocation of Rs. 17,071.49 crore over the previous budget. Of this Rs. 7,872.68 crore is earmarked for revenue expenditure and the balance Rs. 9,198.81 for capital expenditure. In other words, revenue expenditure has grown by 9.01 per cent to Rs. 95,216.68 and the capital expenditure by 15.33 per cent to Rs. 69,198.81 crore. On the revenue side, although the growth has been necessitated by the increase in pay and allowances, there has also been an increase in the budgetary provision for other revenue items such as stores, transportation, etc. </li></ul>
<ul><li>The adequate increase in the defence budget has had a favourable impact on key statistics (see Table), except in terms of its share in total central government expenditure and GDP. The declining share of defence in these key parameters can be ascribed to the relatively faster growth of the Indian economy and the resultant increase in total central governmental expenditure. On the positive side, the ratio between revenue expenditure and capital expenditure has improved in favour of the latter, showing the government’s greater focus on the modernisation of the armed forces. The improvement is largely due to the hefty increase in the capital acquisition budget, which has grown by more than 25 per cent to Rs. 55,604 crore ($12.2 billion). Among the three services, the air force accounts for the largest share with an acquisition budget of Rs. 28,354.54 crore, followed by army (Rs. 14,100.44 crore) and navy (Rs. 13,149.02 crore). </li></ul>
Note : The figure is based on total defence budget (Rs. 1,64,415.49 crore) minus Rs. 125.82 crore which is allocated under the heads of ‘ Prototype development under ‘ Make ’ procedure ’ and ‘ Others ’ . Minus budget for the OFs because of their excess revenue over expenditure.
In 2011-12, the army, with an approximate budget of Rs. 83, 415 crore, accounts for 51 per cent of the total defence budget; at a distance follow the air force (Rs. 46,151.78 crore), navy (Rs. 25,246.89 crore), Defence Research and Development Organisation (DRDO) (Rs. 10,253.17 crore), and ordnance factories (OFs) (Rs. 776.79 crore). The major share for the army is because of the large scale provision under revenue expenditure, which is primarily driven by pay and allowances. In terms of capital expenditure, the air force with a budget of Rs. 30,223.83 crore is the most capital-intensive, followed by the army (Rs. 19,163.07 crore), navy (Rs. 14,657.83 crore), DRDO (Rs. 4,628.3 crore), and OFs (Rs. 399.96 crore).
<ul><li>As the new defence budget reveals, the MoD has spent more than its 2010-11 budgetary allocations under the capital head. On the face of it, the utilisation of the capital fund is creditable given the MoD’s past record of surrendering allocated funds. For instance, 30 per cent of allocation under the head of ‘Other Equipment’ has remained under utilised, whereas allocations under the ‘Air-craft and Aero-Engine’ and ‘Naval Fleet’ have been over utilised by 24 per cent and 11 per cent. But it is not clear whether the overspending was necessitated by a change in plans midway, or because of parking of funds with state-owned enterprises in an attempt to prevent the surrender of funds. </li></ul>
<ul><li>In 2011-12, total pay and allowances of the three services and the DRDO are estimated to grow by 10.3 per cent to Rs. 51,591.27 crore. (The pay and allowances of ordnance factories are not included in the calculation because of lack of data at the time of writing). This pay component represents 54.2 per cent of the total revenue expenditure and 31.4 per cent of the total defence budget; it is also responsible for 28 per cent of the increase in the total defence budget. </li></ul>
<ul><li>The defence budget 2011-12 is an impressive one. It has not only been shielded from the effects of the government’s fiscal consolidation process, but has also grown by nearly 12 per cent, the highest in recent years if one excludes the year 2009-10 when the budget was increased by 34 per cent mainly due to the increases in pay mandated by the sixth central pay commission. The growth in the defence budget has provided extra resources, particularly for the modernisation of the armed forces. </li></ul>