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Union Budget 2019 Defence Expectations: No high hopes from budget for the coming fiscal

Defence Expectations from Union Budget 2019

By Amit Cowshish

The union budget for the coming fiscal will be presented to the parliament literally in a couple of days. The event has generated considerable interest not just for what the budget may contain but also because of the suspense over whether it will be an interim or a full budget.

This controversy essentially boils down to the question whether it is proper for the government, that is nearing the end of its term, to make long-term policy announcements while presenting the budget to influence certain sections of the electorate.

This question is not important in the context of the defence outlay for it is difficult to visualise any announcement the finance minister could make in his budget speech to influence the serving and the retired armed forces personnel who constitute a sizeable section of the electorate.

For sure, several issues related to pay and pensions as well as management of defence have been hanging fire for a long time. The list includes the demand for one-rank-one-pension on better terms, putative pay parity with civilians, appointment of a chief of defence staff, creation of a non-lapsable pool of funds for capital acquisitions, setting up of aerospace and cyber commands, integration of the services headquarters with the ministry, and many more.

None of these issues are, however, likely to find a mention in the budget speech as they continue to remain embroiled in a running feud between different stakeholders. What is likely is that the union budget would focus on development schemes and measures aimed at providing fiscal benefits/relief to various sectors which are under stress, though a symbolic mention of the government s intent to implement some defence reforms cannot be ruled out.

Some analysts may find such symbolism exciting, but it is unlikely to bring cheer to the armed forces which have been reeling under the impact of inadequate budgetary allocation. For them, perhaps the only thing to look forward to in the union budget would be the outlay proposed for defence.
Sadly, on this count too the situation does not look very promising.

Given the present fiscal situation, imperatives of spending on the social sector and infrastructure development, and the difficulty in raising substantially higher revenues, it would be na ve to expect any huge jump in the defence outlay.

There is no danger though of the allocation being inadequate for meeting obligatory expenses on pay, ration, clothing, pensions and the like. The danger is that, after providing for these obligatory expenses, sufficient funds may not be available for capital acquisitions, procurement of ammunition and other ordnance stores, and maintenance of equipment and infrastructure. This is how it has been for more than a decade but now it seems to have reached an alarming proportion.

The situation is so tight this year that the armed forces do not seem have sufficient funds to meet even their committed liabilities. They reportedly owe more than Rs 15,000 crore to Hindustan Aeronautics Limited (HAL) and another Rs 1,600 crore to the private contractors. Just this Monday, the MES Builders Association of India warned the ministry that construction of hangars for the Rafale aircraft may be affected if the pending dues of Rs 2,000 crore are not cleared .

In these circumstances, it would be reasonable to expect that, breaking away from the past trend, the defence outlay would be increased in adequate measure to clear these arrears and to ensure that no committed liabilities pile up during the next fiscal.

Inability to pay the dues is embarrassing. It has damaged the credibility of the government as a responsible buyer and shaken the confidence of the foreign investor as well as the defence companies who have been striving hard to enter the defence manufacturing sector under the government s flagship Make in India programme. It is time to do some damage control.

It would also to be reasonable to expect that the ongoing acquisition programmes that are likely to fructify during the coming fiscal have been identified and that adequate funds will be available, after meeting the committed liabilities, to sign contracts for such programmes.

The sentiment of the private companies seems to be at a low ebb with very few contracts coming their way. It will go a long way in restoring their confidence if the finance minister were to announce a couple of big-ticket contracts which the government would strive to conclude during the year.

The media had reported last month that the MoD is close to concluding the deal for acquisition of the Airbus C-295 transport aircraft for the Indian Air Force (IAF)/Coast Guard (CG) to replace the existing fleet of the Avro aircraft. While 16 of these aircraft are to be bought in a fly-away condition from Airbus, another 40 for the IAF, and possibly 6 more for the CG, are to be made by its Indian partner, Tata Advanced Systems Limited.

The announcement in the budget speech of the intention to sign this contract within the current financial year could possibly be a befitting finale to the so-far-futile efforts of the government to kick-start Make in India in defence.

Allocation of a decent sum of money for making up the war wastage reserves, including procurement of ammunition, and upkeep of the equipment and infrastructure, and making a special mention of that in the budget speech would help in building up the confidence that the government is aware of the problem besetting operational preparedness of the armed forces and is taking determined steps, within the fiscal constraints it faces, to address it.

It may sound dull, drab and dreary but this is the best that one can realistically expect from the union budget for defence. The ministry should be happy if the finance minister pitches the budget outlay for defence around 16-17 per cent of the total central government expenditure, which has been the average over the past few years. Anything beyond this would be a bonus.

(The author is a former Financial Advisor -Acquisition, Ministry of Defence. He is presently associated as a Distinguished Fellow with the Institute for Defence Studies and Analysis)