IIt was somewhat intriguing as well as disappointing that the Minister of Finance Arun Jaitley failed to cover the budgetary allocation to defence in his presentation of the national budget 2016-17 to the Parliament on February 29, 2016. The supreme irony is that the Ministry of Defence (MoD), one of the largest consumers of public funds, was not regarded as worthy of even a cursory mention. However, soon after the somewhat lengthy presentation in the Parliament, the 47-page speech of the Minister of Finance was available on the Internet. The fact that in the 47-page document, only 12 lines were devoted to the defence budget came as another surprise. But soon after the presentation of the national budget in the Parliament, reports and analyses began to appear in the different TV news channels and newspapers most of which also lacked clarity.

Overall Allocations

Broadly speaking, the allocation for expenditure on defence for the financial year 2016-17 stands at Rs. 2,49,099 crore. This figure is fairly close to the allocation made in the financial year 2015-16 which was Rs. 2,46,727 crore. The increase this year over the initial allocation made in the preceding financial year, is a mere Rs. 2,372 crore, an enhancement by under one per cent. This could possibly be one reason why the Minister of Finance did not cover the defence budget in his speech. However, when viewed against the revised estimates for the financial year 2015-16 which was Rs. 2,24,636 crore, the increase in the allocation this year is Rs. 24,463 crore, a hike by ten per cent. This is still distinctly below the annual defence inflation figure which is normally around 15 per cent. In terms of overall government spending, the MoD will consume about 12.6 per cent of the government’s overall spending in the financial year 2016-17, approximately the same as the revised estimates for the financial year 2015-16.

THE BUDGETARY ALLOCATIONS FOR CAPITAL ACQUISITIONS ARE DISTINCTLY WELL BELOW THE GENUINE REQUIREMENTS OF THE IAF

When the expenditure on defence is considered as a percentage of gross domestic product (GDP), the allocation for the MoD is around 1.65 per cent. The share of GDP dedicated to expenditure on defence which, as per experts, ought to be in the region of three per cent, in any case not less than 2.5 per cent. However, there has in fact been a continuous downslide in this figure over the last five decades. This itself is an eloquent commentary on where national security has all along stood in the spectrum of priorities for successive governments.

Allocations for the IAF Vis-À-Vis Commitments

Of the total budgetary allocation of Rs. 2,49,099 crore for the financial year 2016-17, the share of the Indian Air Force (IAF) which is a highly equipment oriented service, stands at Rs. 51,211 crore. In terms of manpower, the IAF is only a fraction of the strength of the Indian Army. However, the IAF needs to spend a relatively higher percentage of the budgetary allocation on new hardware inductions as amongst the three services, it is the most dependent on imports of weapon systems and airborne platforms. As the IAF spends less than half the budgetary allocation on revenue expenditure, it is left with a higher percentage of the total allocation to finance its projects related to modernisation.

In terms of percentage, the share of the defence budget for the IAF for the coming financial year, i.e. 2016-17, stands at 21 per cent. There has been a steady decline over the last few years in this figure as well, as the share of the budget for the IAF stood at 23 per cent in the year 2014 and this dwindled to 22 per cent in the financial year 2015-16.

Under the capital budget, the IAF has been allocated Rs. 27,555 crore as against Rs. 28,643 crore allotted in the budget last year. Thus there has been a reduction by Rs. 1,088 crore in the capital budget this year, which translates to a cut by three per cent. This appears somewhat incongruous and difficult to reconcile with as the several capital-intensive procurement projects for the IAF are underway. These include procurement of 22 AH-64E Apache attack helicopters from Boeing and 15 CH-47F Chinook heavy-lift helicopters also from Boeing. These platforms are being procured through global tenders under the existing Defence Procurement Procedure (DPP) and together are valued at $3 billion (approximately Rs. 20,000 crore). These two deals will require substantial sums for payment of the first instalment in advance. In addition, heavy investments are required in the several joint development and manufacturing projects such as the Indo-Russian fifth-generation fighter aircraft (FGFA) project which seems to have overcome the impediments and is moving forward again. The other Indo-Russian project is the joint development of the multi-role transport aircraft (MTA) which is currently in a logjam which hopefully will be resolved soon. In addition, there has been an agreement between India and Russia for the joint manufacture of the Kamov Ka-226T light utility helicopter to replace the fleets of Cheetah and Chetaks which are obsolescent and are overdue for retirement from service. Following this agreement. a contract is expected to be formalised soon for the manufacture of 200 of the Kamov Ka-226T light utility helicopters jointly between a Russian original equipment manufacturers and the Indian aerospace major the Hindustan Aeronautics Limited (HAL). A new facility is being created for this project in Tumkur, 70 km north of Bengaluru which will require huge investments. The foundation stone for this facility has already been laid in the recent past by Prime Minister Narendra Modi. Case for additional flight refuelling aircraft for the IAF by way of six Airbus A330 multi-role tanker transport (MRTT) aircraft, is also being processed. This deal is expected to be valued at over Rs. 10,000 crore.

Contract negotiations are also underway for 36 Rafale jets from Dassault Aviation of France. The total outlay at this point in time as per the price quoted by Dassault Aviation is €11.5 billion ( Rs. 78,000 crore). However, the MoD expects to beat the price down by around 25 per cent to less than Rs. 60,000 crore. If the contract is finalised in the near future, the IAF will have to shell out the first instalment which would be in the region of Rs. 10,000 crore as payment in advance as the first instalment. This certainly will be a major burden on the capital budget. The IAF will also require funds to upgrade the older fleets to extend their service life. These would include the Jaguars that were inducted around three decades ago as well as the older versions of helicopters.

The Final Word

In the emerging geopolitical environment and the deteriorating security situation, the IAF will be confronted with new challenges. The most daunting of these will perhaps be a two-front war resulting from a combined offensive by China and Pakistan. With the rapidly depleting strength of the combat fleet, as expounded during an interaction with the media on March 10 this year, the Vice Chief of Air Staff made a candid admission that the IAF did not have the capability to effectively cope with the situation described above. The budgetary allocations for capital acquisitions are distinctly well below the genuine requirements of the IAF. To that extent, budget 2016-17 has been somewhat disappointing for the IAF.