A Healthy 2002-03 Budget for the Defence Services

An IDC Analysis


New Delhi, 04 March 2002

This year’s (2002-03) Budget of Rs 410,309 crores (US$ 83.8 billion) presented by the Finance Minister Yeshwant Sinha on 28 Feb has generally been called a ‘lack lustre’ document; an average exercise to keep the economy going with head just over the water. The deficit at 5.7% continues to be a cause of worry but there are signals for improvement in industrial and agricultural outputs. The people hit hard are the salaried class specially the pensioners who will not only pay higher income tax but also face reduction of income on their investment of savings. Setting aside the personal adverse reaction to the budget, IDC are happy that the Defence Services have been well provided for with a 14% rise from Rs 57,000 crore of revised estimate for 2001-02 to Rs 65,000 crores (US$ 13.3 billion). The allocation is 2.7% of the GDP as against 2.5% last year. The US defence budget for the coming year is $379 billion, more than 28 times though their total budget is nearly 120 times that of India. In terms of GDP Pakistan spends 4%, Israel 11% and N Korea 20% on defence, hence our spending on this account is still at a moderate scale.

The media had earlier reported a likelihood 25–30% increase amounting to about Rs 81,000 crores which MOD might have asked. Thus the 14% hike now actually provided, does not in any way allow for the kind of profile transformation the armed forces could have sought. Nor does it provide for a war contingency, suggesting that the government does not expect the border stand-off with Pakistan to escalate into an all out war. But inner circles do allude that in a meeting between PM, FM and RM prior to the budget, RM has been assured by the other two that should the defence needs require additional funds they will be provided, as the PM did not want security concerns to be compromised in any manner.

If MOD can spend the allocated amount, it will be higher than 1999-00 when the Kargil War upped the expenditure by 21%. The revenue allocation for the three Services is about Rs 43,431 crore and capital outlay Rs. 21,569 crore (US$4.4 billion) which is 32%. The lion’s share for capital (equipment) expenditure is to the Air Force (Rs. 7402 crore). This suggests that the long awaited acquisition of AJT may materialize. The Navy should get the aircraft-carrier Gorshkov, and the Army the Phalcon AWACS (from Israel), T-90 tanks from Russia, 155 mm guns (from S Africa/Sweden) and weapons locating radars from US.

The LCA may also become a reality with 40 GE-404 engines from USA cleared for supply. By and large the ‘wish list’ of all Services has been duly catered for but the question remains whether MOD will be able to spend the allocated amount. Despite best efforts there have been short falls in capital expenditure in the last two years; 2000-01 Rs. 4126 crores and 2001-02 Rs. 5000 crores. The bureaucrats and senior defence officers have become extra cautious in pursuing matters of procurement after the scams like Tehelka and Coffingate. It is now to be seen whether the streamlining of the defence procurement organization, privatisation with foreign investment and reinstatement of agents would produce the desired results in speedier acquisition of defence hardware.

IDC keep their fingers crossed and hope for the best! 


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