Additional allocation for defence – a challenging task for MoF

A recent press report indicates that the Indian Air Force is seeking an additional allocation of Rs. 40,000 crore (approximately 50 per cent of the allocation) this year, primarily for capital expenditure. The other two services may have similar requirements. While the need for additional allocation is unquestionable, the question whether the demand can be met in the present circumstances is moot.

The Ministry of Defence (MoD) routinely asks for additional funds from the Ministry of Finance (MoF), generally at the Revised Estimate (RE) stage, knowing full well that any substantial increase in allocation made at the Budget Estimate (BE) stage is unlikely. The available data shows that the actual allocation at the RE stage, as indeed at the BE stage, is generally far lower than the demand projected at these stages (see Table 1 below).

Table 1 Capital Outlay (Rs. in crore)
Year Budget Estimate Revised Estimate
Projection Allocation Projection Allocation
2013-14 123911.45 81241.70 112386.87 73136.67
2014-15 132597.69 84076.95 85684.17 74151.29
2015-16 104398.76 86032.41 88778.31 74412.68
2016-17 109449.90# 78731.32# 93532.89 71854.00
2017-18 133126.34 78124.04 121057.84 78124.04
2018-19 160199.81 83434.04 NA 83434.04

(# Includes National Cadet Corps, Military Farms, Rashtriya Rifles and Ex-Servicemen Contributory Health Scheme to maintain comparability)

Going by the trend of the last five years, the best one can hope for in the normal course is that there will be no reduction in the allocation at the RE stage – as has been the case in the past two years – unless the government makes an unprecedented departure from the past trend this year to meet the demand projected by the armed forces. The chances of that happening do not look very bright, though. There are three reasons for that.

First, asking for additional funds routinely to make up for inadequacy of budget allocation is arguably not in the spirit of Article 115 (1) of the Constitution of India which provides for supplementary, additional or excess grants to be made during the currency of the year if (a) the appropriation out of the Consolidated Fund of India, authorised by the parliament when it passes the budget, is found to be insufficient, (b) a need arises during the financial year for incurring expenditure upon some new service not contemplated in that year’s budget, or (c) any money is spent on any service during the financial year in excess of the amount granted for that service.

One can argue that asking for additional money during the year is covered by clauses (a) and (b) mentioned above, but this may not to be in consonance with the spirit of Article 115. This is evident from the fact that, commenting on excess expenditure over the voted grants for the FY 2014-15, the Public Accounts Committee (PAC) of the 16th Lok Sabha had directed the MoF to evolve an effective mechanism “to restrict the use of Supplementary demands only to rare and emergent cases”. The same direction was reiterated in the 88th report of the PAC.

The circumstances in which additional funds are being/likely to be sought may be emergent but are certainly not rare. Shortfall in allocation vis-à-vis the projected demand is a recurring feature of defence budget, which can be dealt with only through fiscally prudent planning and not by seeking additional grants.

Second, even if the PAC’s observation regarding supplementary demand is considered extraneous on the grounds that it stems from the misconception that the requirement for additional funds arises because of the inability of the budget officers to correctly assess the requirement for the entire year at the BE stage, the chances of additional allocation would still be quite low.

The MoF seeks proposals from various ministries and departments for ‘Supplementary Demands for Grants’ on at least three occasions during the financial year. Perusal of the MoF notifications on the subject issued in the recent years shows that, broadly speaking, the supplementary demands can be raised in the following situations:

  1. Where advance granted from the Contingency Fund of India has to be recouped;
  2. Where any payment has to be made against a court decree and it cannot be postponed;
  3. Where the requirement of additional funds is immediate, and it can be met by re-appropriation of savings in the grant but require prior approval of parliament under the New Service/New Instrument of Service Rules;
  4. Where MoF may have specifically advised moving of Supplementary Demands in the ensuing session of the parliament; and
  5. Any other case, where expenditure cannot be postponed.

These situations do not cover the present situation where additional allocation is being/likely to be sought for meeting shortfall in initial allocation made at the BE stage, unless the MoF has specifically advised MoD this year to project the demand or a case can be made out that the expenditure, for which the additional grant is being sought, cannot be postponed.

Third, the government seems to have little fiscal space for accommodating the demand of the armed forces for additional funds, given its quantum on the one hand and the state of its revenues on the other which are already quite stressed. There are several indications of that. The growth in India’s tax collection hit a 10-year low in the first three months of the financial year.

At the end of July this year, the total receipt and expenditure of the union government stood at 19.2 per cent and 34 per cent respectively, and the fiscal and revenue deficits at 34 per cent and 77.8 per cent of the BE. These facts cannot be ignored.

The initial allocation made in the union budget is based on estimates of receipts and expenditure for the entire year. As can be seen from Table 2, with the actual receipts (including capital receipts and borrowings) generally being lower than the initial estimates, there is little room for providing substantial additional funds to defence or any other sector during the currency of the financial year.

Table 2: Total Receipts of the Union (Rs. in crore)
Year BE RE Actual Diff. BE & Actual
2013-14 1665297 1590434 1559447 -105850
2014-15 1794892 1681158 1663673 -131219
2015-16 1777477 1785391 1790783 13306
2016-17 1978060 2014407 1975194 -2866
2017-18 2146735 2217750 2141973 -4762
2018-19 2442213 2457235 NA

(Based on ‘Budget at a Glance’ of the relevant years)

With the government having to forgo revenue of Rs. 1,45,000 crore alone on account of reduction in corporate tax and other measures announced recently on September 20 and the government’s resolve not to revise the fiscal deficit target for the current year, the MoF will have to pull out all stops to meet the additional requirement of the armed forces this year. And, indeed in the coming years.

The writer is former Financial Advisor (Acquisition), Ministry of Defence and Consultant, Institute for Defence Studies and Analyses (IDSA), New Delhi.


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