Book Chapter - Neither Guns nor Butter: The Inconvenient Truth of India’s Defence Financing
This is a draft of the chapter contributed by Pranay Kotasthane in the book ‘In Hard Times: Security in a Time of Insecurity’, October 2022, Edited by Nishtha Gautam, Praveen Swami, & Manoj Joshi, ISBN: 978-9354359767.
Introduction
At the heart of all defence planning is an economic story: wealth underpins military power. Resources needed for financing defence are directly related to economic growth as China’s dual rise has shown yet again. When an economy is growing steadily, this link between wealth and defence is taken for granted. During such happy times, policy debates focus on more comfortable problems such as ‘What portion of the growing economy should be reserved for defence expenditure?’, ‘How should the growing defence kitty be allocated among the three armed forces?’, ‘What proportion of this defence expenditure must be allocated for acquiring new defence platforms?’ and so on.
This chapter argues that such happier times are behind us and getting back on the growth path will take time and purposeful effort. A decade of lacklustre economic performance, bracketed towards the end by an unprecedented economic shock, means that resources funding both defence and development are set to decline. This situation is not an ordinary financial challenge requiring incremental adjustments such as symbolic salary cuts or fewer uniforms. Nor will the routine blame games that civilian and military stakeholders frequently indulge in serve any purpose.
If this feels unnecessarily alarmist, think again. India’s economy in FY 2020–2021 was smaller than it was in FY 2019–2020. Moreover, an economic contraction of this kind last happened in India nearly forty years ago in FY 1979–1980; more than half of all adult Indians have never experienced a recession. Thus, even if an economic turnaround is assumed as soon as the pandemic is contained, India’s GDP in real terms would reach the pre-pandemic level only by the end of the current financial year.
Not to forget, India’s economic situation was weak even before the pandemic. FY 2019–2020 marked the end of an entire decade of economic slowdown, which saw a meagre 3.1 per cent decadal growth in per capita GDP, way below the robust growth of 11.9 per cent in the 2000–2010 period.[1] Consequently, income levels of Indians over the last decade have risen far slower than those of Bangladeshis, Vietnamese and, sure enough, the Chinese.
This slowing economy combined with a sudden economic shock has begun to show its impact on India’s defence spending. This chapter argues that even if the defence expenditure is increased to 2.5 per cent of GDP for the next ten years, up from the current allocation of 2.1 per cent of GDP,[2] resources for defence modernisation will remain severely constrained. This is the truth that India’s strategic establishment needs to confront.
Hitherto, any such discussion on resource allocation for India’s armed forces usually ended in formulaic blame games. For instance, when the issue of rising defence pensions is raised, the armed forces community finds a punching bag in defence civilians. Or, when the subpar performance of India’s defence public sector units is brought up, the defence production bureaucracy blames the private sector’s incapability in developing and producing weapons systems.
All policy changes begin with an acknowledgement that a problem exists in the first place. By laying bare our current predicament, the hope is that India’s strategic establishment will be forced to come together as one team to design creative solutions.
To make a case why incremental changes are no longer an option, I begin by narrating the story of India’s defence financing over the last decade in the next section. After that, I construct scenarios to visualise the economic impact of Covid-19 on India’s defence-expenditure profile over the next decade. In the final section, I discuss four approaches to solve this challenge.
Story of the Decade Gone By
Guns vs butter describes the unavoidable trade-off between two critical priorities of a State—defence (guns) and development (butter). The trade-off exists because a common pool of money finances both development and defence. Spending more on one implies less money for the other. Finding an optimal balance between guns and butter under resource constraints is a choice that every government needs to make. In this section, I look at what the budgetary choices made by the Union governments over the last ten years reveal about the guns vs butter question.
Defence Expenditure: How Much Is Enough?
The first five items in the Union List of the Constitution’s seventh schedule relate directly to India’s defence. This is because defence functions are unambiguously the most important constitutional function of the Union government. Consequently, the budgetary allocation to the Ministry of Defence (MoD) is the highest among all Union ministries.[3]For instance, in FY 2019–2020, the Union government’s total expenditure accounted for 13.2 per cent of GDP, of which MoD alone accounted for 2.2 per cent of GDP.[4] Moreover, MoD’s spending in nominal terms has increased at a compounded annual rate of 9.2 per cent over the last decade.[5]
At first glance, this defence expenditure scene doesn’t look all that bad. But under the hood, the situation is quite different. At the start of the decade, defence expenditure made up 2.8 per cent of GDP and 17.6 per cent of Union government expenditure. By FY 2021–2022, this has declined to 2.1 per cent of GDP and 14 per cent of Union government expenditure.[6] In other words, when a slowing economy forced its hand, the Union government chose butter over guns at the margin. Defence has declined in priority relative to non-defence functions.[7]
While the supply of funds declined, the demand for higher defence expenditure became louder. Citing unavailability of funds for modernisation, the Parliamentary Standing Committee on Defence (2017–2018) noted that a defence spending of at least 3 per cent of GDP is ‘considered to be optimal and necessary for ensuring the operational preparedness of the Forces’.[8]
The Ministry of Finance expressed its inability to commit to such a benchmark, citing the guns vs butter paradox in response: ‘Since government resources come with definite cost, resource allocation is made among various competing priorities. Thus, defence expenditure as definite percentage of total government expenditure/GDP cannot be ensured considering the fact the resource allocations are made on need basis.’[9] With the economic shock of Covid-19 to recover from, increasing defence expenditure to the 3 per cent benchmark is unlikely.
Meanwhile, the other important reason for increasing India’s defence expenditure comes because of changing threat perceptions. China’s hostile actions along India’s northern borders have underscored the point that China, and not Pakistan, should be the focus of India’s defence planning for the next decade. India needs to manage a much bigger and richer adversary in the backdrop of an economic slowdown.
Defence Expenditure: What to spend On?
Even as the debate on how much to spend on defence continues, the qualitative nature of this spending has undergone a significant change over the last decade, as illustrated in Fig. 2.1, which gives the percentage-wise composition of India’s defence expenditure components. The significant components are salaries, defence pensions, capital outlay, stores (maintenance expenditure) and others.
Fig. 2.1 India’s defence-expenditure profile over the last decade in percentage terms [10]
While pensions as a percentage of the overall defence budget increased from 18 per cent in 2011–2012 to 26 per cent in 2020–2021, the proportion of capital outlay dropped from 30 per cent to 27 per cent in the same period. This drop was much sharper until 2018–2019, when it hit a low of 22 per cent. Since then, the capital outlay has increased incrementally. Moreover, these capital outlay numbers are an overestimate as they include some revenue expenditure items under the Capital Budget Revenue Procedure (CBRP) since 2007–2008.[11] Quite clearly, the expenditure profile has skewed towards higher personnel cost such as salaries and pensions. This has come at the cost of an equivalent drop in capital outlay and stores (operational and maintenance expenditure).[12]
Numerically, while the overall defence expenditure has increased at a nominal annual rate of 9.5 per cent, salaries expenditure increased by 9.3 per cent and pension expenditure by 14 per cent. On the other hand, the non-personnel costs—stores (4.8%), others (8.9%) and capital outlay (8.4%)—have risen at a much lower rates.
A clear outlier is the defence pension expenditure. The comparatively higher increase in defence pension expenditure can be attributed to two reasons. The first reason is organic. India’s terms of service engagement for personnel are such that the job in normal circumstances ends with a pension. This became a norm after 1976 when the new terms increased the minimum period of service, which effectively meant that most personnel retired with a pension in hand.[13] This change, combined with an increase in longevity of life, played a major role in increasing the defence pension budget from 2.28 billion rupees in 1980–1981 to 1.25 trillion rupees in 2020–2021.[14]
The second reason is the implementation of the One Rank One Pension (OROP) scheme. Since it came into effect, the pension expenditure has risen even faster than before, which is at a compound annual growth rate of 15 per cent.[15] Moreover, OROP being a defined benefit scheme that updates outgoing pension periodically based on current employee compensation, the Union government committed itself to a liability that will keep growing at even higher rates. The OROP scheme order was issued in November 2015 and it came into effect retrospectively from 1 July 2014. Since then, the Union government has disbursed nearly 100 billion rupees on account of arrears in addition to a yearly recurring expenditure of about 70 billion rupees.[16] Even so, the controversy over pensions hasn’t gone away. The Supreme Court of India is examining a plea filed by the Indian ex-servicemen’s movement demanding annual revision of pension under OROP instead of the proposed five-year periodic revision.[17] If this is carried out, the defence pension expenditure will rise faster.
On the other hand, a clear casualty in the defence expenditure story over the last decade has been capital acquisition. Given the military dimension of the China challenge, modernising India’s forces is of immediate importance. Strengthening India’s maritime power also requires substantial capital investment. However, the rise in the pension bill seems to have crowded out the expenditure on capital acquisition and stores.[18] Such has been the decline that the budget for modernisation does not even cover the liabilities on past purchases.[19] This has been the case every year since 2016–2017, forcing the standing committee on defence (2019–2020) to observe that inadequate allocation for committed liabilities could lead to India defaulting on contractual obligations.[20] This situation has meant that there is virtually no fiscal space for new schemes of modernising the armed forces. Even the financing of existing schemes is not guaranteed.
Taken together, the dual supply-side challenge due to an economic slowdown plus the Covid-19 economic shock and the demand-side challenge posed by China mandate major changes in India’s defence planning.
Peering into the Future
How is India’s defence-expenditure profile likely to look over the next decade given the dual impact of a slowing economy and an economic shock? This section attempts a tentative answer to this important question by first imagining two economic recovery paths and interplaying them with two likely defence-expenditure trends.
Even making simple defence projections over the next decade is no longer easy because the economic impact of Covid-19 is still not fully known. Given this constraint, I rely on models that imagine possible recovery pathways out of the crisis. Fig. 2.2 shows two such pathways for India’s economic recovery over the next decade, compiled using multiple economic reports.
Fig. 2.2 Possible economic pathways for India over the next decade [21]
Both the pathways are realistically optimistic to varying degrees. In the first pathway, labelled ‘quick rebound’, the economy rebounds to FY 2019–2020 levels by FY 2022–2023. In the second pathway, labelled the ‘long march’, the economy recovers to FY 2019–2020 levels only by FY 2023–2024 due to a slow annual recovery rate of 3 per cent. The ‘no Covid-19 counterfactual’ pathway serves as a reference to show what the economy was projected to be prior to the pandemic. For this analysis, the more pessimistic economic pathways have intentionally been omitted as they tend to divert the discussion towards cynicism and inaction instead of cogitation and reform.
The actual recovery is most certainly going to be quite different from these simplified projections. Nevertheless, the two pathways are useful for our purpose of defence planning.
The defence expenditure itself can be imagined following two separate trend lines. At the lower end we have a ‘chalta hai’ trend where the Union government continues to allocate 2.1 per cent of GDP to defence over the next ten years. The implicit assumption here is that the Union government does not see a need to accord a higher relative priority to defence than it currently does. At the higher end is an ‘achche din’ trend in which the Union government increases defence expenditure to 2.5 per cent of GDP starting FY 2022–2023, taking cognisance of the challenge posed by China’s military power and the resulting need to rapidly modernise. Though the demand has been to set 3 per cent of GDP aside for defence expenditure, discussing this target seems unhelpful given the economic shock of Covid-19, which has increased the need for immediate spending on developmental heads such as infrastructure and health, on the one hand, and decreased the taxable capacity of the economy, on the other.
Interplaying the two economic pathways with the two defence expenditure trends creates these four useful analytical scenarios.
Tab. 2.1 Analytical scenarios at the intersection of defence trends and economic pathways
These scenarios give a peek into the defence expenditure profile of the future. This helps us visualise if there is any fiscal space available for capital acquisition and modernisation of the armed forces.
In order to do that, two more assumptions are needed. First, assume that all components of defence expenditure, except capital acquisition, continue to grow at their current rates. This is a reasonable assumption because expenditure on the two biggest components, pensions and salaries, are existing commitments that need to be honoured.[22] Second, the space for capital acquisition in each year is derived by subtracting all other components from the projected defence budget of that year.
Tab. 2.1 shows the defence expenditure profile in the two ‘chalta hai’ scenarios. Assuming that all other components grow at current rates, the fiscal space for capital outlay will become zero by the end of FY 2027–2028 in case of slower economic recovery. This is because of the economic contraction initially and later because of the higher rate of increase in defence pensions. The negative numbers indicate that even components other than capital outlay growing at their current pace become unsustainable. In practice, the Union government is likely to borrow to avoid defaulting on contractual payments for committed capital acquisition liabilities in the short term. In case of a quick economic recovery, capital outlay expenditure continues to remain in the current range of 1.2 trillion rupees per year until the end of the decade. In short, any significant modernisation can be ruled out in these two scenarios.
Fig. 2.3: The two ‘chalta hai’ defence expenditure scenarios. (Inflation assumption: 4 per cent)
In contrast, Fig. 2. 4 shows the defence expenditure profile in the two ‘achche din’ scenarios. If the Union government were to ramp up its defence expenditure to 2.5 per cent GDP starting next financial year, the fiscal space for modernisation opens up but only just. In case of a ‘long march’ recovery, the funds available for acquisition decline to an insignificant number, barely covering the existing committed liabilities for a couple of years. This is not very different from the 0.89 trillion rupees that was allocated for capital acquisition in FY 2019–2020, which itself was insufficient to cover the committed liabilities bill of 1.13 trillion rupees that year. In the case of a ‘quick rebound’ recovery, the situation is slightly better. The fiscal space available for capital outlay settles at nearly 2 trillion rupees every year by the end of the decade. Subtracting the committed liabilities bill leaves approximately 1.38 trillion rupees budget on average for further modernisation over the next eight years. In short, there’s some fiscal space for new defence platforms only if defence expenditure is hiked to 2.5 per cent GDP and the economy bounces back to high growth rates.
Fig. 2.4 The two hopes fulfilled defence expenditure scenarios. (Inflation assumption: 4 per cent)
There are two other, less likely, defence expenditure trends that deserve mention. Given fiscal constraints, the Union government might even be forced to decrease its defence expenditure to below the current 2 per cent of GDP. However, this trend is unlikely given the border tensions with both China and Pakistan. Moreover, the two largest components of the defence expenditure are already committed in the form of pay/allowances and pensions. It would be imprudent to go back on any commitments made to serving personnel and retirees. It is more likely that the Union government will either borrow from the market, raise new taxes or make expenditure cuts in other ministries.
The second less-likely trend is the one proposed by the standing committee on defence in 2017, arguing that defence spending, after excluding pension and other non-services expenditure, should be at 3 per cent of GDP. This looks impractical given that this translates to nearly 4.4 per cent of GDP, including pension expenditure—more than double of the current 2.1 per cent of GDP. With government revenues set to decline and the developmental challenges ahead, a doubling of defence expenditure is unlikely.
To conclude, this section projected defence expenditure trends for the next ten years, assuming realistically optimistic economic pathways. The main finding is that there is virtually no fiscal space for any significant modernisation, even with defence expenditure being raised to 2.5 per cent every year except in the highly optimistic economic scenario. India’s strategic establishment must consider the reality of these fiscal constraints in its long-term planning. This situation demands creative solutions and fundamental organisational reforms.
Show Me the Solutions
In the last section, I tried to inject some fiscal realism into the defence financing debate. The stark reality demands that many assumptions underlying current plans need to be revisited. Robust economic growth remains the only long-term solution to the problems raised. In this section, I briefly discuss some inconvenient but essential approaches to create fiscal space for defence modernisation in the short term.
A whole-of-government approach
India’s strategic establishment needs to acknowledge that the defence finance crunch cannot be solved by the MoD alone. The solution lies in a whole-of-government approach[23] where the Union government must commit to prioritising defence expenditure in line with future threat projections, even if it means borrowing from the market or reducing expenditure elsewhere. The good news is that there is enough slack in government expenditure, which, if reduced, can permit defence modernisation without affecting key developmental priorities like health, education, food and water. Here’s a quick look at some of the areas where expenditure can be curtailed:
Cut non-merit subsidies. One estimate suggests that in 2015–2016, unwarranted non-merit subsidies of the Union and all state governments combined amounted to over 5.7 per cent of GDP.[24] Nearly a fourth of this is doled out by the Union government. Even halving this subsidy bill can free up a fiscal space of nearly 0.8 per cent of GDP.
Rationalise centrally sponsored and central sector schemes. Currently totalling 116, many of the Union government schemes encroach on the domain of state governments. Rationalising them will create fiscal space for defence.
Disinvestment in non-strategic firms. There are currently 249 operating Central Public Sector Enterprises (CPSEs). The Union government should divest its stake from all CPSEs except a select few of core strategic importance. It is unconscionable for the government to cut defence expenditure while injecting taxpayers’ money into failing airline companies and banks.
A non-lapsable fund for capital acquisition
Multiple parliamentary standing committees on defence have repeatedly highlighted the need for a non-lapsable defence capital fund account as a budgetary mechanism for handling the multi-year capital acquisition processes. The Fifteenth Finance Commission too has recommended the creation of such a fund. Since capital acquisition is a complex process spanning multiple years, a non-lapsable capital account would be useful in the seamless carryover of surplus funds from one year to the next instead of the normal budgetary procedure of handing over unutilised funds back to the Consolidated Fund of India.
Money can be drawn out of this non-lapsable fund as and when a capital acquisition deal fructifies. Crucially, such a fund can be initially seeded by the MoD itself using two revenue streams. One stream is monetising of non-essential defence land. The MoD is the biggest landholder of the Union government, a lot of which is now prime real estate in India’s major urban centres. Back in 2015, we estimated that the value of army land in Bengaluru city alone was around 3 trillion rupees.[25] Selling some of this land can generate the resources to build bigger and better defence facilities away from city centres while the surplus can be parked in the capital account fund. It would be unconscionable for the MoD to hold on to this land while compromising on defence modernisation.
The second potential source for seeding the capital acquisition fund is to divest stake in underperforming defence public sector enterprises. There are nine defence public sector undertakings and 39 ordnance factories under the MoD operating at widely varying performance levels. Privatising some of these can help populate the capital acquisition fund.
Reduce defence pension expenditure over time
Reducing defence pension expenditure is a wicked problem. The reduction in pension outgo must be made without violating the terms of employment of the entire current set of retirees and serving personnel. This can be done by applying pension reforms to future personnel without any change in the arrangements for the current beneficiaries. For example, starting 2004, the Union government transitioned all civilian employees joining after 1 January 2004 to a new scheme called the National Pension System (NPS), a defined contribution scheme where the pension is paid out of a corpus the employee creates using their own wages. All employees and pensioners before this date continue to remain on the older defined benefit scheme in which the pension liability rests solely with the government. The budgetary savings because of the NPS reform will start showing up once the first cohort of employees who joined in 2004 start retiring.
The armed forces were left out of the NPS in the first phase. They continued to be on a defined benefit scheme that was further improved after the OROP came into effect. It is now time to create an NPS customised to the armed forces personnel and apply it to incoming personnel going ahead so that savings start accruing once they retire after 15 years of service. There are no good short-term solutions to the defence pension problem.
Execute shifts in operational doctrine
A significant part of India’s military might is focused on countering the threat posed by Pakistan, even though the bigger strategic challenge comes from China. Given the fiscal constraints, India’s operational military doctrine need to rebalance this military weight. This would mean breaking up the Pakistan-focused strike corps into smaller formations that have the ability to deliver punitive strikes without posturing. These smaller formations would require firepower assets like airpower, long-range missiles and artillery coupled with special forces capabilities. At the upper limit, there’s a need for division- or brigade-sized formations for executing shallow thrusts.[26]
Resources freed up by breaking up of the strike corps could then be used to strengthen the capability to execute quid pro quo operations in response to China’s salami-slicing on the northern borders. Such an approach would also obviate the need for a separate mountain strike corps.[27]
These then are a non-exhaustive set of solutions that can help tide over India’s defence financing problems. None of them is convenient. Executing any of them will require a fundamental shift in attitude, positive leadership and lots of luck.
Conclusion
In this chapter, I presented a forward-looking analysis of India’s defence financing over the next decade. The important takeaway was that even if the defence expenditure were to be increased to 2.5 per cent of GDP, there is little scope for modernising India’s defence forces to face the China challenge. The gravity of the situation needs the political and defence leadership to come together as a team instead of indulging in blame games. Continuing with a zero-sum guns vs butter approach will only result in a situation where we have neither of them in sufficient measure.
References:
[1] Krishna Kant, ‘“India's 10-Year Growth One of the Biggest Laggards in Asia, EM Peers’,” Business Standard December 1, 2020, https://www.business-standard.com/article/economy-policy/india-s-10-year-growth-one-of-the-biggest-laggards-in-asia-em-peers-120113001325_1.html.
[2] For definitional clarity, this chapter classifies all expenditure incurred by the Ministry of Defence (MoD) as defence expenditure. This spending includes expenditure on defence pensions and MoD (civil) in addition to the revenue and capital expenditures on the three armed forces.
[3] PRS Legislative Research, ‘”Demand for Grants 2020-21 Analysis : Defence,”’, prsindia.org, https://prsindia.org/parliamenttrack/budgets/demand-grants-2020-21-analysis-defence.
[4] For perspective, the two other major components of the Union government expenditure are interest payments on previous loans (3.05 per cent of GDP) and subsidies for petroleum, fertilizer, and food (1.1 per cent of GDP).
[5] Nominal growth rates do not account for inflation.
[6] PRS ‘“Demand for Grants 2021-22”’ . 2019-20 figures are from 5th Report of the Standing Committee on Defence (2019-20) page 12.
[7] Non-defence functions include desirable expenditure on developmental responsibilities and undesirable expenditure on various implicit and explicit subsidies and bailouts.
[8] Standing Committee on Defence ‘“ 28th Report: General Defence Budget, Border Roads Organisation, Indian Coast Guard, Military Engineer Services, Canteen Stores Department, Directorate General Defence Estates, Defence Public Sector Undertakings, Welfare of Ex-Servicemen, Defence Pensions, Ex-Servicemen Contributory Health Scheme”’, Lok Sabha, March 7, 2017 March 7 2017. http://164.100.47.193/lsscommittee/Defence/16_Defence_28.docx
Further, the spending on defence pensions, which has grown the fastest amongst all other components, is imagined to be in addition to this 3 per cent GDP benchmark.
[9] Standing Committee on Defence, “37th Report: Action Taken by the Government on the Observations/Recommendations contained in the Twenty Eighth Report (16th Lok Sabha) on General Defence Budget, Border Roads Organisation, Indian Coast Guard, Military Engineer Services, Canteen Stores. Department, Directorate General Defence Estates, Defence Public Sector Undertakings, Welfare of Ex-Servicemen, Defence Pensions, Ex-Servicemen Contributory Health Scheme”, Lok Sabha, March 12, 2018. http://164.100.47.193/lsscommittee/Defence/16_Defence_37.pdf
[10] Chart recreated based on data compiled from Union Budgets (relevant years). Classification as per PRS Legislative Research’s Demand for Grants Analysis for successive years: Salaries are for the three services and include salary for civilians, auxiliary forces, Rashtriya Rifles, Jammu and Kashmir Light Infantry and Coast Guard. Pensions and capital outlay are of the three services. Pensions include rewards. Capital outlay includes capital expenses on border roads and Coast Guard. Stores includes ammunition, repairs, refits, and spares. Others include administration expenses, expense on research and development and housing.
[11] Vinay Kaushal, “Should the Legacy of Capital Budget Revenue Procedure (CBRP) Be Perpetuated in Draft DPP 2020?”, MP-IDSA Issue Brief, April 10, 2020. https://idsa.in/issuebrief/capital-budget-revenue-procedure-vinayk-100420
[12] Laxman Kumar Behera and Madhulika Baniwal, ‘“Bang for Buck: India’s Defence Expenditure in Wider Perspective”, MP-IDSA July 10, 2020. https://idsa.in/specialfeature/india-defence-expenditure-laxman-madhulika-100720.
[13] Laxman Kumar Behera, Vinay Kaushal, Amit Cowshish, ‘“Defence Pension: A Comparative Study of India, US and UK”, MP-IDSA Policy Brief, April 23, 2020, https://idsa.in/policybrief/defence-pension-india-us-uk-230420#footnote3_ecyycu2
[14] Amit Cowshish and Rahul Bedi, “Anomalies ail defence pension system”, The Tribune, December 3, 2020 https://www.tribuneindia.com/news/comment/anomalies-ail-defence-pension-system-179122
[15] Growth rate calculated using the budgetary allocations for 2015-16 and 2019-20 (Revised).
[16] Press Release, “Five Years of Historic Decision to Implement OROP; Over Rs. 42740 Crore Disbursed to 20,60,220 Defence Forces Pensioners/Family Pensioners,” Press Information Bureau, Government of India, https://pib.gov.in/PressReleaseIframePage.aspx?PRID=1670633.
[17] Abraham Thomas, “'Courts Can't Examine One Rank One Pension Changes': Centre to SC,” The Hindustan Times, October 3, 2020, https://www.hindustantimes.com/india-news/courts-can-t-examine-one-rank-one-pension-changes-centre-to-sc/story-QX0Ls5zfIZqHxHXLgZGoGM.html.
[18] Behera and Baniwal, “Bang for Buck”
[19] Payments for defence platforms are spread over multiple years. The funds allocated under the capital section of the budget are first set aside to meet these projected committed liabilities. The remaining allocation is distributed to meet the projected requirement for other items (MoD statement to the Standing Committee on Defence, 17th Lok Sabha, Report 3).
[20] Standing Committee on Defence, “3rd Report: (17th Lok Sabha) on Capital Outlay on Defence Services, Procurement Policy, Defence Planning and Married Accommodation Project”, Lok Sabha, December 9, 2019. http://164.100.47.193/lsscommittee/Defence/17_Defence_3.pdf
[21] The No COVID-19 Counterfactual is created by extrapolating the World Bank Global Economic Prospects January 2020 forecast to 2021. This pathway assumes 5.8% real GDP growth in FY2020-21 and a steady 6.1% real GDP growth for the next nine years.
The Quick Rebound pathway is based on extrapolating the World Bank Global Economic Prospects June 2021 forecast. This pathway assumes a 7.3% contraction in FY2020-21 followed by return to growth rates of 8.5% in FY2021-22, 7.5% in FY 2022-23, and 6.5% in FY 2023-24. For the sake of this exercise, I have assumed a steady growth rate of 6% for the next eight years. World Bank Outlook link: https://openknowledge.worldbank.org/bitstream/handle/10986/34517/9781464816406.pdf?sequence=7&isAllowed=y
The Long March pathway is the pessimistically optimistic economic pathway that assumes +3% growth for ten years starting FY 2021-22.
World Bank. 2021. Global Economic Prospects, June 2021. Washington, DC.
World Bank. doi:10.1596/978-1-4648-1665-9. License: Creative Commons Attribution CC BY 3.0 IGO.
[22] The nominal compound annual rates are obtained by estimating the rise in these components between FY2011-12 and FY2020-21 and assuming that the same trend continues. So, Stores grows at 4.8 per cent, Others at 8.9 per cent, Salaries at 9.4 per cent. For pension, the nominal compound annual rate assumed is 15 per cent, same as the rate the period after OROP came into effect.
[23] Pranay Kotasthane and Lt Gen Prakash Menon, ‘Not Fair to Cut Defence Pay, Pensions and Inject Funds in Airlines, Banks’, ThePrint, 13 November 2020, https://theprint.in/opinion/not-fair-to-cut-defence-pay-pensions-and-inject-funds-in-airlines-banks/542965/.
[24] Sudipto Mundle and Satadru Sikdar, ‘“Subsidies, Merit Goods and the Fiscal Space for Reviving Growth:
An Aspect of Public Expenditure in India’,” NIPFP Working Paper 282, https://www.nipfp.org.in/media/medialibrary/2019/11/WP_282_2019.pdf
[25] Nitin Pai, “Free up the Army's Land,” Business Standard May 10, 2015, https://www.business-standard.com/article/opinion/nitin-pai-free-up-the-army-s-land-115051000748_1.html.
[26] This idea was first proposed by Lt Gen Prakash Menon in Prakash Menon and Pranay Kotasthane, ‘Covid-19 warrants long overdue doctrinal shifts in military planning”, Indian Public Policy Review, vol 1 No 1 (2020): https://www.ippr.in/index.php/ippr/article/view/7.
[27] Menon and Kotasthane, “COVID-19 warrants long overdue,”.
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