India hikes defence budget to Rs7,280 bn

NEW DELHI: Indian Finance Minister Nirmala Sitharaman, in her second budget presentation, on Saturday announced a six per cent increase in defence budget to Rs3.37 lakh crore (PKR7,280 billion) against last year's Rs3.18 lakh crore. For the purpose of modernisation and purchasing new weapon systems, defence forces have been provided with Rs1.13 lakh crore. These funds would be used to purchase new weapons, aircraft, warships and other military hardware.

The revenue expenditure for payment of salaries and maintenance of establishments has been set at Rs2.09 lakh crore, reports the international media.

The defence pension budget has been hiked up to Rs1.33 lakh crore from Rs1.17 lakh crore allocated last year. Notably, the increase in the defence pension budget is more than that given in revenue and capital funds for defence.

The percentage of the allocation has almost remained static at around 1.5 per cent of the GDP which, according to experts, is the lowest since the 1962 war with China.

Finance Minister Nirmala Sitharaman delivered the longest Budget speech in history, clocking in at two hours and 37 minutes. Sitharaman sought to restore confidence in the Budgetary process by restructuring the fiscal consolidation path while staying within the confines of the Fiscal Responsibility and Budget Management Act.

Accordingly, the fiscal deficit for the ongoing fiscal year, 2019-20, was modified to 3.8 per cent of GDP; next year’s fiscal deficit target was set at 3.5 per cent. Sitharaman achieved this feat in spite of constrained tax revenue, a larger giveaway to the states, and tax cuts for the middle class. The government also continued its commitment to capital expenditure by raising it by 18 per cent.

The deficit slippage has been confined to only 0.5 percentage points in both FY20 and FY21 as against the previously announced fiscal consolidation path. In FY20, expenditure was compressed, and dividends from the public sector and the Reserve Bank of India came in handy. For FY21, Sitharaman expects to raise an unprecedented Rs 2.1 trillion from disinvestment, including a sale of some of the government stake in the Life Insurance Corporation of India through an initial public offer.