Defence : Need to raise Capital Expenditure – UPSC GS3

  • The intrusion of Chinese soldiers across the Line of Actual Control (LAC) in 2020 brought the Indian military closer to a two-front confrontation with both China and Pakistan.
  • There is a situation of peace after the renewal of the ceasefire agreement on the India-Pakistan Line of Control. Further, the PLA is also quiet after largely achieving its operational objectives in Ladakh.
  • But the threat of a two-front war is still looming, which creates an urgency to modernize the military.
Pattern in the allocation of defence budget:
  • The government has been allocating fewer resources for capital expenditure than demanded by the military since 1992.
  • There is a dire shortfall of funds for capital purchases.
  • Each year, the military calculates its Capex requirements for the coming year and projects its requirement to the Ministry of Defence (MoD).
  • The MoD projects this onwards to the Ministry of Finance (MoF).
  • MoF slashes the military’s requirement and allocates a smaller capital budget instead.
  • The current defence budget was presented in the backdrop of an ongoing conflict between Indian troops and the PLA in Ladakh.
  • The MoF still slashed the military’s Capex projection of Rs 199,553 crore by a whopping 38 percent (Rs 76,553 crore), allocating just Rs 123,000 crore.
Why is there a cut on defence expenditure every year?
  • Governments have operated on the assumption that a full-scale war was highly unlikely and, therefore, equipment modernization was wasteful.
  • Border conflicts, such as the 1999 Kargil war, the 2017 Doklam confrontation, and the ongoing Ladakh intrusions are not serious enough to make equipment modernization an imperative.
  • If things go wrong, such as in Kargil where the army was caught without 155-millimeter artillery ammunition for its Bofors guns, we rely on friends like Israel to bail us out. 
Ways to generate revenue for incurring greater expenditure:
  • Goods and services tax (GST) could be increased by 1 percent in all slabs as a military modernization cess.
  • Much of the education cess on income tax remains unutilised. It can be reduced by a percentage point and a 2 percent cess for military modernization could be levied.
  • If increasing taxation is unacceptable, the defence services could monetise some of its 17 lakh acres (2,833 square kilometres) of defence land.
  • MoD can do disinvestment in the 41 factories of the Ordnance Factory Board (OFB). The factories produce arms, ammunition, and equipment for the military worth about Rs 12,000 crore annually.
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