India caps military spending for three months

IDD exclusive

Reeling under the impact of the COVID-19 virus and the resultant country-wide lockdown,  India has announced a ‘capping’ of military spending for the next three months.

The impact of capping — not cutting down spending —  for now, would be insignificant. However,  how India emerges from the lockdown, ending April 15, will determine the flow of cash in the coffers of the government by way of taxes which in turn determine if this cap is lifted, eased for continued.

There is a possibility of the lockdown getting extended in phases, or in some parts of India which have declared as ‘hotspots’ for Covid.

As per orders of the Ministry of Finance, the budgetary cap shall remain in force for the first three months of the ongoing financial year. Indian financial year runs from April 1 of each year till March 31 the next year.

In affect the cap shall remain in place till June 30, 2020.

The order of the Finance Ministry asks the Ministry of Defence to “restrict expenditure to 20 percent of Budget estimates for the Q-1 (first quarter)”. In effect this means no more than 20 percent of budget for capital spending or that meant for training and day-to-day expenses like fuel to kept within the limits set by the Ministry of Finance. Read the entire order here.

The five-page order  on April 8, listed out the spending pattern for each sector. The order named “Cash Management in Central Government – Modified exchequer control based expenditure management”  is explanatory in nature.

The Ministry of Defence is among those ministries which would have to restrict spending to 20 percent of the Budget.

As of now New Delhi, in the past five years, has graduated to spend  anything upto  $ 11 to $ 13 billion annually on what it terms ‘capital acquisitions’ – defined as new purchases that cost beyond a certain amount of money and are met through what is termed the ‘capital head’  of the budget. 

This year it had set aside Rs 1,13,626 crore ( approx $ 15 billion) for  The capital allocation used for purchase of new weapons, aircraft, warships and other military hardware like guns and new UAVs.

Any dramatic increase or a sharp decrease in this monetary outlay is not expected. It cannot be increased dramatically as India has other expenses too. Historically, India always procured slowly, in tranches and on existing priorities. The budget cannot be decreased as India — hemmed in by Pakistan to the west and China to its north – sees a collusive threat from the two who are ‘partners’.

Defence Minister Rajnath Singh on March 20 had ruled out an impact on India’s defence procurement due to the ongoing global economic situation.

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