Spending plan: India hikes defence budget by 5.3%

Compared to previous years’ increases, the current year’s hike in defence spending is modest.

NEW DELHI: India unveiled a surge in government spending on Thursday, despite expectations of an austerity budget to shore up its finances, imposing new taxes on the rich and large companies to fund a dash for growth ahead of an election due by next year.

The slowdown in the economy was underlined by data released just hours after Finance Minister P Chidambaram delivered his budget for the coming fiscal year, showing GDP growth tumbled to 4.5% in the October-December quarter, its lowest in nearly four years.

Stocks, bond prices and the rupee all fell despite Chidambaram's vow to cut the fiscal deficit to 4.8% of gross domestic product (GDP) in the year starting April 1, which some analysts said rested on questionable revenue assumptions given his hefty spending targets.

The defence ministry too saw a stark cut in its budget. Chidambaram thanked the Indian defence minister for being ‘most understanding’ about the cuts after which the defence ministry will now receive a mere 5.3% increase in comparison to last year’s 17% increase.

Experts are of the belief that the cut would prove to be a blow for the armed forces. The total capital outlay for the armed forces was put at Rs795 billion in 2012-13. But in the revised estimates of 2012-13, this figure is Rs698 billion, suggesting that a round sum of Rs100 billion has been shaved off. The outlay for capital in the 2013-14 budget is Rs867 billion.

A senior ministry official commenting on the budget cut cited that the cut would affect different projects undertaken by the ministry. The new budget could delay the efforts to buy howitzer guns and Javelin anti-tank missiles from the United States by at least few months.

"The Indian army would be hit hard due to budget cuts," said the official, noting that a defence deal worth more $12 billion for procuring 126 jet fighters from France's Rafale was already delayed by at least three months.

Defence analyst Lakshman Behera maintained, “One could justify the modest increase in the defence budget because the overall economy is not doing well. But if you break down outlays, the overall government expenditure has increased by 12% but the defence expenditure has increased by only 5.3%.”

Behera also said the percentage growth in capital expenditure for the armed forces was 15% last year but only 9% this year. But over revised estimates, the increase in capital outlay is 25%.  He said this is bound to hit the modernisation plans of the three services.

The budget raised outlays on education by 17%, health by 24%, agriculture by 22% and rural development by a massive 46%.

Chidambaram also earmarked $1.8 billion for the government's flagship food security bill intended to provide cheap grains to up to 70% of India's 1.2 billion population and reduce rampant malnutrition. AGENCIES (WITH ADDITIONAL INPUT FROM ADITI PHADNIS)