#157 Money Matters

Programming Note: It&#8217;s just me this time. RSJ will be back next week. - Pranay<br/><br/>India Policy Watch #1: The Indefensibility of India&#8217;s Defence Financing<br/><br/>Insights on burning policy issues in India<br/><br/>&#8212; Pranay Kotasthane<br/><br/>Government budgets should be seen in the context of on-ground realities and future targets. The immediate context of the latest defence budget is the continuing stand-off between Indian and Chinese troops in eastern Ladakh. Since it began in May 2020, this stand-off has underlined the need to urgently equip India's defence forces to manage the strategic challenge posed by China. More firepower than Pakistan can no longer be the end goal of defence planning. Instead, India needs a decadal plan to effectively block and deter China's salami-slicing strategy. &#160;The other important element underlying the defence budget is the COVID-19 pandemic. Last year's economic downturn further reduced the fiscal space and precluded a substantial rise in defence expenditure. Given that the government expects the economy to cross the pre-pandemic level in the upcoming financial year, it is worth comparing this year's defence budget with the pre-pandemic and pre-Ladakh stand-off year FY20. The traditional approach of comparing expenditures with the last year's budget is not as helpful because the previous year was an anomaly on many counts.First, the overall trend in defence spending is not encouraging. One way to measure the importance of a sector is to analyse the percentage of overall government expenditure it occupies. The Ministry of Defence's (MoD) relative importance has declined on this count. MoD expenditure now comprises 2.02 % of GDP (down from 2.22% in FY20) and 13.3% of central government expenditure (down from 16.7% in FY20). The more worrying part is that this decline is not recent. Since FY10, the MoD's expenditure has been steadily falling as a proportion of government expenditure. The Parliamentary Standing Committee on Defence's 2017-18 exhortatio