Army, IAF struggle to exhaust Capital Budget for 2021-22; Defence minister asks to expedite spending

The defence services have recorded an unusually slow pace of expenditure of their capital budgets so far for 2021-22, even as the financial year draws to a close in little more than two months, News18 has learnt.

Defence sources told News18 that, so far, the Army has spent the lowest — approximately 40 per cent — of its capital budget for the ongoing financial year, while the Indian Air Force (IAF) has had a capital expenditure of around 70 per cent. The Navy has spent the highest among the three services at around 90 per cent of its capital outlay.

While the actual capital expenditure of the services in the previous financial year is yet to be made public, sources said the spending by the three services was much higher than the current financial year.

The low spending of the defence budget comes as an aberration because the services are learnt to have projected the requirement for capital budgets way higher than they were allocated in 2021-22.

The defence budget is divided under four broad heads — defence pensions, capital outlay (for new, big-ticket acquisitions and modernisation), revenue (for smaller acquisitions of spares, maintenance costs), and miscellaneous, which includes various administrative expenses.

Last week, Defence Minister Rajnath Singh held a meeting of senior defence officials in order to take stock of the overall expenditure so far, as well as to review the progress in meeting expenditure targets on indigenous procurements by the services.

"He asked the services to expedite spending of their capital budgets at the earliest so that maximum amount can be spent by the end of the financial year in March," a defence source told News18.

The source said that the Defence Minister also emphasised that the services should attempt meeting their domestic expenditure targets earmarked on the capital budget. This was earmarked this year at 64 per cent in the ongoing financial year, as compared to 58 per cent the year before.

The overall defence budget for 2021-22 is Rs 4.78 lakh crore, of which the capital budget is Rs 1.35 lakh crore. The capital outlay for the Army in the ongoing financial year was Rs 36,000 crore, for the Navy it was Rs 33,000 and for the IAF it was Rs 58,000 crore.

Reasons for poor capital expenditure

Multiple sources in the three services told News18 that the primary reason for poor expenditure was the Covid-19 pandemic, because of which many contracts could not materialise and deliveries got delayed.

"This was particularly true of indigenous equipment manufactured by the defence PSUs," a second defence source said.

"The delayed deliveries and contracts had a cascading effect on the payments. Thus the payment milestones got shifted and the spending got postponed," the source said, adding that some of the planned procurements also got delayed as they were awaiting final approvals at various levels.

A third defence source said that another reason for the delay in capital spending was the capping of capital budgets for domestic procurements.

"Spending on ongoing foreign procurements would have been faster. But a cap for indigenous procurements, conclusion of certain domestic contracts and deliveries getting delayed together led to delayed spending," the source added.

As per sources, the services are now trying to list out the procurements that are in advanced stages and can be concluded at the earliest to ensure maximum expenditure of the capital budget.

This includes purchase of light combat helicopter from Hindustan Aeronautics Limited, contracts for certain equipment upgrades and other shipbuilding contracts.