Indian Defence Review

Concern about the rising cost of Armed Forces manpower has been a topic of debate ever since the 5th Pay Commission recommendations were implemented in the 1990s. Now that the 6th Pay Commission has been constituted, it is timely to take an overview of the position today.

In the Defence Budget, Manpower and manpower-associated costs are shown as Revenue Expenditure. The costs of modernising existing platforms, weapons and systems and acquiring of new ones are shown as Capital Expenditure.

The rounded-off figures below reflect trends in the cost of manpower

These figures need to be examined in little more depth:

•             85% to 90% of the Defence Budget are “Obligatory Payments” that cannot be trifled with – these comprise Pay and Allowances (Revenue Expenditure) and, under Capital Expenditure, payments for new platforms and systems for which contracts have already been signed. Increase in manpower costs increases “obligatory payments”. Until recently, such increases used to eat into the residual 10% to 15% intended for new acquisitions and modernisation of existing assets. This is now prohibited – the Capital Budget cannot be trifled with.

•     Despite no significant growth in numbers, defence manpower costs have continued to rise. Quite clearly, 11% annual growth rate in manpower costs cannot be sustained indefinitely.

•             Reportedly, the recent Fiscal Responsibilities and Budget Management Act requires cost growth to be restricted to 3 % and requires achievement of zero % revenue deficit by 2009.

•             “Outsourcing” has been formally mandated, “if it can be done”. The manpower thus rendered surplus is required to be diverted to meet pending / new proposals for additional manpower.

•             The bill for today’s ten lakh defence pensioners is 13,300 crores. This amount is more than six times the total annual manpower cost and constitutes 50 % of the Government of India’s total pension bill.

•             Defence pensioners increase by about one lakh every year – 60,000 to 70,000 Personnel Below Officer Rank, 25,000 civilians and 1000 to 1200 officers.

It is not yet clear whether the 2007-11 Five Year Defence Plan will make provision for the increase in cost of manpower resulting from the recommendations of the 6th Pay Commission. Hitherto this cost used to be met from within existing annual allocations. This was inescapable because the Ministry of Finance had no way of instantaneously generating additional resources for each Ministry every time a Pay Commission recommended higher Pay and Allowances. Since the annual budget was not elastic, increases in cost of Pay and Allowances used to be ‘managed’ by nibbling the allocations in the capital budget. Since nibbling is no longer permitted, presumably Government will provide additional allocations. It is not clear how this would reconcile with the Fiscal Responsibilities and Budget Management Act From the Armed Forces end of the telescope, there does not seem to be an easy way out of a basic paradox:

•             The Armed Forces formulate proposals to improve Pay and Allowances to an extent that will attract the required calibre of youth to join.

•             Concurrently, it is imperative to maintain parity with civilian Central Government Services who too are seeking to attract higher caliber youth.

•             It would be indefensible to suggest that Pay Commission proposals should be based on reducing the cost of manpower. Willy-nilly, pragmatic considerations will prevail to maintain parity between the uniformed and civilian fraternities.

From the Defence Finance end of the telescope, neither can the Defence Budget be exempted from the macro-economic directives of the Fiscal Responsibilities and Budget Management Act nor can the recommendations of the 6th Pay Commission be ignored.

It will be interesting to see how these two are going to be reconciled.