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India’s Raising Defence Pension Bill

Defence Budget in 2020-21 = Rs 3.375 lakh crore (a marginal rise)

Pension 2019 Budget = Rs 1.12 lakh crore

Pension 2020 Budget = Rs 1.33 lakh crore (19% increase)

Both together – Defence Budget = Rs 4.71 lakh crore.

The Statistics for Defence pensions

Budget for 2020-21 has allocated Rs 1,33,825 crore to defence pensions.

In 2005-06,this was Rs 12,715 crore (10 times increase in 13 years) 4.4 % of the total expenditure of the central government expenditure

57 % of Defence Ministry Budget = salaries + pensions

28.4 % of Defence Ministry Budget = pensions 0.6 % of GDP

The composition of government expenditure in the last few years reveals that expenditure on defence services, salaries, pensions, interest payments and major subsidies account for more than sixty per cent of total expenditure

  • MGNREGA 61,500 crore
  • Swachh Bharat Rs 12,300 crore
  • Education Rs 99,300 crore
  • Health Rs 69,000 crore

Why is the bill so high?

26 lakh armed forces pensioners and family pensioners Approximately 55,000 pensioners are added every year.

The implementation of the Seventh Pay Commission recommendations in 2017 again increased the defence pensions bill.

One Rank, One Pension(OROP) scheme cost Rs 8,600 crore.

Defence pensions are unique in many ways.

Defence personnel retire at a young age and thus continue to get pensions for a longer period of time than their civilian counterparts.

Army jawans, who are recruited early on, serves for 20 years and then receives pension for 30-35 years of his life.

Military pensioners : serving military personnel 1.7 : 1.0

Civil pensioners to civil working personnel = 0.56 : 1 This ratio in defence is projected to further change as life expectancy in India goes up and retired personnel live far longer than earlier.

All civilian employees in the government who joined service on or after 1 January 2004 do not get an assured pension but come under the ambit of the contributory National Pension Scheme (NPS).

That was meant to reduce the pensions bill of the government on the civilian side, but military personnel have been excluded from the ambit of the NPS because of their short service span.

Why is this worrying ?

• The more the government spends on salaries and pensions, the less it can spend on modernising the armed forces.

• Defence pensions allocation is now Rs 15,291 crore more than the Defence Ministry’s total capital expenditure.

• C.E. goes towards modernisation of the armed forces.

• Pensions bill now nearly equals the salaries bill

– Economic growth slowing down

–  Requirement from development and infrastructure sectors

– Modernisation of the forces has taken a backseat because of shortage of funds.

–  No major new contracts for military equipment have been inked.

– This issue has been repeatedly highlighted by the parliamentary standing committee on defence in its reports

Unless India’s economy grows at a double-digit rate, it will not be possible to furnish this bill and still modernise the armed forces.

What can be done to lower the pension bill?

• Expenditures on salaries, pensions and interest payments are committed in nature and therefore have limited headroom for creation of additional fiscal space.

• Increase the retirement age. (Unemployment? stopping recruitment for a few years will worsen the situation.)

• Absorption of retired military personnel into paramilitary forces or police.

Several initiatives have been undertaken by the Ministry of Defence to improve efficiency and utilization of defence expenditure, promote self-reliance, and encourage private sector participation in the defence sector. Alternative means to generate funds for military modernisation.

  • setting up a non-lapsable fund,
  • levy of cess,
  • monetisation of surplus land and other assets,
  • tax-free defence bonds
  • utilising proceeds of disinvestment of defence public sector undertakings

What is China upto?

China’s People’s Liberation Army (PLA) has already initiated its most wide-ranging and ambitious restructuring since 1949.

• Reducing the size of the PLA by 300,000 soldiers

• Increasing the size of its navy and air force

• Creating new Central Military Commission (CMC) departments and ground forces headquarters

• Restructuring seven military regions into five theatre commands. This exercise is intended to enhance the PLA’s ability to conduct joint operations on land, at sea, in the air, and in the space and cyber domains.

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