Tuesday, November 4, 2014

One rank, one pension scheme pushes up defence pension bill

Puja Mehra

40 per cent hike poses fresh challenge for Jaitley

The implementation of one rank, one pension has pushed up the Centre’s defence pension payments by a record 40 per cent, posing fresh challenges to Union Finance Minister Arun Jaitley’s resolve to keep the Centre’s fiscal deficit within the budgetary target of 4.1 per cent of the Gross Domestic Product.
The armed forces pensions bill for the first six months of the current fiscal, from April to September, has turned out to be about Rs. 8,000 crore higher than for the corresponding period last year. Mr. Jaitley had provided only Rs. 1,000 crore for the whole year towards the scheme in the Budget he presented on July 10. The Finance Ministry is revising upwards its Budget estimate for the outgo on account of the scheme that benefits nearly 24 lakh pensioners of the armed forces.
The defence pensions bill for 2014-15 can be roughly expected to go up by about Rs. 6,000 crore over last year’s, the source said. The Budget estimated defence pensions during 2014-15 to be Rs. 50,966.95 crore as against Rs. 44,475.95 crore the previous year.
The austerity measures do not cover pensions and the challenge for Mr. Jaitley will be to find fresh resources for the rapidly rising bill.
“Defence pensions payments normally do not go up so drastically. Though some increase was expected on account of the new scheme, the rise is turning out to be manifold,” the source said.
One rank, one pension means soldiers of the same rank and the same length of service get the same pension, irrespective of their retirement date.
The decision to implement the scheme was first announced by former Finance Minister P. Chidambaram in the UPA government’s interim Budget he had presented in February this year. Mr. Chidambaram had allocated Rs. 500 crore for it. “This decision will be implemented prospectively from the financial year 2014-15,” he had said while presenting the vote on account ahead of the elections.



  1. Defence Budget 2013-14: Negative Real Growth

    The modest increase in the defence budget comes in the wake of high inflationary and unfavourable exchange rate regimes. As the Economic Survey brings out, the average inflation rate during the first nine months of 2012-13 was high at 7.6 per cent and 10 per cent, measured in terms of Whole Sale Price Index (WPI) and Consumer Price Index-New Series (CPI-NS), respectively. Even assuming a one percentage reduction in annual inflation in 2013-14, which is quite optimistic, the real growth of the new defence budget is still in the negative – by 1.3 per cent and 3.7 per cent in terms of WPI and CPI-NS, respectively. The negative real growth in the defence budget is further worsened by a high exchange rate, particularly with respect to the US dollar which at Rs. 54.5 per unit is still 14 per cent higher than in 2012-13.

    The negative growth in the latest defence budget would not necessary affect all its elements in the same way. The salary portion of the budget, a significant portion of revenue expenditure, is more or less insulated with suitable periodic increase in dearness allowance. The most affected elements of the budget would be revenue works, transportation, and most importantly revenue stores and capital acquisition, which are critical for modernisation and preparedness.

  2. Defence Budget 2013-14: Key Statistics

    With the modest growth in the new defence budget, its key indicators show a downward revision except for the percentage share of the capital expenditure in the total defence budget (see Table I). Of note is the further decline of the share of the defence budget in GDP, which is now the lowest over the past five decades since 1961-62 when it was only 1.66.

    Table I: Comparative Statistics of Defence Budgets, 2011-12 & 2012-13

    2012-13 2013-14
    Defence Budget (Rs. in Crore) 1,93,407.29 2,03,672.12
    Growth of Defence Budget (%) 17.63 5.31
    Revenue Expenditure (Rs. in Crore) 1,13,828.66 1,16,931.41
    Growth of Revenue Expenditure (%) 19.55 2.73
    Share of Revenue Expenditure in Defence Budget (%) 58.85 57.41
    Capital Expenditure (Rs. in Crore) 79,578.63 86,740.71
    Growth of Capital Expenditure (%) 15.00 9.00
    Share of Capital Expenditure in Defence Budget (%) 41.15 42.59
    Share of Defence Budget in GDP (%) 1.90 1.79
    Share of Defence Budget in Central Government Expenditure (%) 12.97 12.23

    Note: Rs. 1.0 crore = Rs. 10 million = US$ 183,637.4 (as per the average exchange rate for the first 11 months of 2012-13)

  3. Share of Defence Services

    The Army with an approximate budget of Rs. 99,707.8 crore accounts for 49 per cent of the latest defence budget, followed by the Air Force (Rs. 57,502.9 crore), Navy (Rs. 36,343.5 crore), Defence Research and Development Organisation (Rs. 10,610.2 crore) and Ordnance Factories (- Rs. 508.7 crore) (see Figure I). It is noteworthy that compared to the previous budget, the Air Force is the only service which has increased its share in the total defence allocation (from 24.9 per cent to 28.2 per cent). The Navy’s share has decreased the most (by 1.4 percentage points), whereas the Army’s and DRDO’s shares have declined by 1.3 and 0.3 percentage points, respectively. It is also noteworthy that except for the Air Force, which has seen an increase in both the revenue expenditure and capital expenditure, the others have a decline in one of these heads.

    Figure I: %Share of Services in Defence Budget 2013-14

    Note: Share of services is exclusive of the Rs. 16.5 crore allocated under the heads of ‘Inspection’, ‘Prototype development under Make Procedure’ and ‘Others’.

  4. Allocation for defence in this year’s General Budget has been raised to Rs 2,29,000 crore. Presenting the Union Budget in Lok Sabha today, the Union Finance Minister Shri Arun Jaitley also proposed a further sum of Rs 1,000 crore to address the pension disparities while implementing the policy of “one rank one pension” for soldiers.

    Emphasizing on the modernization of the armed forces to enable them to play their role effectively in the defence of country’s strategic interests, the Finance Minister also proposed to increase the capital outlay for defence modernization by Rs 5,000 crore over the amount provided for in the interim Budget. This includes a sum of Rs 1,000 crore for accelerating the development of the Railways system in the border areas. He said urgent steps would also be taken to stream line the procurement process to make it speedy and more efficient.

  5. prove how pension bill is hiked by 40 %
    In his interim budget speech, Finance Minister P Chidambaram announced that the defence budget was being raised to Rs. 2,24,000 crore.

    "Rs. 500 crore will be transferred in 2014-15 for implementing the one rank one pension decision," he added.

    Under the "one rank, one pension" rule, retired soldiers of the same rank and length of service will receive the same pension, regardless of when they retire. Currently, pensioners who retired before 2006 receive less pension than their counterparts, even their juniors.

  6. isn' t it like putting the cart before the horse. although the Hon. PM had mentioned that it has been given, we are yet to see its implementation.
    probably the new Defence minister will implement it soon.
    Lets hope that the waiting period is over soon.

  7. i would like to get more information on these article please mail me on chacko@q8living.com