The annual budget of a country is always accompanied by a build-up of expectations and suspense among the people. The Indian budget for the financial year 2020-21, presented in parliament on February 2 by the country’s first full-time woman finance minister, Nirmala Sitharaman, was watched with a little more than usual interest. The reason: the economic slowdown and how the future would shape up.
Sitharaman had to undertake a difficult balancing act between providing for spending money to revive economic growth and sticking to the fiscal discipline target. She appears to have opted more for fiscal restraint rather than heeding calls for loosening the purse strings at will at a time when the slowdown has put the government’s non-tax revenue under pressure.
It was, therefore, natural that budgetary allocation for some sectors could not remain insulated from the government’s overall approach in the backdrop of the slowdown. The sectors included allocations for the Defence and External Affairs ministries. What does the 2020-21 budget mean for India’s defence acquisition and outreach to its South Asian neighbourhood?
The overall budgetary allocation for the External Affairs Ministry has come down marginally from Rs 17,372.27 crore in 2019-20 to Rs 17,346.71 crore in 2020-21, while the defence budget has seen only a hike of 5.6 percent—Rs 3.375 lakh crore this year from Rs 3.19 lakh crore in the last financial year.
The budget has a mixed bag for countries in India’s immediate neighbourhood. The biggest hike marked New Delhi’s assistance for the strategic port of Chabahar in southern Iran—Rs 100 crore, which is more than double the Rs 45 crore provided in the previous budget. Chabahar port will give India connectivity to Afghanistan bypassing Pakistan, which has consistently refused to allow land transit facility to New Delhi. This comes at a time when Iran’s ties with the United States and European Union are at one of their worst.
The budget also envisaged a substantial increase in allocation from Rs 50 crore in 2019-20 to Rs 140 crore in 2020-21 for an infrastructure project that India has undertaken in the Assumption Island in Seychelles, another strategic area in the Indian Ocean where China is increasingly assertive.
India’s combined allocation for Bangladesh, Afghanistan, Maldives, Nepal, Bhutan, Myanmar, and Sri Lanka in 2020-21 stands at Rs 5,084.65 crore, a fall from last year’s Rs 5,652 crore. However, the aid allocation for Bangladesh, Myanmar, and Afghanistan has gone up this year. In the case of Bangladesh, it has risen to Rs 200 crore from Rs 150 crore actually spent out of Rs 175 crore in 2019-20, and in the case of Myanmar, the aid allocation for 2020-21 has been pegged at Rs 300 crore, up from Rs 170 crore in the previous fiscal year. The Indian aid for Afghanistan and Bhutan has also not been hit by the overall budget cut for the External Affairs Ministry.
The biggest blow in terms of aid to neighbours is to Nepal, whose allocation has declined from Rs 1,200 crore to Rs 800 crore. The cut in development aid to Nepal comes at a time when China is warming up to the Himalayan nation by loosening its purse strings. The figure for Sri Lanka has also been trimmed from the previous year’s Rs 205 crore to Rs 200 crore. Bhutan, the traditional recipient of the largest chunk of Indian aid, remains the top beneficiary with Rs 2,884.65 crore while aid for Afghanistan continues to remain the same as the last financial year at Rs 400 crore.
The Defence Sector
The Rs 3.37 lakh crore allocated for the Defence sector is estimated at only 1.5 percent of the projected Gross Domestic Product for 2020-21, a figure considered the lowest since the 1960 Sino-India conflict. Leaving aside the money for salaries and pensions for defence personnel, which constitute the biggest chunk of defence budget, the capital outlay for the armed forces’ modernisation and defence hardware acquisition for 2020-21 is Rs 1,18,155 crore; there is near unanimity that this is going to affect India’s defence upgrade efforts. India’s army, air force, and navy have since long been pressing for big-ticket acquisition of weapon systems and the Defence Ministry has reportedly argued for higher budgetary allocation to fund the modernisation programme through purchase of fighter jets, submarines, helicopters, and other modern military systems. The Indian military establishment has repeatedly stressed on the urgency of modernising the armed forces because of the security environment in the region involving China and Pakistan.
India’s external relations is one of the areas where the domestic discord over the Citizenship Amendment Act (CAA)/National Register of Citizens (NRC) has caused some pressure following criticism from the United States and European Parliament members. Coupled with it, the economic slowdown can further complicate India’s foreign policy challenges. The slump in economic growth also raises a question mark over how long India can continue to enjoy the tag of one of the “world’s fastest growing economies” and the political and diplomatic heft that comes with it.
It has been argued by some that a country’s domestic and foreign policies need to work in tandem to promote its national interests. But given the resolve of Prime Minister Narendra Modi’s government to push ahead with CAA/NRC, has India reached a stage where the two policies can at times be delinked? And if so, with how much success? If India returns to its higher economic growth trajectory, it may help put a gloss over divisive issues, but that may not be enough to resolve them.
Pallab Bhattacharya is a special correspondent for The Daily Star. He writes from New Delhi, India.