Will Modi 3.0 reconsider the structure of the controversial Agnipath scheme?

The Centre has also tasked a group of secretaries from 10 key ministries to review the Agnipath scheme.

Less than two years after the Agnipath scheme was brought into force, the government is being prodded into a rethink. The scheme, under which eligible youth were recruited for short-service commissions with the armed forces, approved  in June  2022, has been cited as one of the challenges for the National Democratic Alliance (NDA) government as it begins its third term with ally partners who have asked for a review of the scheme. The scheme has also been cited as one of the reasons behind the Bharatiya Janata Party’s sub-optimal performance in the Hindi heartland, leading to it losing the brute majority it enjoyed in the previous Lok Sabha.

However, there are concerns that summarily scrapping the scheme could have disastrous fiscal consequences for India. Analysts have said that high pension and personnel costs have been detrimental to the country's efforts to modernise its armed forces. India’s defence budget for 2023-24 was at Rs 5.94 lakh crore, the third highest after the US and China, but over half of it is spent on personnel and pensions.

The Agnipath scheme was conceived as a workaround to this particular problem. It involves recruiting youth in the 17.5-21 age bracket as soldiers for four years. Its stated  aim has been to modernise the military forces, create a youthful and agile profile, and reduce long-term financial burdens associated with pensions and other benefits.

Currently, at the end of their tenure, Agniveers, as the recruits under the scheme are called, receive a one-time ‘Seva Nidhi’ package, which is a lump-sum amount accrued from their own contributions, the government's contribution, and interest. After completing four years of service, 25 percent of Agniveers are absorbed as the regular cadre of the armed forces, based on merit and organisational requirements.  The remaining 75 percent will return to civilian life with the Seva Nidhi package and skills training, enhancing their employability in various sectors. The aim behind the scheme was to reduce the pension component in the budget, because the sense is that if left untouched it could become staggeringly unsustainable.

India has already been grappling with record allocations when it comes to defence spending, especially on account of pensions in the wake of the one rank, one pension rule that came into effect in July 2014. And one of the primary reasons why the Agnipath scheme was introduced was to keep a check on the rising burden.

In fact, the pace of growth in pension allocations for the defence sector has seen a slowdown in the past couple of years. The total budgetary allocation on account of defence pensions for 2024-25 made in the interim Budget stands at Rs 1,41,205 crore, which is only 2.17 percent higher than the outlay in FY24. In FY21, before the Agniveer scheme that was implemented in June 2022, the allocation had seen an increase of above 18 percent.

Soldiers recruited under the older order have longer service tenures, leading to higher cumulative salary costs compared to the short-term service under the Agnipath scheme.

Traditional recruitment also requires more extensive and repeated training programmes over a soldier’s career, increasing costs. In contrast, the Agnipath scheme’s short tenure aims to optimise training expenditure over the four-year period.

The scheme seems to be working on the fiscal front. In FY23, the defence pension outlay was increased by 3.5 percent to Rs 1.19 lakh crore. In FY21, the defence pension outlay had risen by 18.7 percent to Rs 1,33,825 crore.

However, in FY24, even after the implementation of the Agnipath scheme, the defence pension outlay increased to Rs 1.38 lakh crore, a jump of nearly 16 percent. Perhaps it was that a larger cohort of personnel who were serving under the earlier system came into the retirement pool in the year. While immediate savings might be moderate due to the need to still support existing pensioners, significant long-term savings are expected as the Agnipath scheme scales up and the proportion of short-term recruits increases. The government aims to enrol 1.2 lakh Agniveers under the scheme.

India is looking to lower its fiscal deficit to below 4.5 percent of GDP by FY26. And, to do this, the government has been keeping a check on its revenue expenditure that is estimated to grow at 3.2 percent, even as it maintains its infrastructure spending, seen rising at a much higher 16.9 percent in FY25.

The additional financial burden that could arise from transposing those recruited as Agniveers to the traditional route, as has been proposed, will come against this backdrop.

Growth in revenue expenditure has been kept in check by keeping a lid on spending on account of pensions, defence expenditure, subsidies and major schemes such as the rural job guarantee plan.

Now, if  the traditional model of recruitment is reinstated, where soldiers serve longer terms and are entitled to pensions, the government would face increased long-term pension liabilities, something the Agnipath scheme was designed to reduce significantly.

Increased pensions, salaries, and training expenses would also necessitate a higher allocation to defence in the budget, impacting other sectors or requiring higher revenue generation or borrowing.