Defence Budget 2016-17: Needed more Funds and Timely Spending

At the end of the third quarter of Financial Year (FY) 2015-16, 40 per cent (Rs 37,000 crore out of Rs 93,675 crore) of the capital budget of the armed forces remained unspent. As it will not be possible to spend all of the remaining funds in the January-March 2016 quarter, approximately Rs 15,000 to Rs 20,000 crore (15 to 20 per cent) may be returned unspent. During the previous FY 2014-15, 22 per cent of the Rs 80,545 crore amount that was initially provided for the capital budget had remained unspent. (The capital budget is utilised for the replacement of obsolete weapons and equipment and modernisation, while the revenue budget is meant for pay and allowances, ammunition, rations, transportation and maintenance etc.)

As it is the funds allotted for defence expenditure for FY 2-15-16 were insufficient to prepare the armed forces to meet the growing threats and challenges facing the country, make up the large-scale deficiencies in ammunition stocks, give a much needed boost to military modernisation and to acquire the capabilities required to discharge India’s increasing responsibilities as a regional power.

In a letter to Prime Minister Manmohan Singh in March 2012, Gen V K Singh, now MoS, External Affairs, had pointed out the 'critical hollowness' in defence preparedness. Ever since the Kargil conflict in 1999, when 50,000 rounds of Bofors medium artillery ammunition had to be imported in a hurry from South Africa, the ammunition holdings of the Army have been reported to be too low to fight and win a sustained war. Many other deficiencies in the holdings of important weapons and equipment need to be made up. This has been pointed out repeatedly by the Comptroller and Auditor General as well.

Defence Budget for FY 2015-16

The defence budget presented by Finance Minister Arun Jaitley for FY 2015-16 was disappointing. The 10.95 per cent increase of Rs 24,357 crore from Rs 2,22,370 (Revised Estimates for FY 2014-15) to Rs 2,46,727 (US$ 39.8 billion, Budgetary Estimates for FY 2015-16) was inadequate to even allow for inflation, which was then ruling at about 6.0 to 7.5 per cent. The Rupee’s steady slide against the US dollar to Rs 68 to a dollar has eroded its purchasing power considerably. Annual inflation in the international prices of weapons, ammunition and defence equipment is generally between 12 to 15 per cent. Each year’s delay in the procurement of operationally critical items substantially increases the burden on the exchequer.

Of the total allocation for defence, the army was given Rs 1,04,158.95 crore, the navy Rs 15,525.64 crore, the air force Rs 23,000.09 crore, the ordnance factories Rs 2,884.23 crore, and the Defence Research and Development Organisation Rs 6,570.09 crore. The remaining amount of Rs 93,675 crore was allotted on the capital account for the acquisition of modern weapon systems, including initial payments for 126 multi-mission, medium-range combat aircraft, 197 light helicopters and 145 Ultra-light Howitzers, among others. None of these major contracts have been signed so far. It is well known that India plans to spend approximately US$ 100 billion over 10 years on defence modernisation.

As a ratio of the projected GDP for FY 2015-16, India’s defence expenditure is pegged at 1.74 per cent vis-a-vis 1.76 per cent in 2014-15. India will spend 11 per cent of the total government expenditure on defence this year. The United States spends 4.0 per cent of its GDP on defence, China 2.5 per cent and Pakistan 3.5 per cent. It has been empirically established that defence expenditure of up to three per cent of the GDP makes a positive contribution to socio-economic development.

India’s per capita expenditure on defence is less than US$ 10, while the average expenditure of the top ten spenders in Asia is US$ 800 approximately. India’s soldiers-to-citizens ratio, at 1.22 per 1,000 citizens, is among the lowest in Asia. The average of the top ten Asian nations is about 20 soldiers per 1,000 citizens.
Parliament’s Standing Committee on Defence has repeatedly recommended the gradual raising of defence expenditure to 2.5 to 3.0 per cent of the GDP. The 13th Finance Commission had recommended that the nation’s defence expenditure should progressively come down to 1.76 per cent of the GDP by 2014-15. Successive Finance Ministers appear to have decided to pay heed to this unjustifiable advice.
Military Modernisation Continues to Stagnate

The lack of progress in the replacement of the army’s obsolescent weapons and equipment and its qualitative modernisation to meet future threats and challenges is particularly worrisome as the army continues to be deployed in large numbers on border management and internal security duties. It needs to upgrade its rudimentary C4I2SR system and graduate quickly to network centricity to optimise the employment of its combat potential.

The mechanised forces in the plains are still partly night blind, the capability to launch offensive operations in the mountains continues to remain inadequate to deter conflict. The ability to conduct precision strikes from ground and air-delivered weapons platforms, which will pave the way for the infantry to win future battles, is much short of the volumes that will be required. All of this will need massive budgetary support, which can be provided only if the defence budget goes up to 2.5 to 3.0 per cent of the GDP.

While India’s military modernisation has been stagnating, China’s People’s Liberation Army (PLA) and its sister services – the navy, the air force and the PLA Rocket Force (the nuclear strike force, till recently called the Second Artillery) – have been modernising at a rapid pace for almost two decades, backed by a double-digit annual hike in the defence budget. At US$ 106 billion, China’s official defence budget for the current year is US$ 144.2 billion, 10.1 per cent more than the previous year and it is over three times India’s planned defence expenditure. As China invariably conceals many items of expenditure on security, its actual expenditure is likely to be over US$ 160-170 billion.

China is investing heavily in modernising its surface-to-surface missile firepower, fighter aircraft and air-to-ground strike capability. It is acquiring strategic airlift capability, modern aircraft carriers, new submarines, improving command and control and surveillance systems and is enhancing its capacity to launch amphibious operations. It is also upgrading the military infrastructure in Tibet to sustain larger deployments over longer durations. Besides an all-weather railway line to Lhasa, China is engaged in constructing new missile bases, airfields and roads and military encampments close to the border.

Despite the long list of obsolescent weapons and equipment in service with the Indian armed forces, the present military gap with China is quantitative rather than qualitative. In case India’s military modernisation continues to stagnate, this gap will soon become a qualitative one as well. By about 2020-25, China will complete its military modernisation and will then be in a position to dictate terms on the resolution of the territorial dispute if India continues to neglect defence preparedness.

The reasons for India’s lackadaisical approach to military modernisation include the shortage of funds on the capital account for major defence acquisitions, the inability to spend even the allotted funds due to bureaucratic red tape in decision making and the lack of a robust indigenous defence industry because of excessive reliance on uncompetitive ordnance factories and defence PSUs. Given India’s increasing vulnerabilities and rising international demands on it to act as a net provider of security as a rising regional power, the country’s defence expenditure is inadequate to create the capabilities that the armed forces will need in future.

Defence expenditure must be looked at as a form of insurance: it provides deterrence assurance against war and enables the armed forces to acquire the capabilities necessary to fight and win future wars if deterrence fails. Additional allocations for upgrading defence preparedness can be made by reducing wasteful subsidies. At the very least, in the budget for FY 2016-17, the Finance Minister must allocate 2.0 per cent of the projected GDP for the defence of India.

(The author is Visiting Fellow, VIF, and former Director, Centre for Land Warfare Studies (CLAWS), New Delhi.)