Defence Expenditure

Long-Term Perspective Is Still Lacking

The Statesman | Mar 17, 2001

Ironically, each one of them further reduced the budgeted defence expenditure, both in real terms and as a percentage of the GDP. At 3.59 per cent of the GDP in 1987-88, the defence expenditure was the highest ever after 1963-64 when it had been hiked from 1.69(1961-62) to 3.84 per cent of the GDP consequent to the fateful 1962 war with China.

Even as the threats to national security increased ed manifold towards the close of the 20th century, India’s defence expenditure decreased progressively as a percentage of the Gross Domestic Product from 3.59 per cent in 1987-88 to 2.31 per cent in 1999-2000. During this decade of stagnation, every finance minister reiterated while presenting his budget that India’s security will never be compromised. Ironically, each one of them further reduced the budgeted defence expenditure, both in real terms and as a percentage of the GDP. At 3.59 per cent of the GDP in 1987-88, the defence expenditure was the highest ever after 1963-64 when it had been hiked from 1.69(1961-62) to 3.84 per cent of the GDP consequent to the fateful 1962 war ‘with China.

Incredibly, despite two more wars since the ignominy of 1962 and a decade of Pakistan’s low cost, high payoff proxy war, the defence budget was again allowed to slip to levels below 2.5 per cent of the GDP. Quite obviously, the Kargil conflict was waiting to happen.


An analysis of defence expenditure over a period of one and a half decades Since the mid 1980s leads to several deductions. First the rate of increase of defence expenditure in current rupees shows a notable decline. Capital expenditure that goes towards modernisation has been the main casualty of this drop in the average annual growth rate of defence expenditure. The gap between the needs assessed by the services and what was made available was invariably large. Also, even as the share of capital expenditure was falling as a percentage of the defence budget (from 31.8 per cent in 1991-92 to 26.95 per cent in 1997-98), the rupee depreciated by about 73 per cent against US dollar and other hard currencies. Taking inflation also into account. this resulted in almost complete stoppage of the replacement of obsolescent equipment and force modernisation; whatever funds still remained in the capital account kitty in real terms had to be utilised to meet existing contractual liabilities for weapons and equipment acquired during the previous decades.

While examining the budget proposals of the ministry of defence for 1998-99, Parliament’s Standing Committee on Defence made the following observations: “The committee note that the total defence allocation for the year 1998-99 been pegged at Rs 41,000 crore, an increase of 14.13 per cent over the Revised Estimates 1997-98. The hike in defence budget is just about enough to meet the outflow of the Fifth Pay Commission recommendations which is estimated to be 10 per cent of the budgetary estimates (BE) and general inflation of about six per cent.

The rupee devaluation has further eroded budget capacity. Thus, in real terms, the provision for items other than salaries and  allowances in the defence budget has remained static, if not  reduced… This low level of funding is totally insufficient to meet crucial requirements including modernisation of armed forces. This committee in the preceding years (had) also emphasised that in the interest of the security of the country, defence spending should be raised at least to the level of three per rent of the GDP. The 11th Finance Commission has also recommended the defence  expenditure should be raised to around three per cent of the GDP by 2004-05. Arguably, Pakistan’s strategic blunder in launching its unsustainable incursions into Kargil was based on the assumption that the fighting capabilities of the Indian armed forces, particularly the army, had been seriously degraded by a progressive decline in the defence expenditure even as commitments for internal security duties and counter-insurgency operations increased in Punjab, J&K and the northeastern states. Jasjit Singh, director, Institute for Defence Studies and Analyses. New Delhi, has expressed similar views: “This (the declining defence expenditure) has resulted in serious degradation of the conventional military capability. The war in Kargil highlighted the basic problem caused by the decline in defence spending for more than a decade…”. During the Kargil conflict, General VP Malik, Chief of Army Staff, had stated that the army, “…would make do with what we have”.


It is well known that there was a rush to import a large number of critical items, including 155-mm Bofors artillery ammunition, while the Kargil conflict was on. That the Pakistani Intruders were evicted in less than two months from their well-entrenched perches is more a tribute to the indomitable courage of Indian infantrymen against seemingly insuperable odds. The services continue to be plagued by large-scale shortages. Obsolescent war machines, like the 1970s vintage Vijayant tanks, are still stationed for frontline duty.

Artillery guns of World War II vintage like the 25 Pounder and the 1960s technology. Based 75/24 Indian Mountain Gun have only recently been reported to have been phased out of service. The Indian Air Force is still flying refurbished MIG-21s with an alarming accident rate that does no credit to its fine reputation as an excellent fighting force. The acquisition of Advanced jet Trainers is still under “active consideration” several decades after the project-was initiated.

India has still not acquired a second aircraft carrier to replace the decommissioned Vikrant. Shortly before retiring in 1996. Admiral VS Shekhawat, the Naval Chief, had stated that the Indian Navy would have no battleships left after 10 to 1d years as no new orders had been placed on Indian shipyards and no purchases ex-import were in the pipeline. The induction of modern force multipliers has had to be put on the back burner in most cases. It was in this difficult situation that the finance minister had permitted a sharp increase of 28.2 per cent in the 2000-01 budget (over the defence budget for 1999-2000) to Rs 58,087 crore.

Even after this hefty increase, the defence expenditure was still pegged at only 2.67 per cent of the GDP against the need to raise it to at least three per cent of the GDP initially and to 3.0 percent over a sustained period of 10 to 15 years 1f adequate capabilities are to be developed 4to meet emerging threats. However this year’s budgetary allocations made public on 28 February 2001 revealed that of the additional Rs 10,000 crore allotted in the 2000-01 budget estimates, Rs 4000 crore had remained unspent. Of this large chunk of unexpended funds, 70 percent was due to funds earmarked for modernisation not having been utilised.

Churchill’s View

This year (2001-02) defence spending has been pegged at Ks 62.000 crore, approximately 2.9 per cent of the GDP. This amounts to an increase of Ks 7.5389 crore or 138.6 per cent over the revised estimates of Rs 54.461 crore (2000-01). Though the increase is sufficient to take care of inflation and a drop in the value of the rupee, it remains to be seen whether this year the funds will be completely utilised. So far | India’s finance ministers have not taken a medium-term view of defence expenditure. There Is no reason to allow unexpended defence funds to lapse at the end of a financial year. These must be carried forward, only then can long and medium-term strategies for force modernisation be implemented in a realistic manner. The  Finance Act must be amended to permit such budgetary practices.

Armed forces capabilities take several decades of painstaking effort to build. These must not be subjected to the vagaries of annual budgetary exercises _ Winston Churchill’s views on the force structures of the armed are revealing. Speaking as a MP in the House of Commons in 1923, he had said: “The armed forces are not like a liability company to be reconstructed from time to time as the money fluctuates. It is not an inanimate thing like 9 house to be pulled down or enlarged or structurally altered at the caprice of the tenant. or owner. It is a living thing. If it is bullied, it sulks: if it is unhappy, it pines: if it is harried, it gets feverish; if it is sufficiently disturbed, it will wither and dwindle and almost die, and when it comes to this last serious condition, it is only revived by lots of time and lots of money”.

India’s national security planners must take heed of the timeless wisdom of Churchill’s considered views and unshackle defence planning from the straitjacket of annual budgetary exercises.