Originally Published 2006-03-03 12:10:58 Published on Mar 03, 2006
In the Finance Bill introduced in Parliament on February 28, the budget estimates (BE) for defence have increased marginally from Rs 83,000 crore in 2005-06 to Rs 89,000 crore for 2006-07 ¿ a rise of about 7 per cent. With inflation ruling at 4 to 5 per cent, the real increase in current rupees is only of the order about 2 per cent.
Declining defence budget
In the Finance Bill introduced in Parliament on February 28, the budget estimates (BE) for defence have increased marginally from Rs 83,000 crore in 2005-06 to Rs 89,000 crore for 2006-07 - a rise of about 7 per cent. With inflation ruling at 4 to 5 per cent, the real increase in current rupees is only of the order about 2 per cent. 

This is grossly inadequate to undertake any real modernisation, especially because the annual rise in international prices of weapons, ammunition and defence equipment is usually 10 to 12 per cent. If the rupee fails to hold its own against the US dollar and the euro in the year ahead, the situation will be worse confounded.

By whichever parameter one examines the allocations made for defence, the results are found to be dismal and are sometimes depressing. As a percentage of the GDP, which itself grew at the breath-taking pace of 7 to 8 per cent per annum for a country of India's size and population, the defence budget steadily came down from 3.59 per cent of the GDP in 1987-88 to 2.30 per cent in 2004-05 and appears to have now stabilised at about 2.5 per cent. 

China and Pakistan, India's major military adversaries, with whom India has unresolved territorial and boundary disputes, both spend 5 to 7 per cent of their GDP on national security. The 11th Finance Commission, a constitutional authority, had suggested that defence expenditure should go up progressively to at least 3 per cent of the GDP by 2004. Parliament's Standing Committee on Defence had recommended in the mid-1990s that defence expenditure should be raised to a level of 4 per cent of the GDP for serious modernisation efforts. 

The average defence expenditure was pegged at 16.48 per cent of Central Government expenditure during the decade of the 1980s. This share came down to 14.63 per cent in the next decade up to the turn of the century. Similarly, defence expenditure as a ratio of total (Central plus state) government expenditure came down from 10.5 per cent during the 1980s to 7.75 per cent during the 1990s, a period during which the rupee depreciated against the dollar from about Rs 16 to a dollar to Rs 46 to a dollar. 

Taking inflation of 7 to 8 per cent also into account, the defence budget declined in terms of constant rupees by over 10 per cent per annum. Quite obviously this led to a decline in India's conventional defence capability and preparedness and emboldened Pakistan to launch its ill-fated intrusions into the Kargil sector of Jammu and Kashmir in May 1999.

The request for allotment of funds projected by the three Services every year is routinely pared down by the Ministry of Defence (MoD) in the projections that the MoD makes to the Ministry of Finance (MoF). The MoF treats the projections as a wish list and reduces them further by an average of almost 25 per cent. 

During 2004-05, the Services projected a requirement of approximately Rs 103,000 crore; the MoD reduced it to about Rs 87,000 crore; the MoF's BE allocation was Rs 77,000 crore, a shortfall of 26 per cent. This reduction is effected arbitrarily and without consultation so that almost till the day of the budget, the Services are uncertain of their likely budgetary allocation for the next financial year. 

It is unbelievable that such a situation should exist after half a century of experience with five-year plans and defence planning. It is clearly indicative of the disinclination of successive governments to closely involve and integrate the senior leadership of the armed forces in national security decision-making and does not augur well for long-term perspective planning.

The worst impact of the steadily declining defence budget in terms of inflation and foreign exchange fluctuation adjusted constant rupees is on the modernisation plans of the armed forces and the replacement of obsolescent weapons systems and equipment. The ongoing revolution in military affairs (RMA) has passed the armed forces by. The Indian Army, for example, is a first-rate fighting force that is armed with second-rate equipment - ready to fight battles of the early 20th century. 

The Army desperately needs new 155 mm self-propelled and towed guns and the Air Force must replace its obsolete MiG-21 aircraft with more modern fighter-bombers.

As if this was not bad enough, a large chunk of the funds earmarked for capital expenditure, which goes towards modernisation, is surrendered year after year due to bureaucratic red tape and the fear of strictures being passed by the Central Vigilance Commissioner for tardy procedures. 

An average of as much as 14 per cent of the budgeted amount, varying between Rs 5,000 and 9,000 crore, remained unspent every year from FY 1999-2000 onwards till this was arrested in 2004-05. This year, 2005-06, the revised estimates (RE) figures are lower than the BE figures by the unspent amount of Rs 1,300 crore. 

The only reasonable conclusion that can be drawn is that the successive Finance Ministers have been using the defence budget as one of the tools to manage their fiscal deficit. 

The steadily declining defence budgets in terms of constant rupees are gradually degrading national security capabilities. The continuous involvement of the armed forces in various operational commitments and the almost complete lack of genuine modernisation are undermining preparedness for war and eroding their conventional edge. With the economy growing at the compound rate of 7 to 8 per cent annually, surely the nation can afford to invest 3 to 3.5 per cent of its GDP as an insurance premium for national security, especially when a huge amount of over Rs 100,000 crore is earmarked for wasteful subsidies that seldom reach the poor for whom these are intended.

The governments of the day, whether it was the previous BJP-led NDA government or the present Congress-led UPA government, have failed to show the concern and political courage necessary to safeguard national security interests by making adequate financial provisions for the modernisation of the armed forces. This can only be termed as gross dereliction of duty. 

The writer is Senior Fellow and Director, Institute of Security Studies, Observer Research Foundation (ORF), New Delhi.

Source: The Tribune, Chandigarh, March 2, 2006.

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