Defence budget : Long-term strategy needed

Political compulsions is compounded by the defence ministry's inability to fully utilise even the allotted funds 

The emergence of Bangladesh as the new hub of international Islamist terrorism, insurgency in Nepal and Maoist militancy across several states, add new challenges to national security threats that India traditionally tackles. Despite these, India's defence expenditure continues to decrease in real terms and as a percentage of the Gross Domestic Product (GDP) every year. It has decreased progressively from 3.59 per cent in Financial Year (FY) 1987-88 to 2.3 per cent in FY 2005-06. 

The gap between the needs assessed by the Services and what is actually made available is invariably large. In FY 2004-05, the Services projected a requirement of Rs.1,03,150.70 crore but the Minister of Finance provided Rs. 77,000.00 crore in the budget. The shortfall between the requirement and the allocation was 25.35 per cent. Capital expenditure that goes towards military modernisation suffers due to declining average annual growth rate of defence expenditure. 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 75 per cent against the US dollar and other hard currencies. Taking inflation also into account, this resulted in the complete stoppage of the replacement of obsolescent equipment and force modernisation, as whatever funds still remained in the capital account kitty in real terms, were utilised for earlier contractual liabilities of weaponry.

While examining the budget proposals of the Ministry of Defence (MoD) for FY 2004-05, Parliament's Standing Committee on Defence observed: "The Committee note that the Budget Estimates for the Defence Services at Rs 77,000 crore… leave only about Rs 1,000 crore for new schemes/acquisitions. The Committee is extremely concerned…(that) several schemes/projects which are at various stages of finalisation would have to be deferred." The Committee has long argued that defence budgetary allocations are grossly inadequate. The 11th Finance Commission had also recommended that defence expenditure should be raised to around three per cent of the GDP by FY 2004-05. 

The Finance Minister's political compulsions in not being able to raise defence expenditure by cutting down wasteful subsidies that amount to over Rs.100,000 crore are compounded further by the MoD and Finance Ministry's inability to fully utilise even the allotted funds. Over the last five years, on an average, a budgeted amount varying between Rs 5,000 to Rs 9,000 crore remained unspent annually. Of this large chunk of unexpended funds, approximately 75 per cent underutilisation was in funds earmarked for capital expenditure or modernisation. Clearly, despite the much-trumpeted reform in the procurement process, new hardware acquisition by the military is still mired in red tape.

Old machinery still used

The Services continue to suffer serious shortages. Antiquated war machines are sill deployed for frontline duty. Artillery guns of World War II vintage like the 25 Pounder and the 1960s technology-based 75/24 Indian Mountain Gun were only recently phased out of service. The Indian Air Force is still flying re-furbished MiG-21s with an alarming accident rate that does no credit to its fine reputation as an excellent fighting force. The acquisition of several force multipliers like long-range rocket artillery and surveillance systems for the army, submarines for the navy and replacement fighter aircraft for the air force are still under "active consideration" several decades after their requirements were projected.

During the Kargil conflict, critical hardware, like the 155-mm Bofors artillery ammunition were imported hurriedly. General V P Malik, the Chief of the Army Staff then stated that the army "… would make do with what we have." Since then, conventional military capabilities of the Indian armed forces, particularly the army, have suffered degradation by a progressive decline in the defence expenditure even as commitments for internal security duties and counter-insurgency operations have risen. Today another Kargil-like conflict situation is waiting to happen. 

The virtues of long-term defence planning do not merit emphasis. Military capabilities are built over decades of effort. These must not be subjected to the vagaries of annual budgetary exercises. Only a long-term financial commitment can ensure systematic planning that is imperative for military modernisation.Former Finance Minister Jaswant Singh made history of sorts by instituting a rolling, non-lapsable defence modernisation fund of Rs. 25,000 crore in the interim budget for FY 2004-05. This progressive measure was scrapped by the new government. 

Without such a fund, large amounts of the planned capital expenditure will continue to be surrendered every year due to paralysis in decision-making. 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.Security and good governance are pre-requisites for development. If there is no improvement in the national security environment, economic investment will not flow to India in the quantum that the nation needs to lift its people above the poverty line. In as much as this, the defence budget has a far greater impact than is generally assumed. 

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

* Views expressed in this article are those of the author and do not necessarily reflect those of Observer Research Foundation.

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