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Defence budget: some worries

The emergence of Bangladesh as the new hub of Islamic terrorism, the political uncertainty in Nepal and the spread of Maoist militancy acros...

Written by Gurmeet Kanwal |
February 28, 2005

The emergence of Bangladesh as the new hub of Islamic terrorism, the political uncertainty in Nepal and the spread of Maoist militancy across several states, have added new challenges to India’s traditional security threats. Despite this, India’s defence expenditure continues to decrease in real terms and as a percentage of the GDP, year after year.

It has decreased progressively from 3.59 per cent in financial year (FY) ’87-’88 to 2.3 per cent in FY ’04-’05. The gap between the needs assessed by the services and what is actually made available is invariably large. In FY ’04-’05, the services projected a requirement of Rs 1,03,150.70 crore and the finance minister made a provision of Rs 77,000 crore. The shortfall between the requirement and the allocation is 25.35 per cent.

Capital expenditure that goes towards modernisation has been the main casualty of this drop in the 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. Given inflation, this resulted in the stoppage of the replacement of obsolescent equipment and force modernisation as whatever funds still remained in the capital account kitty had to be utilised to meet previous liabilities for weapons and equipment.

This dismal situation shows no signs of improving. Parliament’s Standing Committee on Defence has argued for long that the budgetary allocations made for defence are grossly inadequate. The 11th Finance Commission had also recommended that defence expenditure be raised to around 3 per cent of the GDP by 2004-05. The finance minister’s political compulsions in not being able to raise the defence expenditure by cutting down wasteful subsidies that amount to over Rs 100,000 crore are compounded further by the inability of the MoD and MoF to fully utilise even the allotted funds. Over the last five years, on average, a budgeted amount varying between Rs 5,000 to 9,000 crore was unspent annually. Of these, large chunks of unexpended funds, approximately 75 per cent underutilisation was in funds earmarked for capital expenditure. Clearly, despite the much-trumpeted reform in procurement, the acquisition of new weapons and equipment by the armed forces is still mired in red tape.

The services continue to be plagued by large-scale shortages. Obsolescent war machines continue to be stationed for frontline duty. The air force is still flying refurbished MiG-21s with an alarming accident rate that does no credit to its fine reputation. The acquisition of a large number of force multipliers like long-range rocket, artillery and surveillance systems for the army, Scorpene submarines for the navy and replacement fighter aircraft for the air force is still under “active consideration” several decades after their requirement was first projected. The ongoing revolution in military affairs is passing India by.

During the Kargil conflict, there was a rush to import a large number of critical items of equipment and spares, including 155-mm Bofors artillery ammunition. General V.P. Malik, then army chief, had stated that the army, “would make do with what we have”. Since then, the conventional military capabilities of the armed forces, particularly the army, have been seriously degraded by a progressive decline in defence expenditure, even as commitments for internal security duties and counter-insurgency operations have increased in J&K and the Northeast.

The virtues of long-term defence planning do not need to be emphasised. Military capabilities take several decades of painstaking effort to build. These must not be subjected to the vagaries of annual budgetary exercises. Only a long-term financial commitment can ensure that systematic planning can be undertaken for the modernisation of the armed forces. Former finance minister, Jaswant Singh, had created history of sorts by instituting a rolling, non-lapsable defence modernisation fund of Rs 25,000 crore in the interim budget for FY ’04-’05. This progressive measure did not find favour with the new government.

Without such a fund, large amounts of the planned capital expenditure will continue to be surrendered, year after year, due to paralysis in decision making. There is no reason to allow un-expended 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.

If there is no improvement in the national security environment, economic investment will not flow to India in the quantum the nation needs to lift its people above the poverty line. The defence budget has, in fact, a far greater impact than is generally assumed.

The writer is senior fellow, Observer Research Foundation

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