Sums and guns: getting it right

A better understanding and management of the economics of defence is, therefore, more important than before. Defence economics permits a better approach of dealing with military needs as economic problems. This approach facilitates cost-benefit driven fund allocation and the efficient use of resources. When military needs are viewed on the basis of economic choices rather than as inflexible military demands, multiple options open up to better utilise financial outlays.

The decision to build military equipment or to buy it abroad is a major dimension in the economics of defence. India is still at a stage where the bulk of its major armament needs are bought from developed countries. That state of military dependence is not going to change soon. All the more reason that choices are made with economic rationale. The fixation on self-reliance had led to decades of wasted effort in building capacities that were economically unjustifiable. Indian military exports bear no relationship to the effort which has gone into building the capacity. Every major military power has based its military capabilities on the foundations of competing in the global arms market. Should India base itself on the producer-exporter model or the buyer-user model? The Indian choice has been to combine both by licenced production in India. That has neither kept the costs down nor built an indigenous military technology base. The relationship between indigenous defence R038;D at lower levels of technology and India8217;s rapidly growing technological capacity is yet to be harmonised. The new concept of military offsets that ensure that international military technology can be used to empower civilian capacity is only beginning to be considered in India.

In logistics and manpower issues, there are large areas for economy in expenditure and savings. Our policy of duplicating capacity in the armed forces, even as the civilian labour and services sectors are clearly ahead in skills and dependability, is an economic anachronism. Much of the captive logistic chain of the armed forces fails to utilise the available capacity in the civilian sector. As the Indian economy gains in size, its capacity to provide gainful employment to its youth will have a direct impact on the availability of human resources for the manpower intensive organisations that form the basis of the Indian military. The economic link between risks of military service and manpower costs is in need of analysis. The discipline of output budgeting by which each segment of the three defence services can be assessed for their contribution to the total defence effort has not even begun in the ministry of defence MoD.

The MoD has a finance division of long standing. Its role in the colonial period was limited to bookkeeping. It is now graduating from this to working the principles of the economics of defence. It is beginning to look at international experts in defence finance and economics to obtain insights into best practices abroad. This is an encouraging development. It is to be hoped that the transition from being defence accountants to managers in the economics of defence comes about at the earliest.

The writer, a retired lieutenant general, is director, Delhi Policy Group