Military & Aerospace

Defence Budget 2019-20
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Issue | Date : 08 Jul , 2019

Editors Comment: Increasing the Defence Budget in the prevailing circumstances of long drawn out procedures for weapons and equipment procurement is futile. It will be like in earlier times when most of the Capital Budget was returned to the Finance Ministry before the last quarter of the FY. This Government is easing out the incompetent and non-performers, the PSU’s and OFB need to be looked into deeply for incompetence and non-performance. Otherwise after every Union Budget there will be laments of an inadequate defence outlay.

The defence budget of a nation is based on threat perception so that the defence forces maintain national integrity and sovereignty of a country at all costs. This requires envisioning the strategic security landscape, having a national security doctrine in place, a future-ready modernised force and a decisive political will to empower and generate this capability through supportive budgetary allocation and decisive strategic direction.

…a perceived $2.7 trillion economy likely to be $3 trillion in 2019, moving towards $5 trillion by 2024-25 – the sixth largest economy of the world cannot shy away from its defence security vacuum.

The strength of a country is also known from its economic and military power. Unfortunately, a perceived $2.7 trillion economy likely to be $3 trillion in 2019, moving towards $5 trillion by 2024-25 – the sixth largest economy of the world cannot shy away from its defence security vacuum. However, India has lost credible defence deterrence, to preclude any turbulence to its growth and progress. The economic growth of that stature must also state the perceived status of defence fiscal growth over the same period, in pursuit of national security and defence management goals. The Finance Minister’s slogan during budget presentation speech of ”Mazbut Desh Ke Liye Mazbut Nagrik” is inspiring but needs a “Mazbut Desh Ke Liye Mazbut Sena” too.

India’s multi-spectrum security challenges today, are fast outpacing capability-building process impinging upon our national security. The capability cum technology gap between our adversaries; in particular, the northern borders are widening, diluting our credible deterrence in the north and punitive deterrence in the west.

Balancing the risks between present force requirements and future force vulnerabilities further complicate the equation. In order to bridge this capability gap, induction of high technology military systems, force multipliers, creation of requisite infrastructure and joint force capabilities are required to complement the present force rightsizing and reshaping effort. Further, success in countering future threats will require skillful integration of the core competencies of the three Services and their transformation into an integrated force structure is driven top-down by politico-military synergy.

The reality of the present defence budgetary allocation is that it gives extremely limited fiscal space for sustenance and addressing present “hollowness”, new schemes for modernisation to address the elusive “30:40:30 equipment profile” or scope for meaningful “Make In India” projects. The fiscal space is chocked with many of the promised ‘populist’ measures limiting a budgetary envelope for defence.

Does it require another 1962 debacle to raise the present budget to like it did in the past, when the defence budget in 1962 prewar was 1.64 per cent and post-war hiked to 3.7 per cent of GDP?

The capital budget for acquisitions is not sufficient to meet the committed liabilities or to pay for signed contracts. The new contracts of meaningful capabilities thus remain a myth. Can we fight and win tomorrow’s wars with yesterday’s capabilities with the lowest defence budgetary percentage of GDP allocation of near 1.44 per cent the least since 1962?

Does it require another 1962 debacle to raise the present budget to like it did in the past, when the defence budget in 1962 prewar was 1.64 per cent and post-war hiked to 3.7 per cent of GDP? Further, the MoD has undertaken a host of initiatives to change the course from Swadeshi towards ‘Make in India’ to promote indigenous defence manufacturing aimed at increasing defence production to Rs 1, 70,000 crore by 2025.

These promises and policy initiative of “Make in India” remains hollow with the failing fiscal support to the much-hyped 10-year-old plan to acquire 2,600 future infantry combat vehicles (FICV) for the Indian Army at a cost of around Rs 60,000 crore is staring at an uncertain future as it is stuck due to “divergent views” among the stakeholders. Moreover, the miniscule fiscal allocation under this head in the present budget is indicative of the emphasis on these projects, which are the key to invigorating a defence ecosystem.

Another reality lies in the inability to identify the sweet spot between the contradictions of balancing the 3 M’s – Manpower (force size), Material (sustenance) and Modernisation (capability building), to address our security concerns within the given budgetary envelope. A large monolithic army, which has expanded 3.46 times since independence cannot have the luxury of time-critical modernisation with an adverse revenue capital ratio of 82:18. Expansion, sustenance and modernization cannot progress in direct proportion.

Thus, a holistic politico-military transformation is the need of the hour. An effective transformation strategy in our context must tackle the six issues: (i) the “bigger the better” syndrome, (ii) the absence of a strategic culture exemplified by the void of a national security strategy, (iii) the sustenance and capabilities voids, (iv) the quantitative and qualitative imbalance and lack of reforms in the defence budget, (v) bureaucratic decision-making apathy and risk averseness, (vi) and the absence of jointness led by the glaring void of higher direction by a Chief of Defence Staff (CDS).

Of ’80s vintage, this war-fighting strategy will not win the next war with either Pakistan or China.

India’s defence budget of Rs 318,931.22 crore (excluding defence pensions) earmarked Rs 210,682.42 for revenue allocation (pay and allowances of manpower) and Rs 108,248.80 crore for capital (modernisation and acquisitions) allocation. The revenue allocation is double of capital allocation. This skewed ratio of revenue to capital does not help war preparedness.

Unfortunately, defence minister Rajnath Singh cannot do much. He cannot reduce 82 per cent of the army’s total allocations (which is 55 per cent of the total defence budget and highest of the three services) meant for pay and allowances of a 13 lakh-strong force. This is because the government has approved army chief General Bipin Rawat’s hybrid warfare strategy (focussed on counter-terror operations and land warfare) with humongous manpower commitment.

Of ’80s vintage, this war-fighting strategy will not win the next war with either Pakistan or China. China is ahead in technology and doctrinal thinking. Pakistan is banking on People’s Liberation Army’s (PLA) assistance – because of their common commitment to China Pakistan Economic Corridor (CPEC) – could well spring operational surprises in a war.

Surprisingly, Rajnath Singh has no control over capital allocations. By creating the Defence Procurement Committee (DPC) on April 18, 2018 under National Security Advisor (NSA) Ajit Doval, the defence ministry’s principle function of procurement and planning was brought under his wings.Since this suits the government, the capital allocations – to be decided by the NSA – would not help in war preparedness.

In countries like India that face significant security threats, the norm is for defence spending to rise at least in tandem with GDP.

Emergency purchases to make up the tactical level war deficiencies like stand-off weapons and specialised ammunition for the army and air force, which can be used in case of politically expedient cross-border military strike. This is the consequence of the 2019 Balakot airstrike and the 2016 surgical strikes, both of which created a positive perception within the country and helped the government win the 2019 general elections.

According to some reports, orders for these have already been placed with Israel and Russia. More of these would follow, perhaps now for the navy’s tactical adventure (against Pakistan), should it become necessary to showcase commitment to national security.

Buying systems like the US National/Norwegian Advanced Surface to Air Missile System-II (NASAM-II), since India has signed for the S-400 has become an operationally redundant purchase. NASAM-II is clearly meant to support India’s new multi-aligned foreign policy by keeping the US and Russia happy with arms purchases.

This is perhaps the other reason why the DPC was created — which do not enhance war preparedness. It would have been better if the over a billion dollars to be spent on NASAM-II instead utilised to make up air force’s colossal combat aircraft deficiencies.   

Ironically, most analysts who seek war-fighting reforms to balance diminishing capital allocations miss two points: One, creation of the DPC under the NSA is the biggest military reform as it brings operational acquisitions to the prime minister’s direct attention. And two, there are numerous contractual liabilities for acquisitions calling for the highest attention.

The case in point is the $5.4 billion S-400 air defence missile system’s contract, which commits Russia to start delivery in 2022. For this to happen, the production should begin, which in turn requires India to pay the agreed first financial tranche. This has not happened yet. Who better than the DPC to get the wheels rolling once defence allocations are available? Similarly, there are other contractual obligations like on the Rafale aircraft, which need to be paid on time.

Capital allocations, which fund the purchase of new weapons and equipment for modernisation, remains at Rs 1.08 trillion, or just one quarter of the total Defence budget.

Finance Minister Nirmala Sitharaman has allocated Rs 4.31 trillion for defence spending (including military pensions of Rs 1.12 trillion), the same as in the February 1 interim Budget. As a proportion of gross domestic product (GDP), however, the allocation is inching steadily lower, towards the 2 per cent mark.

In 2014-15, defence allocations, including pensions, accounted for 17.1 per cent of the central government’s spending, or about 2.28 per cent of GDP. This year, the Defence Budget will comprise 15.5 per cent of government expenditure and only 2.04 per cent of GDP.

In countries like India that face significant security threats, the norm is for defence spending to rise at least in tandem with GDP. Were allocations to have remained at the 2014-15 level of 2.28 per cent of GDP, the military would be getting Rs 50,640 crore more this year than it has received.

Defence spending is falling in percentage terms even though all military purchases are now subject to the goods and services tax (GST). For many items, such as vehicles, this is levied at the higher rates of 18 per cent and 28 per cent. Nor do defence allocations cater for the addition of 100,000 more soldiers added to the army over the preceding decade, which the government sanctioned to cater for the rising threat from China.

Over the last dozen years, the salary bill has risen six-fold, with swelling manpower numbers compounded by the salary and pension hikes of the Sixth and Seventh Central Pay Commissions and the One Rank One Pension award of 2014-25. Providing some relief to the military, the finance minister announced Customs duty exemption for the import of defence goods.

“Defence has an immediate requirement of modernisation and upgradation. This is a national priority. For this purpose, import of defence equipment that are not being manufactured in India are being exempted from the basic Customs duty,” she said.

Capital allocations, which fund the purchase of new weapons and equipment for modernisation, remains at Rs 1.08 trillion, or just one quarter of the total Defence budget. The Indian Air Force (IAF) has again been allocated the bulk of the capital budget — Rs 39,303 crore or almost 37 per cent of the total.

Yet, this is unlikely to suffice, with the IAF paying annual installments for the Rafale fighters, which will start joining the fleet this year; and for ongoing purchases of Sukhoi-30MKI and Tejas fighters and upgrades to its Mirage 2000 and Jaguar fleets. The 1.26 million-strong army, which includes 85 per cent of the military’s manpower and is in combat round the year, has been allocated Rs 31,815 crore, or 29 per cent of the modernisation budget.

The 83,500-strong navy has been allocated Rs 25,656 crore for modernisation, or about 24 per cent of the capital budget. This includes Rs 2,500 crore for the Coast Guard. Navy planners will struggle to fund the planned purchase of six conventional submarines and a second indigenous aircraft carrier. Payments are also being made for the first indigenous carrier, INS Vikrant, which Cochin Shipyard promises to deliver by 2021.

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The views expressed are of the author and do not necessarily represent the opinions or policies of the Indian Defence Review.

About the Author

Col (Dr) P K Vasudeva

Col (Dr) P K Vasudeva is a defence analyst and commentator.

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