Defence Industry

Defence Expenditure: Conflicting Tales
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Issue Vol. 30.2 Apr-Jun 2015 | Date : 29 Jun , 2015

Defence allocation over the years (Courtesy: Hindustan Times, March 01, 2015)

Presently, India’s defence budget – 1.74 per cent of its GDP – is too low to undertake the capacity building necessary to deter China from contemplating another border war. The defence budget needs to be increased gradually to first 2.0 and then to 3.0 per cent of the GDP. India’s growing economy should be able to sustain this hike in the defence budget over a period of three to five years, especially if the government simultaneously shows the courage to reduce wasteful subsidies.

“India’s defence budget is declining in real terms, while China’s is growing at double-digit rates every year.”

In terms of real purchasing power, India’s defence budget has been declining consistently…

In an otherwise pragmatic budget for 2015-2016 that has been hailed as growth oriented, Finance Minister Arun Jaitley has not done enough to give the much needed boost to military modernisation. The proforma hike in the defence budget will not be adequate to make up the ‘critical hollowness’ in India’s defence preparedness pointed out by former Chief of the Army Staff, General VK Singh; nor will it help to meet the growing threats and challenges facing the country and India’s increasing responsibilities as a regional power.

The increase of Rs 24,357 crore ($3.92 billion) from Rs 222,370 ($35.86 billion, Revised Estimates for FY 2014-2015) to Rs 246,727 ($39.8 billion, Budgetary Estimates for FY 2015-2016) is too low to even allow for inflation, which is ruling at about 6.0 to 7.5 per cent. The Rupee’s steady slide against the US dollar to Rs 62 to a dollar has eroded its purchasing power considerably. Annual inflation in the international prices of weapons, ammunition and defence equipment is generally between 12 to 15 per cent. In fact, in terms of real purchasing power, the defence budget has been declining consistently. Each year’s delay in the procurement of operationally critical items substantially increases the burden on the exchequer.

Of the total allocation for defence, the Indian Army will get Rs 104,158.95 crore ($16.80 billion), the Navy Rs 15,525.64 crore ($2.50 billion), the Air Force Rs 23,000.09 crore ($3.70 billion), the Ordnance Factories Rs 2,884.23 crore ($0.46 billion), the Defence Research and Development Organisation Rs 6,570.09 crore ($1.06 billion). The remaining amount of Rs 94,588 crore ($15.25 billion) has been allotted on the capital account for the acquisition of modern weapon systems, including initial payments for the 22 Apache attack helicopters and 15 CH-47F Chinook medium-lift helicopters, C-130 tactical transport aircraft, frigates and submarines.

India’s per capita expenditure on defence is less than $10, while the average expenditure of the top ten spenders in Asia is $800…

The Indian armed forces need to upgrade their command and control systems and substantially improve their intelligence, surveillance and target acquisition capabilities if they are to become proficient in launching effect-based operations in a network-centric environment riddled with threats to cyber security. It is well known that India plans to spend approximately $100 billion over ten years on defence modernisation.

It has been the practice to return large chunks of funds unspent year after year. The funds earmarked on the capital account were fully spent by the government for the first time in FY 2011-2012. In the current year (FY 2014-2015), the Ministry of Defence (MoD) was unable to spend Rs 12,622 crore ($2.04 billion) from the funds allotted for modernisation. Of this, an amount of Rs 5,992 crore ($0.97 billion) was diverted to the revenue account for routine expenditure. The remaining amount of Rs 6,630 crore ($1.07 billion) is once again proposed to be returned unspent to the exchequer.

As a ratio of the projected GDP for FY 2015-2016, India’s defence expenditure is pegged at 1.74 per cent vis-a-vis 1.76 per cent in 2014-2015. India will spend 11 per cent of the total government expenditure on defence this year. The United States spends 4.0 per cent of its GDP on defence, China 2.5 per cent and Pakistan 3.5 per cent. It has been empirically established that defence expenditure of up to three per cent of the GDP makes a positive contribution to socio-economic development.

India’s per capita expenditure on defence is less than $10, while the average expenditure of the top ten spenders in Asia is $800 approximately. India’s soldier-to-citizen ratio, at 1.22 per 1,000 citizens, is among the lowest in Asia. The average of the top ten Asian nations is about 20 soldiers per 1,000 citizens.

India plans to spend approximately $100 billion over ten years on defence modernisation…

The Parliament’s Standing Committee on Defence has repeatedly recommended the gradual raising of defence expenditure to 3.0 per cent of the GDP. However, the 13th Finance Commission had recommended that the nation’s defence expenditure should progressively come down to 1.76 per cent of the GDP by 2014-2015. Successive Finance Ministers appear to have decided to pay heed to this unjustifiable advice.

China’s Defence Budget

While India’s military modernisation has been stagnating, China’s People’s Liberation Army (PLA) and its sister services – the PLA Navy (PLAN), the PLA Air Force (PLAAF) and the nuclear strike force – the Second Artillery – have been modernising at a rapid pace for almost two decades, backed by a double-digit annual hike in the defence budget. Early on, in the Chinese Year of the Sheep and in the wake of the spring festival, the People’s Liberation Army (PLA), the PLAN and the PLAAF were given something to cheer about. The National People’s Congress (NPC) – China’s rubber stamp Parliament – hiked the defence budget for 2015-2016 by 10.10 per cent to $145.68 billion (Yuan 888.69 billion). This is over three times India’s planned defence expenditure. As China invariably conceals many items of expenditure on security, its actual expenditure is likely to be over $160-170 billion.

This is the fifth consecutive double-digit hike in the allotment for defence despite steadily declining growth rates. It is a clear signal from the regime led by President Xi Jinping and Premier Li Keqiang that China will continue its relentless march towards becoming the pre-eminent military power in Asia.

It also signals an enduring commitment to the strategy of military assertiveness in dealing with territorial disputes.

Comparison of Defence Expenditure: India, China and Pakistan

Last year, while presenting the Budget, Premier Li Keqiang had said, the government would, “strengthen research on national defence and the development of new and high-technology weapons and equipment and enhance border, coastal and air defences… We will comprehensively enhance the revolutionary nature of the Chinese armed forces, further modernise them and upgrade their performance, and continue to raise their deterrence and combat capabilities in the information age.”

Echoing those sentiments, the Chinese Premier told the Parliament, “Building a solid national defence and strong armed forces is fundamental to safeguarding China’s sovereignty, security, and developmental interests.” He said China will comprehensively strengthen modern logistics, enhance research and development of new, high-technology weapons and equipment and develop defence-related science and technology industries.

However, the marked emphasis on making China a maritime power is something that will set alarm bells ringing in Asian capitals. Li said, “China is a major maritime country. We need to draw up and implement a strategic maritime plan, develop marine economy, protect the marine environment, resolutely safeguard China’s maritime rights and interests, properly handle maritime disputes, actively expand bilateral and multi-lateral maritime cooperation and move close to achieve the goal of building China into a maritime power.”

Source: Chinese government/Reuters

Lieutenant General Zhong Zhiming, a member of the National People’s Congress (NPC), was quoted by Reuters to have said, “We must develop our weaponry and raise the standards of treatment for military personnel, only then will we be able to really strengthen our strategic combat effectiveness…” Chen Zhou, a research scholar at the Chinese Academy of Military Sciences, said the increase was “moderate and reasonable” and in keeping with China’s defence needs.

Chinese analysts justify the steep annual hikes in the defence outlay as having been “caused by the sharp increase in the wages, living expenses and pensions of 2.3 million PLA officers, civilian personnel, soldiers and army retirees.” While this is true to some extent, there is far more to the steep annual hikes in the Official Defence Expenditure (ODE) than Chinese analysts are prepared to concede.

China’s neighbours and governments across the world remember the spectacular Anti-Satellite (ASAT) test successfully conducted by China in January 2007. They see pictures of the Liaoning aircraft carrier undergoing sea trials and are aware of the plans to acquire more submarines. The acquisition of SU-30 long-range fighter-bombers with air-to-air refuelling capability, the development of anti-ship ballistic missiles and a growing footprint in the South China and East China Seas have not gone unnoticed. A twenty-first century arms race is clearly underway.

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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

Brig. Gurmeet Kanwal

Distinguished Fellow, Institute for Defence Studies and Analyses (IDSA) and former Director, Centre for Land Warfare Studies (CLAWS), New Delhi.

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4 thoughts on “Defence Expenditure: Conflicting Tales

  1. Brig, it is quite evident that the Indian Defence Establishment (defence ministry, finance ministry, political leadership) suffers from a Nehruvian Dogma of the Armed Forces being an unnecesary appendage to the system, a threat to the political system and best kept shelved in a corner. They are happy playng their shoddy political games while the Nations security suffers. The issue that you have written about has been written so many times before and flogged enough in the Military establishment – to no effect. The nation slumbers on, fed on Cricket, Bollywood, Secularism, Hindutva and so many miniscule issues that we have become a nation of tamashgies rather than being a Nation of conscious people. You all talking on these issues here actually makes no sense because these forums are hardly subscribed to in the National domain. Let alone the financial funding – our military infrastructure is not poised correctly for operations. We have three commands facing the Chinese and none of them having offensive capability. Dont you think one single command will do so that there is optimum utilisation of combat resourses and an inbuilt offensive capability is created out of the resourses available – allbeit with certain accretions. We need a system over-haul starting from the defence ministry to the Armed Forces.

  2. This kind of articles are being written without any proper studies and with out dated ideas. This is one way to pressurize the civilian Govt to purchase more and more outdated equipments from foreign countries which are not required by them. Majority of defense officers are still thinking about Mortar, Hand Grenade, and 155 mm field and Assault rifles for foot soldiers. I do not know what kind of land warfare studies they are making. I asked many army officers how is Israel won the 1973 war against Arabs? Indian Army had committed similar mistake in 1971 war and lost some strategic locations at Chhamb sector. But nobody able to give the correct answer. That means Indian army may commit same mistake again in case of any future war. We had opted for Bofors guns in 1989 because Indian Army got Information that USA has supplied Weapon locating radar to Pakistan. and only Bofor gun can moving on its own power at a speed of 8 km an hour, Indian army suppose use this facility to escape from enemies return fire by changing locations after a few round of firing. But in the Kargil war Pakistan used the weapon locating radar very effectively against Indian Army. Most probably field commanders were not aware of this problem and not changed the location very frequently to escape from enemy fire. They will not make proper specification. M-777 is a good gun like Bofors. But it cannot move on its own​ like Bofors. The gun has to be relocated very frequently to escape from the weapon locating radar of the enemy and subsequent enemy fire. The weapon locating radar is very effective. Pakistan had effectively used it in the Kargil war against Indian foot soldiers. The Army Chief General J .J. Singh has not taken the right decision to go in for M-777. I wonder how he missed the vital point I mentioned. It is unfortunate that these senior Army officers have no war strategy and are carried away by arms dealers. This is one example . I can quote so many examples like this. Similarly Air force officer’s still think about dog fight. In 1971 war IAF had only 34 effective squadrons, each of which consisted of 12 planes . IAF had 16 air craft per combat squadron but the effective availability during the 1971 war was 12 per squadron. So in 1971 IAF had 408 effective planes. Now we have 582 effective fighter planes.In 1971 war IAF used two planes to conduct one sortie. Front plane is called front gunner and other plane is called rear gunner.If we use AWACs, all our fighter planes can conduct sorties without escort plane. AWACSs will give warning . Now we have double the fire power over a period of time. More over if we consider 12 fighter planes in a squadron, it is stated that we have 48 .5 squadrons. If we consider 16 fighter planes in a squadron, we have now 36 squadrons. The important thing to consider is the number of planes, not the squadrons. This is the kind of tricks they play against the civilian Govt. with the help of foreign agents. So do not think you can fool the public and and the present Govt. So all is not well in the defense forces. General Public will get more information from the net than army people. Why do we require Aircraft carrier? We have no plan to go and attack any other country. The We have no plan to go and attack any other country. The defencse policies
    followed by all the previous Governments were to make this country one of the
    biggest military powers in the world and not a developed country like
    Japan, South Korea, Australia and Canada
    The Indian Navy is one of the largest in the world, and as of 2014 possesses two aircraft carriers, one amphibious transport dock, 9 Landing ship tanks, 9 destroyers, 15 frigates, one nuclear-powered attack submarine, 14 conventionally-powered attack submarines, 25 corvettes, 7 mine counter-measure vessels, 10 large offshore patrol vessels, 4 fleet tankers and various auxiliary vessels and small patrol boats.” Despite this, the Navy failed to prevent the 2008 terrorist attack. Why do you require so many Air craft carrier, War ship, Frigates and Submarines. Except giving employment to so many people, majority of these equipments are not required to fight a naval war against China or Pakistan. Without a permanent base in the Indian Ocean China cannot attack India. Only USA and Western countries are still spreading rumors against China, so that they can sell their defense equipments to India. Do you know how is the ISIS over run the well equipped Iraqi army.? What kind of modernization you suggest?. But I do not think any modernization is required. The future war will be fought only using missiles. So will require only helicopter gun ships. The importance of field guns are going down since the development of Weapon locating radars. Except India nobody is talking about Field gun.. We have to improve the effectiveness of missile, avionic and jammers. Do you during Smt. Indira Gandh’s period she did not give any importance to Navy.

  3. There is no doubt that capabilities of Indian armed forces need to be further strengthen through acquisition of state of art weapons, equipment and other supplies. However, there is greater need for demand side management in military acquisitions. In the recent past, most of the time, budget allocated have not fully utilised especially for capital acquisitions. Enhanced budget is to be demanded when in previous budgets have been fully spent. Many failure of capital acquisitions and consequently non utilization of budget are due to real or perceived corruption cases in defence acquisitions. Real corruption starts while framing the GSQR. There is a tendency to make GSQR/specifications that favours importation rather than taking the same from OFB, DPSUs where contemporary technologies exists. And moreover, in importation also a particular firms is favoured by making specifications in such a way that it suits the specifications of existing weapon, equipment and supplies of that particular firm only and others get eliminated on flimsy ground. Specifications/GSQRs should be made on generic requirements and not on whims and fancies of some individual sitting at the top in military. It should be based on generic requirements of theater of war in which our defence forces are more likely to operate, military capabilities of perceived adversaries, military intelligence etc. While framing the GSQR, views of all stakeholders including leading manufacturer of defence equipment and weapon should also be taken into consideration. If the issues relating to demand side management of defence acquisitions are not addressed properly neither indigenous defence manufacturing capabilities will develop nor import acquisitions will take place.

    • You sound like a DRDO man – we have got nothing worth it till today except substandard stuff from DRDO. It took the DRDO 20 years to produce a rifle for the armed forces, that was bascially a cut paste job from technologies available. Even then it was a shoddy job. The promised optical sights never came because your Dehradun Unit couldnt produce a quality product. The problem lies not in the framing of the GSQR but in the Defence Ministry and the finances available. Technical parameters can only be understood by the user and not some babu in the Defence Ministry. But sadly the Army is run by babus so you have ababu fauj.

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