Indian Defence Review

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 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.

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.

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.

In almost all of the biennial White Papers on National Defence, the Chinese government has stated that additional funds are needed for the modernisation of the PLA. The requirement of additional funds for force re-structuring and a qualitative increase in the levels of training is emphasized in the White Papers. Rising inflation is also cited as a reason for increased defence expenditure. However, nothing in the recent White Papers fully explains the double-digit growth in the annual defence expenditure. In response to international calls for greater openness, one Chinese military official wrote, “Transparency is a tool of the strong to be used against the weak.” It is this lack of transparency that has fuelled speculation about an arms race.

Complete transparency in defence spending has seldom been a strong point even among countries that take pride in being liberal democracies. According to the late Air Commodore Jasjit Singh, “All countries try and protect what they consider to be crucial information about their defence capability for understandable reasons; and defence expenditures are obviously part of that information except where democratic states practice greater transparency as part of their liberal ethos, domestic obligations and public oversight, and well established procedures of accountability…” Totalitarian regimes like the one in China do not practice egalitarian accounting principles neither do they have a real grip on all the details of what they actually spend.

China’s actual military expenditure is far higher than the officially published figure. This year, it is expected to cross $200 billion. Professor David Shambaugh, a Washington-based China analyst, finds China’s defence budget the most difficult aspect of the country’s armed forces to research. In his view, “Few areas of China’s military affairs are more opaque and difficult to research than the revenue/expenditure and budget/finance domains. – but perhaps none is more important to understand.”

David Shambaugh lists several items of expenditure that do not figure in China’s Official Defence Expenditure (ODE), “China’s official defence budget does not appear to include all funds for:

• Chinese-made weapons and equipment production (as distinct from procurement)
• Some Research, Development, Test and Evaluation (RDT&E) costs
• The paramilitary People’s Armed Police
• Funds for weapons purchases from abroad
• Funds directly allocated to military factories under the control of the General Armaments Department (GAD)
• Military aid.” This year China proposes to spend $25.15 billion (Yuan 152.19 billion) on internal security. The actual expenditure on this count has normally been much higher.

Ted Galen Carpenter and Justin Logan point out that greater transparency would be in China’s interest, “China needs to recognise that it gains little from opacity in comparison to what it loses… Any respectable observer of the People’s Liberation Army knows about China’s growing capabilities. We know about the Sovremenny destroyers, the Sunburn missiles and the Kilo submarines. We know about the Sukhoi 30s and the new F-10 fighter. Large-scale hardware acquisition and development is hard to hide.”

China’s ODE overtook that of Japan ($42 billion) and Germany ($37.5 billion) in 2007, but at that time still lagged behind the United Kingdom ($62.38 billion) and France ($50.78 billion) whose economies are now much smaller than that of China. It is still a small fraction – less than one-fourth – of the United States’ annual defence budget of approximately $600.00 billion; not counting the supplementary grants of about $75 to 80 billion sought by the Pentagon separately every year for ongoing war(s). The US expenditure on defence is almost half – 48 per cent – of the total defence budget of the world. China, France, Japan and the United Kingdom each spend four to five per cent of the world’s total defence expenditure.

China’s military aims and modernisation strategy have been enunciated in its White Papers on National Defence, “…a three-step development strategy in modernising China’s national defence and armed forces, in accordance with the state’s overall plan to realise modernisation. The first step is to lay a solid foundation by 2010, the second is to make major progress around 2020, and the third is to basically reach the strategic goal of building informationised armed forces and being capable of winning informationised wars by the mid-21st century.”

Source: IISS

China is investing heavily in modernising its surface-to-surface missile firepower, fighter aircraft and air-to-ground strike capability. It is acquiring strategic airlift capability, modern aircraft carriers, new submarines, improving command and control and surveillance systems and is enhancing its capacity to launch amphibious operations. Besides an all-weather railway line to Lhasa, China is engaged in constructing new missile bases, airfields and roads and military encampments close to the border.

With the improved logistics infrastructure in Tibet, including the Gormo-Lhasa all-weather railway line, newly constructed road axes with good lateral roads linking them and many new air strips, the Chinese are now capable of inducting larger numbers of troops into Tibet in a shorter timeframe and sustaining them for longer durations. In recent military training exercises and war games, the PLA has been practising rapid deployment of its airborne forces in Tibet and elsewhere and amphibious landing operations to simulate landings on one or more of the disputed islands. The trends in the procurement of military hardware and training activities are indicative of future plans for strategic outreach.

Coping with Emerging Challenges

Despite the long list of obsolescent weapons and equipment in service with the Indian armed forces, the present military gap with China is still quantitative rather than qualitative. In case India’s military modernisation continues to stagnate, this gap will soon become a qualitative one as well. By about 2020-2025, China will complete its military modernisation and will then be in a position to dictate terms on the resolution of the territorial dispute if India continues to neglect defence preparedness.

The lack of progress in replacement of the Indian Army’s obsolescent weapons and equipment and its qualitative modernisation to meet future threats and challenges is particularly worrisome as the Army continues to be deployed in large numbers on border management and internal security duties. It needs to upgrade its rudimentary C4I2SR system and graduate quickly to network centricity to optimise the use of its combat potential. The mechanised forces in the plains are still partly night blind, the capability to launch offensive operations in the mountains continues to remain inadequate to deter conflict. The capability to launch precision strikes from ground and air-delivered firepower, which will pave the way for the infantry to win future battles, is much short of the volumes that will be required.

Given India’s increasing vulnerabilities and rising international demands on it to act as a net provider of security as a rising regional power, the country’s defence expenditure is inadequate to create the capabilities that the armed forces will need in future. India needs to invest more in improving the logistics infrastructure along the border with Tibet, in hi-tech Intelligence, Surveillance and Reconnaissance (ISR) systems for early warning and in generating land and air-based firepower asymmetries to counter China’s numerical superiority. The Indian army is in the process of raising and suitably equipping a Mountain Strike Corps to carry the fight into Chinese territory if it ever becomes necessary. Without sufficient funding support, it will remain in limbo and never become the potent force that it has been designed to become.

All of these capabilities will require a large infusion of fresh capital. 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.

The reasons for India’s lackadaisical approach to military modernisation include the shortage of funds on the capital account for major defence acquisitions, the inability to spend even the allotted funds due to bureaucratic red tape in decision making and the lack of a robust indigenous defence industry because of excessive reliance on incompetent Ordnance Factories and defence PSUs. India’s political leadership and the bureaucracy must learn to look at defence expenditure as a form of insurance. If properly utilised, it deters military adversaries from contemplating war and enables the armed forces to acquire the capabilities necessary to fight and win if deterrence fails.