Indian Defence Review

India’s defence budget has been hiked by a measly 6 per cent to Rs 2,74,114 crore ($40.42 billion) for 2017-18, dashing the hopes for any major jump in military modernisation this year despite heightened tensions with Pakistan and the mighty China. At Rs. 2,74,114 crore, the defence budget excluding defence pensions, is only 6 per cent more than the comparable Budget Estimate (BE) figure of Rs. 2,58,589 crore (excluding defence pensions) for 2016-17. The increase works out to be just 5.6 per cent of the Revised Estimate (RE).

The defence outlay works out to just 1.63% of the GDP, the lowest such figure since the 1962 war with China. Though this figure has been steadily declining in percentage terms as the economy expands, military experts contend it should be about 3 per cent of the GDP to ensure the armed forces are capable of tackling the “collusive threat” from Pakistan and China. This meagre increase will affect the modernisation and operational preparedness of the defence forces.

Using the MoD format, the defence budget for 2017-18 amounts to Rs. 2,62,390 crore. The difference in amount (between FM’s and MoD’s figures) of Rs.11,724 crore is allocated under what is considered Defence (Civil Estimates), which, inclusive of defence pension of Rs. 85,740 crore, does not form part of the official defence budget.

A major feature is the further increase in the share of the revenue expenditure in the total defence budget. The increase is primarily due to the hike in the manpower cost of the armed forces, which accounts for over 83 per cent (or Rs. 11,071 crore) of the overall growth of Rs. 13,291 crore in the defence budget.

It is significant to note that the manpower driven defence budget is not unique to 2017-18. In the last several years, it has been a recurring feature with a debilitating effect on two vital elements of the defence budget: revenue stores and capital modernization, which together play a vital role in the operational preparedness of the armed forces. The combined share of these two elements has declined from 55 per cent in 2007-08 to 40 per cent in 2016-17. This does not augur well, especially when there exists a huge void in India’ defence preparedness, and the armed forces have grave shortages in many areas ranging from ammunition, assault rifles, bullet-proof jackets, man-packed radars, night fighting-devices to howitzers, missiles, helicopters, fighters and warships.

Needless to say, for adequate defence preparedness, the present ratio needs to change for the better, for which allocation under revenue stores and capital modernisation needs to be augmented substantially.

Among the defence services, the Indian Army with a budget of Rs. 1,49,369 crore accounts for the biggest share in defence budget, followed by the Air Force, Navy, Defence Research and Development Organisation (DRDO) and Ordnance Factories (OFs). The lion’s share for the Army is primarily because of its overwhelmingly numerical superiority over the sister services. Accounting for over 85 per cent of the uniformed personnel, bulk of the Army’s budget goes into meeting the pay and allowances of the personnel. In 2017-18, only 17 per cent of Army’s total allocation has been earmarked for capital expenditure. The comparative figures for the Air Force and Navy are 58 per cent and 51 per cent, respectively.

Among the three forces, Air Force is the only service whose modernisation budget has increased whereas both the Army and Navy have witnessed a decline in their respective budgets. The increase in the Air Force’s budget is in view of its signing several mega contracts, including for the Rafale fighters, and Apache attack and Chinook heavy lift helicopters.

The decline in the modernisation budget is a source of great concern, especially given the limited budgetary scope available for signing new contracts. In 2016-17, only 12 per cent of the total modernisation budget of Rs. 70,000 crore was available for signing new schemes, with the rest being earmarked for the committed liabilities arising out of contracts already signed. It is, however to be noted that this limited scope has not been fully exploited as there has been an underutilisation of a whopping Rs 7393 crore (or 10.5 per cent). The underutilisation is across the services, although the Army accounts for over 50 per cent of total unspent funds.

What is of greater concern is that underutilisation has become a recurring feature of India’s defence budget, despite numerous improvements in the procurement procedures undertaken by the MoD in the past two-and-a-half decades. Given that steady modernisation is a prerequisite for building up a strong military capability, the MoD has a big task ahead to bring in efficiency and expeditiousness in the procurement process.

Unlike in the previous budget, the Union Budget has not provided any specific incentives to push the Make in India initiative in the defence sector, although some industry-wide proposals have been promised. Among others, the government has promised to reduce income tax from present 30 per cent to 25 per cent for MSMEs with an annual turnover of upto Rs. 50 crore. This is likely to benefit some 6000 MSMEs, which are presently supplying parts, components and sub-systems to players like DRDO, Defence Public Sector Undertakings, OFs and the large private companies.

The lack of any specific incentive for the defence industry may be a source of disappointment, as industry has repeatedly demanded certain concessions, which are currently extended to other sectors. Within the defence budget, however, there has been a small allocation of Rs. 44.63 crore made for prototype development under the ‘Make’ procedures, which have recently been revised by the MoD and some 23 projects have been identified for execution. Of the total amount, Rs. 30.08 crore is earmarked for Army and the balance Rs. 14.55 crore for the Air Force.

The meagre increase of five per cent in the official defence budget is grossly inadequate especially in view of the vast voids existing in military capability and the diminished and incremental effect on modernisation and operational preparedness. There is a need to augment resources substantially, particularly fewer than two critical heads of the defence budget – stores and capital procurement – which have come under severe pressure in the last several years with a huge negative consequence on India’s defence preparedness.

Conclusively, the demand for higher allocations is a genuine however, it must also be fully geared to utilise the available resources in a time-bound manner. There is hardly any merit in asking for more resources while the present capacity to utilise the available resources, particularly those under the capital head, is constrained. The defence establishment must, therefore, look inward and find lasting solutions to procurement impediments. The MoD must look into tooth to tail ratiofor better modernisation.