Defence Notes

New Delhi, 2 March 2009

Defence Imports

GEAR UP INDIGENOUS INDUSTRY  

By Dr. P K Vasudeva

In its interim budget for 2009-10, the UPA government earmarked Rs. 1,41,703 crores, an increase of 34.18 per cent for the Defence Services which include the three Armed Forces (Army, Navy and Air Force), and other Departments, primarily the Defence Research and Development Organisation and Defence Ordnance Factories. However, of last year’s budget of Rs. 1,05,600 crore, more than Rs 7,000 crore earmarked for new acquisitions went unutilized.  

While the defence outlay forms 14 per cent of the Central expenditure, an additional Rs. 24,960 crores has been earmarked to defray civil expenditures of the Ministry of Defence and its affiliated organisations, including, the Coast Guard and defence pensions (Rs. 21,790 crores). In other words, the total resource available for the MoD and its various establishments is Rs. 1,66,663 crores. By convention, only budgetary provisions for the Defence Services constitute the defence budget.

Though the allocations made in the interim budget are not binding for the next government to follow, it is unlikely that the new incumbent will make any major changes, given the mandatory increases in certain components of the defence budget, the worsening security situation in the country’s neighbourhood and the gap in the country’s defence preparedness.

The faster growth of revenue expenditure is primarily due to the hefty increase in pay and allowances flowing from the implementation of Sixth Central Pay Commission.  To put the figure in perspective, total budgeted pay and allowances debited from the Services’ budgets has more than doubled from Rs 21,891.67 crores in 2008-09 to Rs. 44,500.69 crores in 2009-10.

Service-wise, the Army accounts for the largest share of the 2009-10 budget with an approximate allocation of Rs. 76,680 crores, followed by the Air Force (Rs. 34,432 crores) and the Navy (Rs. 20,604 crores). While the Ordnance Factories (OF) have a budget of Rs.1,505.45 crores, the DRDO’s budget is Rs. 8,481.54 crores.

In this situation, inexplicably, the Armed forces surrender of Rs 7,000 crores to the Government of what had been earmarked for arms purchases in 2008-09 is serious. The defence ministry after all, has surrendered well over Rs 20,000 crore capital outlay funds in the past five fiscals, which are basically meant for acquiring new weapon systems and platforms. It took 26/11 for the government to finally get serious about fast-tracking defence acquisitions.

Utilisation of resources would seem to be a challenge for the security establishment, which appears to place greater stress on outlay than outcome while budgeting. With the security environment deteriorating post the 26/11 Mumbai attacks, the Defence establishment cannot afford to get lax on arms and systems as even the so-called non-state actors among terrorists are turning out well-equipped.

In the interim budget, acting Finance Minister Pranab Mukherjee said funds would be available if more were required. He hiked capital outlay — money for new acquisitions from Rs 48,000 crore allocated last year to Rs 54,824 crore this fiscal even though the defence ministry could spend only Rs 41,000 crore of the amount allocated, indicating a lethargy, an unwillingness, an inability or all three — to take decisions on big-ticket deals such as tanks for the Army, aircraft for the Indian Air Force and vessels for the Coast Guard and submarines for the Navy.

It is ironical that while capital expenditure has been increased substantially over the years, not sufficient attention has been devoted to spending the resources in a time-bound manner. As a result, under-utilisation of resources has increased with the growth in each year’s capital expenditure. In absolute numbers, under-utilisation has increased by over four-and-a-half times between 2004-05 and 2008-09, whereas in percentages it has increased from 4 per cent to 15 per cent in the same period

“On the face of it, a hike of Rs 25,000 crore or thereabouts in defence allocations looks impressive,” notes defence analyst Commodore (Retd.) C. Uday Bhaskar, but adds that “the actual impact is felt when defence outlay is translated into capacity-building. Almost every year, for the past eight years you have returned unspent money on the capital head. For a country where military obsolescence is staring us in the face, this reeks of a systemic ineptitude because of Bofors, HDW and the Kargil coffin scams. To therefore, say that I have increased defence allocations and another Mumbai will not happen is like cheating.”

Rightly so, this is not going to benefit our industry in any significant way. As it is, the major beneficiaries of the largesse will be the MNCs/TNCs of the West, and their keen interest in India as was evident in their large-scale participation at the just-concluded Aero India 09 at Bangalore.

The sustained preference for overseas suppliers (till recently mainly Russian) over the decades raises doubts about the seriousness of successive governments and the Armed forces in achieving self-reliance in Defence technology. Even the Interim Budget has dealt a blow to the effort by cutting to Rs 4,000 crore of the allocation for Research and Development against the Rs 6,486 crore spent in 2008-09. India gets its defence supplies by way of 15 per cent each from PSUs and indigenous industry and remaining 70 are imported.

India requires helicopters, fighter jets, artillery guns and missiles urgently, as also submarines and these purchases are expected to push Defence spending to at least $30 billion by 2012. The weapons and systems will continue to be largely imported even though Defence Minister A. K. Antony has regretted that import of 70 per cent of our Defence needs is simply unacceptable. The question is: what then is being done about it? Other than HAL’s Advanced Light Helicopter and the DRDO’s Agni and Prithvi missiles, it is difficult to list major success stories of the Defence PSUs. Even these have been 20-30 years delayed.   

Action must be taken to ensure that gradually 70 per cent of the defence production should be indigenous, replacing the imports. The Indian industry is capable of producing any type of defence equipment but the problem is of too many bureaucratic hurdles, wherein defence orders and procurement systems get too cumbersome. The industry must be co-opted in this effort, as it has shown the ability to absorb technology and to deliver.

Even the Chief of Air Staff, Air Chief Marshal Fali Homi Major, has noted the absence of a strong domestic aerospace industry forcing the Armed Forces to turn to costly products from global vendors. He has called for time-bound projects, collaborations and joint ventures in design and development to speed up product cycles of crucial military products. Clearly, a new super-body is needed to co-ordinate the many disjointed and repetitive R&D activities.

The statement comes amidst some major acquisition plans, the hottest of these this decade being the 126 fighter planes the IAF plans to buy. This deal alone is estimated at $10 billion (Rs 47,000 crore) and has six global defence manufacturers swooping in on the opportunity. Two first-time purchases from the US are said to have been decided: eight of Boeing IDS’s maritime reconnaissance aircraft P8-Is for the Navy at nearly Rs 10,000 crore and six of Lockheed Martin’s transport planes, the C-130Js.  

It is heartening to note that in spite of the recession, there is no scaling down of defence expenditure because of our security concerns. India is presently spending 2.5 per cent of the GDP, China – 1.4 per cent (actually 4.3 per cent) , the US - 4.6 per cent, UK - 3 per cent, France - 2 per cent, Russia - 2.63 per cent, Israel 5.6 per cent and Pakistan 4.8 per cent of the GDP. However, given the threat perception, India’s defence expenditure must go up to 3 per cent of the GDP for modernisation of its defence forces. ---INFA

(Copyright, India News and Feature Alliance)