Defence Notes

New Delhi, 7 March 2011

Defence Budget

LOWEST IN THE WORLD 

By PK Vasudeva

The Finance Minister Pranab Mukherjee has allocated a defence outlay of Rs 1,64,415 crore (about $36 billion) for 2011-12. Namely, 11.59% over this year’s Rs 1,47,344 crore (merely 3.9% over the previous year 2009-10) on defence or 13% of the entire country’s budgetary outlay for the next financial year beginning from April 1, 2011.

Most scandalously, out of this, Rs 69,199 crore, an increase of Rs 9,199 crore or 15% over last year’s Rs 60,000 crore, has been earmarked as capital outlay for new acquisitions of weapons, planes, ships, equipment, naval dock yards and special classified projects. 

Neither the projection of the growth of Defence expenditure, only at 8.3% by the Thirteenth Finance Commission, nor the Finance Minister’s strenuous efforts in the pursuit of fiscal consolidation seems to have deterred him from being a pragmatist as far as Defence is concerned.

However, the most remarkable feature of this year’s (2010-11) defence budget was that not only was the actual expenditure on equipment purchase and the capital outlay exhausted, but the three services also spent more than they had been allotted.

On a more positive note, the budget will focus on vital aircrafts for the IAF and choppers for the Army out of the Rs 69,199 crore earmarked for new acquisitions. It appears that the budgeting exercise this time around is not merely a running account of the arithmetic of carrying forward the committed liabilities but a more realistic assessment of the defence needs. There are major acquisitions in the pipeline (126 Medium Multi-role Combat Aircraft (Rs 45,000 crore), C-17 Globemasters and Reconnaissance Surveillance Helicopters].

From the figures provided under the Revenue head, the performance of India's premier defence equipment manufacturer, Ordnance Factories Board (OFB), appears noteworthy. Unlike last year, when a budgetary support of Rs 246 crore was provided to the OFB, this year the allocation to OFB is Rs 1,176 crore.

But an increase of merely 7.5% for the Defence Research and Development Organisation (DRDO) at Rs 5,624 crore does not match the rhetoric of indigenous development in Defence Production Policy that was announced in January 2011.

The increased allocation at Rs 64,251 crore for the Army and Rs 10,584 crore for the Navy (from Rs 57,326 crore and Rs 9,329 crore respectively in the previous year) appear generous compared to the Rs15,927 crore granted to the Air Force (Rs 15,210 crore last year).

The other focus area is the naval fleet. A sum of Rs 7,020 crore has been set aside to pump in money for under-construction ships like the sea-borne aircraft carrier, the stealth frigates and submarines. A sum of Rs 720 crore is allocated for naval dockyards, which, as per the stated policy of the Ministry, are set to modernize and compete with global players in ship-building.

Despite the three services spending the whole capital outlay for this financial year, for 2011-12, they have got merely Rs 8,366 crore more than 2010-11 revised estimates. Earlier, several thousand crore rupees used to be returned to the Central kitty every year because they could not be spent within time. This showed poor defence fund management.  

Significantly, China’s defence spending is almost double that of India at $ 78 billion. It is expected to announce a defence budget for 2011 later this week. Various experts have assessed China’s defence spending at 7.5% of its GDP.

In fact, China has already constructed airstrips, railways and broad roads in the difficult mountainous terrain up to the borders with India so that its forces remain within striking distance of strategic Indian locations.  China is also helping Pakistan’s defence forces with the acquisition of modern defence equipment and jet fighters for attaining air and marine superiority over India.

Also, the defence expenditure of some of the important countries based on their Gross Domestic Produce (GDP is: Oman 11.40%, Saudi Arabia 10%, Iraq 8.60%, China 7.50%, Israel 7.30%, Syria 5.90%, Pakistan, 5.10%, US 4.50% and Russia 3.90%.

More shocking, is the fact that India only spends a minuscule 1.84% of its GDP on defence expenditure. Worse, its defence spending instead of increasing from 2.3% last year has gone down. Clearly, this is causing grave concern to the defence forces who are guarding the frontiers under very difficult and hazardous environment.

Thus, reckoned as a percentage of total Government expenditure, our Defence spending appears to be falling from 13.88% in 2009-10 to 13.11%. Notwithstanding that as a percentage of the GDP it is mildly recovering from the drop at 2.12 % in 2010-11 to 2.18%, despite the economy growing at close to 9%.

Consequently, lowering of the share of the defence spending in GDP terms stems from the report of the 13th Finance Commission February last year. Whereby, the Commission suggested, “as a percentage of the GDP, defence spending is to be progressively decreased to 1.76% by 2014-15”. Undoubtedly, this does not seem to be a sound recommendation considering the global security environment, especially the hostile neighbouring adversaries.

True, budgeting generously for the defence is not the flavour of the year across the world. The UK is imposing a cut of 8%, the US is cutting $78 billion over five years and even Russia, although suffering from obsolete fighting machinery, has chalked out a slow-paced long haul plan extending till 2020 for rejuvenation of its conventional arms.

It is, however, important to note that both our adversaries, China and Pakistan are spending much more on their defence than India. This should be taken as a warning and New Delhi needs to be watchful of their evil designs. We have to guard our frontiers with an extremely vigilant eye lest we are caught with our pants down like it happened in the 1962 China aggression.

Indeed, successive Parliamentary Standing Committees on defence have recommended allocation to be raised to at least 3-3.5% of the GDP if India’s Armed Forces are to rapidly modernise. Also, the Prime Minister Manmohan Singh and Defence Minister Antony, on separate occasions in the past, have pitched for a 3% share of the GDP for defence.

In sum, India must therefore increase its defence outlay to 3% of its GDP so that the Armed Forces remain well-equipped with the latest modern defence equipment. In addition, we can make use of our industry to help overcome the immediate needs, as it is capable of producing war equipment indigenously at comparatively cheaper cost. Efforts should therefore be made to allocate more funds to the DRDO to produce defence equipment indigenously rather than depend on import. ---- INFA

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