The defence budget allocation for the year 2015-16 was 2,46,727 crore where as the allocation for the year 2016-17 is 2,58,589.3 crore an increase of less than 5 per cent over the budget estimate figures of the previous year. These calculations are based on sum of defence expenditure (revenue), defence expenditure (capital) and the Ministry of Defence (MoD) expenditure (miscellaneous) which amounts to the above figure of 2,58,589.3 crore. Defence pensions have not been added in this figure as they do not contribute to the maintenance and development of combat capability of the three services. These have never been taken into account in the past. This time to perhaps impress the public and the opposition regarding the BJP Government’s sympathy for the defence sector they are wanting all to believe that more is being done than earlier whereas the fact is that this time the increase in defence budget is the least in the last about six decades since the 1962 war with China. This is also perhaps the first time in the history of independent India that the Finance Minister (FM) made no mention of the defence budget in his 90 minutes speech to the Parliament. The reasons can only be given by the Finance Minister himself, however the lack of security consciousness among the political class can be seen by the fact that not even one political leader from any party commented on this issue even outside the Parliament to the media. Coming from the Finance Minister of a party which claims to be the nationalistic party, the omission is even more astounding considering that the challenges and threats to the country are looming large on the horizon virtually from all directions.

This allocation which is merely 1.47 per cent of the GDP and is even lower than last year’s (2015-16) when it was 1.75 per cent of the GDP. It should be seen in light of the existing hollowness in the capabilities and voids of all the three services which have accumulated over the past one decade and more of compulsive inaction by the UPA Government and now by the present government. The current allocation is bound to further derail the process of modernisation and create dismay and anguish among the serving soldiery.

Table 1 below gives the comparative figures of defence allocations in three years starting from 2014-15 to the current financial year and shows the growth where applicable.

Comments

It is clear from the above table that there is no growth of the defence budget and considering that during the past two years the rupee has depreciated by 39 per cent against the dollar and if we add this depreciation to the rise in prices of military equipment in the global market the adverse impact stands out clearly.

The other drawback is the trend of increasing revenue expenditure as compared to the capital expenditure and the increasing adverse ratio between the two. With the raising of the Mountain Strike Corps and the consequent increase in manpower, the ratio is bound to lean even more heavily towards revenue expenditure.

The third aspect that gets highlighted is the lack of growth of the capital budget which is responsible for the modernisation of the three services. This aspect indicates that 2016-17 will also be a wasted year as far as modernisation is concerned. The services had returned 13,188 crore as unspent amount last year and the likely reasons for this phenomenon are given in the paragraph under the heading “Non-utilization of the Defence Budget”.

Military analysts are of the opinion that India’s defence expenditure needed to be 3 to 4 per cent of GDP 9 (minus defence pensions) to counter China and Pakistan’s increased defence spending and growing militarisation in the Asia-Pacific region.

Threats and Challenges

The security threats and challenges facing India have increased enormously. While the old adversarial threats due to unresolved borders remain, new threats and challenges like terrorism and insurgencies have been added to the old inventory. Thus on the face of it India needs to prepare itself for the full spectrum of warfare ranging from low intensity conflict involving counter-insurgency and counter-terrorist operations to conventional conflicts under the nuclear shadow on two widely separated fronts on its western and eastern flanks. The dilemma is only regarding the extent of emphasis that should be laid to acquiring each type of capability. This requires political direction in the form of a national security strategy as otherwise the services tend to go by the worst case scenario.

Building Defence Capability

Sustaining and building defence capabilty is a continuous and gradual process. Delays in implementing plans not only create a void in capability build up but if the delay in procurement of weapons and equipment extends to a few years, it upsets the funds earmarked for the purpose because of the inflationary trends of the global market. It requires both, adequate budget allocations and full, efficient and judicious utilisation of the allocated budget. This does not appear to have happened in the past and the trend appears to continue in the current year. The allocation on account of capital budget as per the budget estimates in 2015-16 was 94,588 crore while at the revised estimates stage the allocation is shown as 90,209 crore, thus showing the inability of the Defence Ministry to utilise the funds allotted. The services returned 13,188 crore as unspent amount last year. It also indicates the complicated procedures in place which prevent the services from timely utilisation of the allotted resources. This has been happening year after year and has created a critical adverse in our war-fighting capabilities. It is well known that the services even lack certain categories of ammunition to fight a war of a given duration and the war wastage reserves are well below the acceptable figures. Overall, lack of availability of some of the munitions also reflect on the effective training of crews of various weapons systems.

Current Status of Army’s Weapons and Equipment

The army’s ‘critical shortages’ and obsolescence of its current equipment include 155mm howitzers, light utility helicopters, attack helicopters, air defence assets, various categories of ammunition, anti-tank and AD missile systems, close quarter battle (CQB) carbines, assault rifles, machine guns, sniper rifles and anti-material rifles. The situation has worsened in the last three years or so. Adding to the existing shortages is the new raising of the 17 Mountain Strike Corps for our Eastern theatre, which is expected to reduce the army’s reserve stocks called ‘War Wastage Reserves’ in terms of equipment and munitions further.

Capital Budget

The capital budget, which is meant for procurement of equipment, when analysed for the years 2014-15 and 2015-16 seem to suggest that no significant changes in equipment status of the army will come about in the near future despite many projects having been sanctioned by the Defence Acquisition Council (DAC). A more detailed analysis of the various projects has been done in the article on ‘Indian Army’s Modernisation Woes’ in this issue of SP’s Land Forces. This will give the readers an idea of the gigantic task that awaits the Indian Army as far as modernisation is concerned.

Components of Capital Budget

The capital budget has two components. The first component is modernisation of the three services which has been given in the Demand No. 23 of the Demands for Grants in respect of the three services of the Ministry of Defence. And the second pertains to Demand No. 20, which is in respect of Ministry of Defence (Miscellaneous) which includes the Ministry itself, Border Roads, Coast Guard, Defence Estates, Ordnance Factories, Defence Research and Development Organisation, Rashtriya Rifles, Jammu and Kashmir Light Infantry (JAK LI), Military Farms, Ex Servicemen Contributory Health Scheme, NCC, etc.

Modernisation budget caters for both, i.e. ‘Committed Liabilities’, the payments due in respect of contracts signed in the past; and the first stage payment due on signing of new contracts. The amount due as first stage payment is as per the conditions of the request for proposal (RFP) and may vary in each contract, but for rule of thumb calculation purposes, it may be assumed to be 10 per cent. In most cases more than 50 per cent of the allocated amount in respect of the capital budget will be consumed by committed liabilities. In case of some services this figure may be higher.

Non-Utilistation of the Defence Budget

The reasons for non-utilisation of all the allocated capital funds are many. Some understanding can be gained from the 7th report of the Defence Committee of the Parliament. This report was presented in May 2015 and it brings out that during the year 2014-15, the Army could not utilise 7,874 crore in the capital head due to several reasons like cuts imposed by the Ministry of Finance, slippages in Committed Liabilities, non-fructification of 14 Schemes at the Competent Financial Authority (CFA) stage, and under-utilisation by the Director General Ordnance Factories (DGOF), etc. Therefore to reduce the allocation based on the justification of previous year’s RE figures or the reasoning that the services cannot utilise the funds allotted are excuses to deny funds by not clearing the projects. This has been happening year after year leading to the current critical shortages and lack of modernisation of the three services.

Capital Budget, Army

The total capital budget allocated to the Defence Services is 78,587 crore out of which after taking out committed liabilities only 12,000 crore is likely to be available for new procurements/developments.

The capital budget of the Army can be seen at a glance from Table 2.

Considering the shortages given in the paragraph on current equipment status of the army and the fact that a large percentage will go into paying for the committed liabilities, it will be clear that the allocated budget for the type of deficiencies that exist will not suffice and will compel the decision makers to limit the sanctions only to a few projects during the year which would imply an ever increasing backlog which will have its own ramifications in the future.

Table 3 gives the figures of three years of defence allocations, both revenue and capital in the case of the MoD.

Revenue Budget, Army

This year’s overall revenue budget has increased by 16,240 crore if the BE figures of the year 2015-16 are compared to the BE of year 2016-17. If the RE figures are taken then the increase in revenue expenditure is 10,360 crore. This increase perhaps takes into account the increase in pay and allowances due to the Seventh Pay Commission’s recommendations. During the time of Sixth Pay Commission the increase was catered for by allocating an additional 17,000 crore.

Conclusion

The requirements of the services are vast and wide ranging and the defence budgets in the past as well as the current allocations do not meet the requirements of the services. At the present rate the services will never be able to make up their deficiencies and modernise hence the time has come to take some hard decisions. The options available are only two, i.e. either we become a lean force with greater reliance on technology or we accept the present/anticipated manpower intensive force structure and give greater allocations to defence. The latter option is unlikely due to the socio-economic conditions prevailing in the country and the government’s cumpulsions in a democracy like ours. Hence the answer lies in conducting a strategic and defence and security review to go into the optimum force levels required based on clear and pragmatic strategic guidelines from the political leadership. The current increases in force levels, in the absence of a clear strategy are unviable.

For the first time in independent India’s history, the defence outlay for FY 2016-17 found no mention in Finance Minister Arun Jaitley’s budget speech. Official sources said this was due as much as to the restructuring of budgetary allocations that made it more complex and difficult to compare with previous defence outlays and for Arun Jaitley to explain, as to its paltry spending increase. This lapse (in not referring to the defence budget) also reveals the low priority that BJP Government accords to defence matters. The lack of seriousness towards the military at a time when more serious challenges are looming large over the horizon shows the attitude of the present government to national security.

All three services had surrendered 13,188 crore or 16 per cent of the capital outlay for FY 2015-16 for failing to conclude contracts, cancelling tenders due to over ambitious qualitative requirements or being unable to complete field trials on schedule. In this the army’s performance was the worst as they were unable to disburse some 55 per cent of its modernisation outlay to meet enduring shortages of multiple platforms and systems.

Military analysts and former MoD financial advisors for acquisitions have warned that the ability of the three services to disburse their allocations in a timely manner needs overhauling as otherwise, India’s military modernisation will remain a mirage.