Budget 2018: The Budget Session of Parliament has begun. Three days earlier, on the Republic Day, the nation’s military might was paraded down the Rajpath. It did well to reassure the nation of our military capabilities and also make an impression on our friends—this year we had 10 Heads of States of ASEAN gracing the occasion. Looking beyond the military spectacle, there is anxiety over our military modernisation and defence preparedness—a concern that the Budget is expected to address. In the last couple of years, the China-Pakistan embrace has got much tighter and so has the convergence between China and Russia. China has intensified engagements with all South Asian and several Indian Ocean region states. The unusually prolonged face-off at Doklam and the belligerence demonstrated by the Chinese spokespersons and media provide distinct pointers on what to expect in the future. In J&K, though internal security situation has been brought under control, tensions along the Line of Control have multiplied. Alongside increasing direct security challenges, there are international expectations for India to be a “net provider of security in the Indian Ocean and beyond.” Meeting the competing budgetary demands of different sectors is always a challenge for the finance minister. In arriving at the correct allocation for defence, three important facts need to be kept in mind.
India’s security challenges are becoming complex;
Even though India’s defence budget increased marginally year-on-year, in terms of percentage share of GDP, there is a decline. In 2017-18, defence budget was 1.56% of the estimated GDP, the lowest since 1956-57;
In 2016, India’s military spending at $56 billion was the fourth-highest in the world. In terms of per-capita military expenditure, however, it was the lowest amongst major countries. Israel was at the top with $2,104, the US at fourth with $1,891, and India at 17th place with $42.
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Parliamentary Standing Committee on Defence 2017-18 expressed concern on “back to back decline” in defence allocation when there is “a huge void in India’s defence preparedness, and armed forces have grave shortages in many areas.” In 2016-17, only 12% of the total modernisation budget of Rs 70,000 crore was available for signing new schemes as the rest was earmarked for committed liabilities of earlier contracts. In 2017-18, modernisation budget for army and navy declined, while that of air force increased due to some big contracts.
While the bid for additional allocation of Budget is justified, there’s more to the modernisation narrative. It is ironic that, on one hand, there is inadequacy of funds for modernisation, and on the other there is underutilisation of capital allocations year after year. In 2016-17, underutilisation was Rs 7,393 crore (10.5%). The emphasis on process in procurements is so much that outcomes do not seem to matter and allocations remain unspent. The recommendations of the Standing Committee, that capital allocations should be “roll on” and “non-lapsable,” need to be implemented so that funds are spent on what they are specified for.
The procurement process requires urgent re-engineering with an end-to-end digitised system. Manual and personality-driven interventions need to be minimised to be able to at least effectively spend what is allocated. Any discourse on the high share of revenue expenditure because of manpower costs usually gets detracted by the high expenditure of army’s manning requirements, which is justified by manpower-intensive operations like physically manning every inch of Line of Control, Line of Actual Control and counter-terrorist operations. In this discourse, the scope for reforms essential on several other revenue expenses gets glossed over.
The Defence Procurement Procedure 2016 articulated the policy priority for indigenisation in unequivocal terms. The implementation, however, has been hindered by bottlenecks. Additional allocations have to be justified by hard-nosed economics. The defence budget and force modernisation has to contribute to the indigenous industrial base, R&D and job creation. Saving to exchequer can happen if we optimise on revenue-to-employment ratio in the public sector and leverage potential of the private sector much more. The recent simplification of Make-II is a good beginning.
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For the defence budget to be able to effectively contribute to both modernising and sustaining military capability, the allocation needs to be pegged at 2-2.5 percentage of GDP. Concomitantly, all the connected functions need urgent reform—digitised capital procurement, optimised revenue expenditure, incentives for Make-in-India, structures and policy for joint military planning, and prioritisation of requirements.
Tha author is principal advisor, CII, and director general, Society of Indian Defence Manufacturers