The Rs 2,29,000 crore that Finance Minister Arun Jaitley allocated for defence in the Bharatiya Janata Party (BJP)-led government's first Budget
on July 10, a mere two per cent rise over the last government's interim
allocation in February, would have disappointed those who were reading
too literally the BJP's manifesto and nationalist rhetoric in the run-up
to the general elections in May.
This would also have disappointed the military, which was allocated just
80 per cent of its projected requirement of Rs 2,85,202 crore.
The modest allocation would suggest that the government anticipates a
benign security environment in the region, notwithstanding the US and
the North Atlantic Treaty Organization troop drawdown in Afghanistan by
end-2014.
Instead of placing defence allocations on a trajectory towards 2.5-3 per
cent of gross domestic product (GDP) which national security hardliners
have argued for, Jaitley allocated just 1.78 per cent of GDP, only
marginally higher than the interim Budget's 52-year low of 1.74 per
cent. This will amount to 12.75 per cent of the central government
spending this year.
(MILITARY ALLOCATION AND SPENDING)
In fact, the defence spending actually amounts to 2.55 per cent of GDP
if one takes into account several expenditures that are not included in
the defence budget, but which most countries count as defence spending.
These hidden expenditures include (see chart 1) Rs 3,639 crore allocated
to the defence ministry itself (Demand no. 20), and Rs 51,000 crore
earmarked for defence pensions (Demand no. 21). It includes Rs 8,737
crore allocated to the department of atomic energy (Demand no. 4), which
develops, builds and stores India's nuclear weapons. It includes Rs
37,322 crore spent on border forces and counter-insurgency forces like
the Border Security Force,
Indo-Tibetan Border Police and the Assam Rifles (Demand no. 55).
Finally, it includes Rs 6,673 crore allocated to the Border Defence
Management Board that builds strategic roads for the military (Demand
no. 83).
Counting these allocations, defence expenditure is actually Rs 3,36,371
crore, a full Rs 1,07,371 crore higher than the stated allocation. This
amounts to 2.55 per cent of GDP.
Of the stated budget (see chart 2), the army gets roughly half (49.5 per
cent); the air force almost a quarter (23 per cent); while the
remaining quarter is shared between the navy (16 per cent), the Defence
Research &D evelopment Organisation (DRDO), the Ordnance Factory Board (OFB) and others.
The big gainer this year is DRDO, which has seen funding rise from about
five per cent to 6.5 per cent of the defence budget. Its capital budget
has been raised by almost 60 per cent to Rs 9,298 crore. This signals
strong ministry support to indigenisation projects under way, such as
the Tejas Mark II fighter; the Arjun Mark II
tank; the Sagarika submarine launched ballistic missile and a major new
project to develop a 155 millimetre/52 calibre towed howitzer.
Worryingly, the modernisation budget (Rs 94,588 crore) remains
significantly lower than the revenue budget (Rs 1,34,412 crore), with a
capital-to-revenue ratio of just 41:59. The army spends just 18 per cent
of its budget on equipment. In contrast, the navy and air force spend a
healthy 61-62 per cent of their budget on capital expenditure, i.e. new
warships, aircraft, weapons and ammunition.
The army's massive manpower accounts for its high revenue spend, and
this is set to grow. Defying the global trend of army downsizing, two
recently raised mountain divisions and a planned mountain strike corps
will raise the army's numbers from 1.2 million to almost 1.3 million.
The Parliamentary Standing Committee on Defence figures' reveal that the
army's equipment modernisation is steadily falling. In 2008-09, the
army spent 27 paisa of each rupee on capital expenditure. This fell to
24p in 2009-10; 23p in 2010-11; 20p in 2012-13 and just 18p in the last
two years.
This army's payroll of Rs 65,808 crore this year (see chart 3) will
consume almost 60 per cent of its entire budget, leaving just one-third
that amount for new equipment. This is so even after doubling the army's
capital allocation from Rs 10,749 crore last year to Rs 20,665 crore
this year (see chart 4). As the cost-of-living index rises, so too will
military salaries; the seventh pay commission will raise them even
higher.
Aircraft acquisitions are also lagging, due to the air force's
dependence on expensive foreign purchases. Its capital budget is down
from Rs 36,017 crore in 2013-14 to Rs 31,818 crore this year. With most
of this pre-allocated for equipment bought in preceding years, little is
left for buying the Rafale fighter, which the defence ministry is
negotiating with French vendor, Dassault. With the Rafale's contract
value estimated at Rs 80-1,00,000 crore, the signing advance would be Rs
10-15,000 crore. Additional allocations would be needed for the
contract to be signed this year.
The navy's capital allocation has been raised from Rs 19,600 crore in
2013-14 to Rs 22,312 crore this year. A major capital procurement this
year will be the Rs 45,000-crore contract for seven Project 17A stealth
frigates that two public sector shipyards will build - Mazagon Dock Ltd,
Mumbai, and Garden Reach Shipbuilders and Engineers, Kolkata.
In his Budget speech, Jaitley also announced that the foreign direct
investment cap in defence would be raised from 26 per cent to 49 per
cent. While adding a reformist patina to an otherwise unremarkable
defence budget, this was really a policy announcement, unconnected with
defence allocations.
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