Defence Allocation: Need for Structural Review (comment)

Posted on 27th Feb 2015 by mohit kumar

Traditionally the defence allocation in the finance minister's budget speech on February 28 receives predictable and perfunctory mention. The minister assures the house that national security is of paramount importance and that the government will provide what is required to ensure "adequate defence preparedness" - and the amount to be allocated, which is not insignificant, is announced. A few weeks later, at the fag end of the budget session, this allocation, now of about Rs.240,000 crores (about $40 billion) is passed with little debate and even lesser quorum.

However, a radical review of the strategic and fiscal underpinning of the defence allocation is imperative - if the current military inventory stasis is to be redressed and Prime Minister Narendra Modi's vision of Make in India is to be realized. It would be very commendable if this evidenced in Arun Jaitly's speech on Saturday, though there is reason enough to be skeptical.

The primary objective of the defence allocation is to enhance India's composite military capability in a tangible manner - which means paying attention to the quality of the gun and the human resource behind the gun. The deeper strategic underpinning would also call for an objective threat assessment, the techno-strategic trajectory of modern warfare and arriving at an affordable option. Concurrently, innovative planning and management of the funds so allocated ought to contribute to the overall national design and manufacturing eco-system that will progressively reduce import dependence and allow for export of military inventory. Regrettably, for the last two decades this has remained an elusive goal.

In July 2014, Jaitly had announced Rs.229,000 crores as the BE (budgetary estimate) for the defence expenditure for 2014-15. This was estimated to be under 1. 8 percent of the GDP for that period. Whether this amount has been utilized in the manner that was envisaged will be evident on Saturday (Feb 28) but the trend analysis is far from reassuring.

Over the last 15 years going back to NDA-1, rarely have the funds allocated for defence been fully utilized or spent as per the specific categories they were meant to be expended on. In the NDA years from 2000-01 to 2003-04, the annual amount that was returned unspent to the central pool was of the order of Rs.8,900 crores, Rs.7,700 crores, Rs.9,300 crores and Rs.5,200 crores.

The Congress-led UPA had a similar tale and in 2005-06 to 2007-08, the amounts unspent were Rs.2,400 crores, Rs.3,500 crore and Rs.4,300 crores. Paradoxically, in 2012-13, the amount unspent was a staggering Rs.11,600 crores even when the Indian military was in dire need of inventory infusion across the board.

In some years, 2008-09 onwards, the defence spending exceeded that which was allocated and this was ascribed to the additional expenditure incurred due to the revision of pay scales as per the Sixth Pay Commission - and the clearing of backlog for the serving military personnel and related pensioner dues.

The overall pattern that emerges is that of an Indian higher defence lattice that is not equipped to manage large fiscal outlays - except by way of imposing stringent expenditure control and inflexible fidelity to arid procedural compliance. This, when India is expected to spend over $700 billion for defence over the next 10 years.

The macro-management of India's defence allocation over a decade plus calls for a structural review that will, first, enable military modernization and redressing inventory obsolescence; two, allow for improving the capacity of the national eco-system to manufacture and design military equipment in India; and three, address the very serious HR distortions that have adversely impacted the morale of the serving soldiers and the retired veterans.

Thus, institutional fidelity to the objective of allocating funds for defence and nurturing an environment that will provide adequate incentive to all stakeholders to realize the Make in India vision is urgently called for. The Indian private sector and academia have been marginalized and where they do make an attempt to work, one manufacturer wryly noted at a seminar on the subject: “I spend more time filling forms and submitting my tax returns.”

The Modi promise of moving from 'red tape to red carpet' must become a reality if the integrity of the defence allocation is to be preserved and India's import dependence reduced. If not - it will be a familiar and bleak litany next February.

(Uday Bhaskar is Director, Society for Policy Studies, New Delhi. The views expressed are personal. He cab be contacted at cudaybhaskar@spsindia.in)