Defence outlay-modest increase but shades of gray

The defence expenditure (DE) announced today is Rs. 83,000 crores and this is a modest increase of Rs 6,000 crores or 7.7% over last year’s budgeted estimate (BE).

As a thumb-rule, this percentage is less than the amount required to stand still when general national inflation and the military deflator are taken into account. In the Indian context, a figure of about 10 to 12 percent would have ensured the same level of budget support for defence as the previous year at constant prices.

However, this year’s figures reveal a very encouraging sign in that the revised estimate (RE) of the DE is the same as the BE, meaning thereby that the amount allocated at the beginning of the financial year has been actually spent or disbursed and not returned as unspent to the national exchequer.

This reverses a trend that had set in during the NDA government years when large sums of money were returned–in one year (2002-03) to the tune of Rs 9,000 crores.

Consequently there has been a backlog of inventory obsolescence in the three armed forces across the board for the last decade—a reality that was driven home in an undesirable manner during the Kargil War of 1999.

It is noteworthy that in the financial year (FY) 2004-05 whereas Rs 77,000 was allocated at the BE stage, the RE as indicated today is the same, and all the money allocated has been spent.

This would indicate that the defence modernization and acquisition plan is moving as per the budgetary schedule and, given the many constraints in the systemic procedures that characterize the Indian experience, this must be seen as a positive indicator. But the real challenge is to ensure that this trend is sustained, and this is where some shades of gray are discernible from the Chidambaram budget.

From the preliminary figures currently available, it appears that the capital outlay of the DE which caters to the modernization and acquisition has reduced marginally though there is an apparent increase in the total outlay.

There is an interesting pattern embedded in these statistics. The capital outlay of the DE ranged from Rs 16,207 to Rs 14,953 to Rs 16,863 crores in the last three years of the NDA regime and many major acquisition programs were kept on hold.

It was only in the last year that pending deals were finalized such as for the Sukhoi and AJT (advanced jet trainer) and the aircraft carrier Gorshkov, among other military inventory items.

Hence the capital outlay of the DE in FY 2004-05 jumped by almost 100 % from Rs 16,863 crores to Rs 33,483 crores.

However this year (2005-06), while the capital outlay has increased marginally by 2.66 % from Rs 33,483 crores to Rs 34,375 crores, but, more significantly, the share of the three services—the army, navy and the air force—as a whole has shrunk by about Rs 500 crores from Rs 31,490 crore in the last fiscal to Rs 31,001 crore this year. The inference that follows is that some of the big ticket items that have been mooted such as a new generation of combat aircraft, for instance, would not receive adequate budgetary support this year.

The larger challenge for the Indian DE is the inability to reduce numbers and stabilize the total revenue component of the budget, which is traditionally between 55 and 65 percent of the total DE.

The revenue component caters to the standing costs of the overall military edifice and with a one million plus army, which over the years has been drawn into low intensity conflict (LIC) and internal security (IS) duties, it is evident that the army which is the lead-service cannot reduce numbers dramatically.

Hence the army is unable to arrive at the right balance between its standing costs and the need to have a steady technological up-grade, that is be able to absorb the Revolution in Military Affairs—the RMA.

Currently there is also need to find resources to cater for the Assured Career Progression (ACP) scheme, which in itself is very commendable as a long-delayed human resource measure to redress promotion imbalances.

When this scheme is implemented in total, the impact on the recurring revenue budget will need to be added, which in turn will add to the existing imbalance between capital and revenue for the army.

The overall preliminary analysis of the defence outlay at this stage is that it is just about satisfactory at the tactical level, that is on an annual basis. But there is a need to carry out a more holistic strategic review of the country’s military and defence profile and ensure that the status quo that has accreted over the years is redressed in a manner that is deemed appropriate wherein the technological edge of the military machine is retained and jointness advanced, even while ensuring that the ‘izzat’ of the man behind the machine is respected in the long run.

Squaring this circle is the perennial challenge for liberal democracies and it remains to be seen how the UPA government will innovate over the next four years.