Tuesday, 11 March 2008

How much REALLY is India's defence budget?

by Ajai Shukla
(Business Standard: 11th March 08)

The defence allocation in the budget that Mr Chidambaram presented on 29th February officially went up 10%, from Rs 96,000 crores (US $24 billion) last year to Rs 1,05,600 crores (US$26.4 billion). But actual spending on defence had crossed the one lakh crore rupee(US$25 billion) Rubicon at least two years ago. 

There is no apparent reason for India to understate its defence budget. No IMF conditions constrain defence spending; military expenditure remains well below the politically correct level of 3%. But India continues to camouflage what other comparable liberal democracies transparently show as defence spending.

Is there an international benchmark for identifying defence expenditure? In fact there is: a United Nations General Assembly resolution (35/142B of 12th Dec 1980) standardised the reporting of military expenditure. This benchmark is accepted almost globally; 115 countries have reported since 1981.

Resolution 35/142B only legislated what transparent governments, defence economists and academics, and people with common sense already understood. Expenditure on strategic nuclear weapons, it says, constitutes defence expenditure; so does expenditure on paramilitary forces that are organised, armed and employed for guarding the borders and which could be used in combat against another country. All expenditure on military personnel, including pensions for retired soldiers, is to be reported as defence expenditure. The construction and repair of structures and facilities used for defence, says Resolution 35/142, is military spending. Command and communications systems for defending the country should be financed from the defence budget.

New Delhi, however, distributes a hefty chunk of this spending across heads other than defence. Within India’s nuclear arsenal, only the missiles that carry nukes to their targets are paid for from the defence budget. The bill for the nuclear warheads themselves is picked up by the Department of Atomic Energy. It is impossible to determine how much of the Rs 3908 crores (US$970 million) allocated (through Demand No 4) to the Department of Atomic Energy goes into nuclear power generation and how much goes into bombs. But even if one-third of the DAE’s budget goes into warhead production and research, Rs 1300 crores (US$325 million) must be added to the defence budget.

India’s plethora of paramilitary forces are allocated money from the Home Ministry budget (under Major Heads 2055 and 4055), even though forces like the Border Security Force (BSF), the Indo-Tibet Border Police (ITBP), the Sashastra Seema Bal (SSB) and the India Reserve Battalions (IRB) are deployed on the borders in defence of the realm. The Home Ministry also pays for the Assam Rifles (AR), even though it is commanded by army officers on deputation, and operates largely under the army. The same is true of the National Security Guard (NSG), the army-manned Black Cat commandos, charged with special missions like anti-hijack, hostage rescue, and anti-terrorist operations. The bill for these forces comes to Rs 7632 crores (US$1.9 billion). This does not include the Rs 4219 crores (US$1.05 billion) budget for the Central Reserve Police Force (CRPF), of which an estimated one-fourth is engaged in counter-militant operations in J&K, Assam, Tripura, Nagaland and Manipur. 

The Home Minister picks up the tab not just for these forces, but also a Rs 608 crore (US $152 million) bill for fencing the Pakistan and the Bangladesh borders this year. Shivraj Patil also pays Rs 555 crores (US$140 million) for housing the paramilitary forces while they perform military duties. And his colleague, Mr P Chidambaram, flouts UN Resolution 35/142B by making him pay another Rs 404 crores (US$101 million) for a high-tech surveillance and infrastructure network for the borders with Pakistan, China and Myanmar. Another Rs 100 crores (US$25 million) is allocated for “critical infrastructure within extremist affected areas”, which is used largely for security-related construction.

But the most glaring exclusions from India’s defence budget are the Rs 15,564 crores (US$3.9 billion) allocated for pensions (Demand No 20), and an allocation of Rs 2370 crores (US$592 million) for the Ministry of Defence (Demand No 19). The MoD allocation funds a regular army regiment called the J&K Light Infantry, the Coast Guard, and the MoD secretariat itself; it is impossible to argue that this is not defence expenditure. And even in countries as opaque as China, pensions to retired soldiers form a part of the military budget.

Factoring in these hidden expenses, India’s defence budget really amounts to Rs 1,34,133 crores (US$33.5 billion), rather than the Rs 1,05,600 crores (US$26.4 billion) that the government declares; that is a little over 2.5% of India’s GDP. 

While this article seeks to set the record straight, India remains a country where even experts, top government officials, and the legislature do nothing to debate defence expenditure and how to get more bang for the buck. Allocations that are a fraction of defence are discussed threadbare, but widespread ignorance of defence planning means that even an allocation of Rs 1,34,133 crores would probably have been passed by Parliament without a word of debate. In a land of holy cows, defence remains the most blessed of them.


HOW THE NUMBERS ADD UP

Declared defence budget         : Rs 1,05,600 cr      (US$ 26.4 billion)
Nuclear forces                        : Rs 1,300 cr          (US$ 325 million)
Paramilitary forces                 : Rs 7,632 cr           (US$ 1.9 billion)
Paramilitary housing              : Rs 555 cr              (US$140 million)
Border fencing                       : Rs 608 cr             (US$152 million)
Border infrastructure             : Rs 504 cr             (US$126 million)
Pensions                                : Rs 15,564 cr         (US$3.9 billion)
Ministry of Defence                : Rs 2370 cr            (US$592 million)
Actual defence budget            : Rs 1,34,133 cr      (US$ 33.5 billion)

16 comments:

Pragmatic said...

Ajai:

You left the debt payment on rupee-rouble account. That is also for the defence items bought from USSR. It should be around 25,000 crore or so!

The bigger question is about the "holy cow" approach towards the services. We need more parliamentary control and accountability from the services. The services can not be allowed to run as a fiefdom of the top brass.

Ajai said...

Why would the debt repayment on the rupee-rouble account have to be added to the defence budget?

From what I understand, Russia will be given some commodities and services without payment (titanium metal, for example, from KMML), which will be adjusted against what Russia is owed on the rupee-rouble account.

Perhaps I've got it wrong... how would this need to be added to the defence budget?

Anonymous said...

It is being used for building ships thats why?

Anonymous said...

Ajai i did not except such an story from an person of your stature.

Even an small child knows that defense spending is an secret. Otherwise there is no way you can hide your military capabilities from the prying eyes of enemy countries.

Military spending is an art of modernizing your force capablity while keeping the nation's enemies guessing about india's true capability.

Pragmatic said...

Ajai:

Please check my post of last September on this debt at the Indian Economy Blog.
http://indianeconomy.org/2007/09/24/russias-rouble-advantage/

This debt repayment agreement provided for an annual repayment of about US$ 1 billion equivalent in rupees to Russia over a period of 12 years with smaller amounts thereafter for a further period of 33 years. The rupee debt funds are maintained in a central account with RBI and are to be used by the Russian side for import of goods and trade-related services from India while Russian exports to India are against freely convertible currencies. Approximately two-thirds of Indian exports to Russia are currently routed through the rupee debt funds.

As the official trade between both countries has reduced considerably since 1991, there has been a cumulative shortfall of about US $ 4 billion in the utilisation of the annual debt repayment commitment. The Indian finance ministry’s status report on external debt for August 2007 places the outstanding Rupee debt on the above account from Russia (USSR) at USD 1.949 billion (1.723 billion and 226 million towards defence and civilian components respectively). This unmet outstanding rupee debt prompted the Russian Ambassador at Delhi to earlier suggest that "both sides are considering the possibility of supplementing commodity exports based on Rupee debt repayments with reinvestment of a part of the debt in mutually agreed projects in India and probably in Russia as well, that, we believe, will benefit the economic cooperation between the two countries".


In effect, we are paying for the defence equipment, whether pay in cash or barter in kind.

My second point, and you know it very well, is about the defence pensions. We do not have a "pay-as-you-go" scheme where the government also contributes. The UN may have bracketed both these models together.

When a budgetary pensions system applies, pension payments to veterans are delayed expenditures for past services, contributing nothing to present or future military capabilities, so that they should be subtracted from current defense expenditures as an index of defense output. Likewise, at the time pensions are paid, they are a kind of transfer payments from the government to individuals, and do not involve diversion of real resources from alternative civilian uses. They too should be omitted, then, from defense expenditure as a measure of defense opportunity costs.

Ajai, the bigger issue is still about making the services accountable to the nation. There is a need to find the right balance-- either they are absolutely under the thumb on certain aspects or they have too much leeway on other aspects.

This is what needs to be addressed first and foremost. Compare this to the US Senate, where John McCain virtually takes the pants off the current COAS during his confirmation.

@Anonymous2: Go to SIPRI or IIIS sites/ yearbooks and see the complete expenditure details. the reason for fudging is not secrecy but pressure from the lenders in the 1980s.

Anonymous said...

Mr. Shukla,

I have only one question to you?
What is the motivation behind this article?

Everyone knows that todays journalism is not sacrosanct, and if any one tries to wash the dirty linen, even a toilet paper is cleaner than that. Please I am not in any way personally accusing you of anything. but yes i am accusing your higher ups who asked you to write this particular article. Why this article, especially when the chinese budget hiked specifically highlighting Indias budget?, i.e. what is the motivation behind this psy-ops?

Ravi

Anonymous said...

To the previous poster,

Maybe the motivation is that India just declared its defence budget and this puts a clarification on the entire amount India spends on defence related requirements.

Why does one need some nefarious motivations to put the government under scrutiny? If you don't want public scrutiny of government policies and expenditure, might I suggest you lobby to get the Indian political system changed to an autocracy. Then everything can be kept hush and that will serve national interest best. No?

Ajai said...

We've got all kinds of Soviet Stalinist worldviews floating around, don't we?

"My seniors asked me to write this article"... what a joke. My friend, I decide what to write on and I am fully responsible for what I write. Don't go witch-hunting for seniors!

Anonymous said...

Good article..

Akinol said...

This comment has been removed because it linked to malicious content. Learn more.

Jayadev said...

Ajayji,
I luved this one..I also wondered why this def budget sticks bellow 3% when every deal we do nowadays is well over a billion. We need to really fudge defence budget..so that paki or chini are not alarmed and get a gist of our capability.
It will give us sort of element of surprise.

Anonymous said...

Nice compilation of expenditure

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jaj said...

I dont think your calculation is accurate.

Paramilitary is Policing should not be in Military Budget. Nuclear is Research and Technology, Pension is welfare how does that accounts to Defence Budget.

Ajai I guess recalculate I feel $22 B to protect 1.2 Billion is not enough

mann said...

Yup! have to agree about the stalinistic comments flying about here. We cant conceal much from any enemy by hiding our defence spending. Im sure they have their moles buried deep in our establishments (RAW had an american mole didnt it). We need transparency so that we can actually improve our defensive capabilities. Only with transparency can we ensure that we arent throwing our money down the tube. Pragmatic I think the army is fairly under the control of the parliament(thank God) what we need is accountability from our parliament. And we need some imagination in our army.