Friday, 21 February 2014

Budget Analysis: Defence spend lowest since 1962 war, despite army’s China focus; little money left for Rafale

By Ajai Shukla
Business Standard, 21st Feb 14

Beneath the bland 10 per cent rise in defence allocations in the interim budget presented in Parliament on February 17 is the uncomfortable reality that Indian defence spending will touch a 52-year low in 2014-15, in terms of percentage of Gross Domestic Product --- 1.74 per cent of GDP this year, and 12.7 per cent of government spending. The last time defence allocation was lower was 1962, when the military got 1.5 per cent of the GDP, in keeping with the trend through the 1950s. The Chinese attack in October 1962 led to emergency imports, raising defence expenditure to 2.32 per cent that year. Since then, this year’s allocation is the lowest.

Meanwhile, the US and Russia spend around four per cent of GDP on their militaries, the UK and France spend 2.3 to 2.5 per cent, Pakistan spends close to 3 per cent, and China declares an expenditure of slightly over 2 per cent, but is believed to actually spend 3 per cent if hidden funding is included.

Ironically, India’s spending cut coincides with an effort to boost capability on the China border. But while the army’s modernization budget has almost doubled, the air force (IAF) --- traditionally the biggest spender on modernisation --- has seen funding slashed, endangering its multi-billion dollar plan to purchase 126 French Rafale medium multi-role combat aircraft (MMRCA).

The army, which is raising a mountain strike corps for the Himalayan border, has received enhanced revenue funding for recruiting and salaries for some 80,000 additional soldiers. Simultaneously its capital budget will rise --- from Rs 10,749 crore this year to Rs 20,661 crore in 2014-15 --- for buying weaponry to equip the new corps, including rifles, machine guns, artillery, helicopters and communications equipment. The cabinet had cleared Rs 64,000 crore for this, which will be required over the coming 8 years.

The army has gained at the cost of the equipment-intensive IAF. While the air force has again been given the lion’s share of the capital budget, its allocation has been trimmed to Rs 31,818 crore, which is Rs 4,199 crore less than the current year’s modernisation budget.

This will pose serious problems for the IAF’s drive to seal the Rafale contract with Dassault. With the contract value estimated at $16-20 billion, the IAF would have to pay Rs 10,000-15,000 crore as advance while signing the contract. Given the IAF’s pre-committed capital expenditure --- i.e. instalments on equipment bought during preceding years --- this year’s reduced budget will make it difficult to fund such a massive pay out.

Meanwhile, the IAF’s burden of pre-committed payments has reduced somewhat after the MoD’s termination of the Rs 4,650 crore contract with AgustaWestland for VVIP helicopters, following corruption allegations. But heavy instalments will continue for several years from the Rs 26,000 crore purchase of ten C-17 Globemaster III transport aircraft; the Rs 6,000 crore purchase of six C-130J Super Hercules transports. The IAF also faces difficult choices between a host of impending purchases; besides the Rafale, contracts are also impending for 22 AH-64 Apache attack helicopters and 12 CH-47F Chinook multi-mission helicopters, together worth some Rs 12,000 crore; a Rs 15,000-18,000 crore deal for new Honeywell engines for the IAF’s Jaguar strike aircraft; and the on going purchase of Sukhoi-30MKI and Tejas Mark I fighters that are being built and supplied by Hindustan Aeronautics Ltd.

 Of the overall defence budget, the army will get about half (see chart); the IAF will get a little short of a quarter, while the navy’s share reduces marginally to 15.6 per cent.

The two smaller services remain far better modernisers than the army. Both spend about two-thirds of their money on new equipment (capital expenditure). The army --- which remains a manpower-intensive, low technology force --- uses less than one-fifth of its budget for modernisation.

 Defence Minister AK Antony has not backed his frequent public exhortations for indigenisation with money. The Defence R&D Organisation (DRDO), which has long argued for at least 7 per cent of the budget to boost indigenisation, will get its customary 5 per cent. About half of that will be used for actual R&D.

The defence allocations starkly highlight the marginal role of tri-service jointmanship. A token Rs 2,418 crore --- one per cent of the defence budget --- is allocated for tri-service organisations like the headquarters of the integrated defence staff (IDS) and the Andaman & Nicobar Command (ANC). India’s only tri-service operational command, based in Port Blair, remains an outpost that is noticed more by Southeast Asian countries than by New Delhi.


Anonymous said...

Ajai what else can you expect from a bunch of corrupt debauchers anti national congis. In ten years they have turned the country upside down. Only fools vote for them time and again.

Anonymous said...

"endangering its multi-billion dollar plan to purchase 126 French Rafale". -- See we do not need to buy Refale, which costs between 120 - 150 million each. We are not going to get any new technology as well comparing to Tejas Mk II if you think about tech transfer. IAF is making a bogey rational of Medium weight category aircraft. Our long range and heavy weight Su-30MKI is needs to be complimented by Tejas MkII only. We can buy atleast 3 Tejas MkII for one Refale and Tajas MkII is a 4++ gen aircraft and its our technology and we know where exactly each screw or wire is. That means upgradation after 10-15 years will be much cheaper than Rafale. Dassault will ask for another 20 billion for upgradation after 10-15 years. Look at Mirage upgradation cost. so forget about Refale buy Tejas MkII in huge numbers. Quantity has its own quality anyway. Ya one sad thing with Tejas no one going to get any kickbacks !!!

Mudblood said...

Good article well done CC

Anonymous said...

I think its time to include a substantial cess on income tax (was 1.9lk crore in 2011-2012) ..say 10% and earmark it for buying equipment alone and nothing else. I am sure people wont mind

Ravi said...


I sympathize with your sentiments, but how do they help this discussion? Col. Shukla has written a well-researched and thoughtful analysis; surely we owe it to him to recriprocate.

The truth is NO government has paid attention to defense since 1947. India has needed a 5% of GDP budget since independence; the best we got was 4% in Rajiv's time, counting everything like pensions and N-weapons, which really belong in a separate categories.

1.74% is very dangerous. Mr. Modi will not increase this any more than the Congress.

Unknown said...

A well researched article and an even better (satirical) way to end it.

Anonymous said...

The IAF needs to give up on trying to get only the best and most expensive equipment at the cost of throwing the entire military modernisation off balance. Even the Chinese with all their wealth are not running to buy Su35 or only the best they can get.
MMRCA program was drawn up when the economy was rosy, LCA was nowhere in sight and talk of Chinese stealth was only science fiction. But the delays in negotations have changed those situations.
IAF would also do itself a favour by giving up its obsession for attack helicopters. What better time then now to dump apachi purchase onto the army.

Anonymous said...

Out of the 65 years only 5 years were given to bjp led coalition. 60 years of policy paralysis cannot be changed overnight. The next government should not make inclusive of pensions, salaries in the defence budget. Stop this frivolous research money on drdo projects which is not yeilding results.

Anonymous said...

Wouldnt a govt priorities better be expressed in terms as % of govt spending than % of GDP?? It would be helpful if the Author would mention that number alongside all %GDP numbers...

Anonymous said...


Are your calculations based on real GDP or nominal GDP? The article does not make this explicit. Using nominal GDP data, that does not strip away inflation effects and currency fluctuations, could lead us to incorrect inferences. Can you confirm please?

Also,in Chart 3, the circle on the left should just say Revenue budget but the chart title re-appears.

Anonymous said...

Good article.
We need to localise more.
. It would be worthwhile to buy less C130 and more of lighter 2 engine freighter built in India.
Same for jaguar, localise Honeywell engines.
Same with artillery, scrap 65k imports buy local guns with local ammo.