Tuesday, 16 February 2016

Defence budget must reflect reality

The military, like a child kept hungry for years, no longer dares to ask for the budget it really needs

By Ajai Shukla
Business Standard, 16th Feb 16

Since October the military has been negotiating with the defence and finance ministries to finalise financial allocations for the coming financial year, 2016-17. Unfailingly unimaginative, the military’s various departments have taken the current year’s allocations, upped them by five to 10 per cent and projected that as next year’s requirements. As usual, the finance ministry has arbitrarily cut those requests. Like always, when revised estimates are prepared at the end of the year, the capital allocation (for equipment modernisation) will be slashed further since revenue expenditure, particularly salaries, must be paid on priority. Year after year the military ends up spending money quite differently from what had been allocated.

Every military financial planner admits the services are consistently under-budget in both the revenue and capital heads. Weaponry sanctioned under the 15-year Long Term Integrated Perspective Plan requires significantly higher capital allocations. Yet, like a child that has been consistently underfed for years, the military no longer dares to ask for a full meal. To stretch this analogy further, were the military to be given that full meal, it would probably be incapable of digesting it. Yet, if only as an academic exercise, it is worth reflecting on what a realistic allocation might be for the military.

Projected Budget for 2016-17


2014-15 (BE)
2014-15 (RE)
2015-16 (BE)
2016-17 (projected)





Revenue budget









Salary payroll
83581
86574
93216
111860*
Other revenue expenditure
50831
53831
58923
67761 **
Total Revenue allocation
134412
140405
152139
179621





Capital budget









Army
20630
16868
21574
39713
Navy
22312
17471
23911
53591
IAF
31818
31818
31481
48741
Defence R&D Org
9298
7148
7788
11682
Other heads
10530
8660
9834
9834
Total Capital allocation
94588
81965
94588
163561





Total budget allocation
229000
222370
246727
343182





Total government spending
1794892
1681158
1777477
1884125@





Gross domestic production
12876653
12653762
14108945
15167116#





% of total spending
12.75%
13.25%
13.85%
18.25%





% of GDP
1.78%
1.76%
1.75%
2.25%





  
*    Estimating salary increase of 20 per cent across the board

**  Non-salary expenditure increase of 15 per cent

@  Estimated govt spending rise 6 per cent, against 5.5 per cent in 2015-16

#    Estimated GDP rise by 7.5 per cent, against 11.5 per cent in 2015-16


In the revenue head the payroll is growing, with the government bound to accept most recommendations of the 7th Central Pay Commission. A modest increase of 20 per cent over the current year’s salary allocation and a 15 per cent increase on non-salary spending would boost the revenue allocation to Rs 1,79,621 crore ($26.6 billion).

The capital budget would grow even more. The army, while a relatively low-tech, manpower-intensive service, badly needs new equipment --- including artillery, air defence missiles, new-generation personal weapons and battlefield communication systems. Equipment worth Rs 1,81,450 crore ($26.9 billion) is already sanctioned. Assuming these contracts divide payment into ten equal annual instalments, this year requires Rs 18,145 crore over and above the Rs 21,574 crore committed last year, which would cover liabilities committed earlier. That would take up the army’s capital allocation to Rs 39,713 crore ($5.9 billion).

Army acquisitions
Cost (Rs  crore)  


Artillery gun procurements (sanctioned)
28450
2 regiments Pinaka rocket launchers
5000
Short and medium range surface-to-air missiles
30000
Short range surface-to-air missiles
30000
Tactical Communications System (Make project)
20000
Battlefield Management System (Make project)
50000
Rifles, carbines, machine guns and sights
12000
Unmanned Aerial Vehicles
6000
Total new army acquisitions
1,81,450

Urgent naval procurements include submarines, stealth frigates, logistic support vessels, anti-submarine and counter-mine vessels and, most crucially, ship-borne helicopters. This adds up to Rs 2,96,800 crore ($44 billion), of which one-tenth must be provisioned for in this budget. Catering for committed liabilities, the navy’s capital allocation must rise to Rs 53,591 crore ($8 billion).

Navy acquisitions
Cost (Rs crore) 


Six conventional submarines (Project 75 I)
60000
Lease of second nuclear sub from Russia
5400
Seven stealth frigates (Project 17A)
45400
Six fleet support ships
24000
150 naval utility helicopters
15000
139 naval multi-role helicopters
60000
4 Boeing P8-I maritime aircraft
7000
4-6 landing platform docks
16000
24 mine counter measure vessels
36000
2 midget submarines for special operations
2000
Refit of 10 submarines
10000
16 anti-sub shallow water craft
16000
Total new Navy acquisitions
2,96,800

The air force, which traditionally receives the highest capital allocation, is looking to conclude contracts for the (vastly overpriced) Rafale fighter, extending the Jaguar fighter’s service life, and a range of helicopters. Contracts worth Rs 1,72,600 crore ($25.5 billion) require urgent conclusion, with Rs 17,260 crore payable this year. That takes the air force’s capital allocation to Rs 48,741 crore ($7.2 billion).

Air Force acquisitions
Cost (Rs crore) 


36 Rafale medium fighter
63000
125 Jaguar re-engining and upgrade
20000
Indo-Russian fifth generation fighter
25000
56 Avro aircraft replacement aircraft
15000
20 Hawk advanced jet trainers
2000
22 Apache AH-64E attack helicopters
8500
15 Chinook CH-47F heavy lift helicopters
6600
384 Light Utility Helicopters (LuH)
13500
Surface-to-air missiles
30000
Total new Air Force acquisitions
1,72,600



Acquisitions (all services)
6,50,850


All this would take the capital allocation to Rs 1,63,561 crore ($24.2 billion), slightly less than the revenue allocation. That would boost the defence budget by almost 40 per cent from the current Rs 2,46,727 crore ($36.5 billion), to Rs 3,43,182 crore ($50.8 billion). As a share of government spending, defence would rise from 13.85 to 18.25 per cent; and from 1.75 to 2.25 per cent of the gross national product (GDP).


Can India spend 2.25 per cent of GDP on defence, given the government’s fiscal deficit targets, and the pressing need to boost spending on healthcare, education and food for the poor? That is a political call. India’s on-going border disputes with China and Pakistan, several long-running insurgencies, and the army’s frequent employment on natural disasters require high preparedness. If the government decides it cannot spend more on defence than it already does, national strategy and the military’s tasking must reflect the realities of our pocket.

8 comments:

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Ranjit Tiwary said...

Where have you got these figures from?? In Navy capital acquisition 150 NUh and 139 NMRH even the AON has not been granted, forget contract this year. Similarly in Army and Airforce there are anamolies.little more research before blogging would help.
Also your assumptions that 10% outgo everyyear shows that you have been never involved in any acquisition. Every contract post signing minimum 15% advance goes to Vendor against BG. If you need help please contact me, will give you free consultancy on acquisition procedures

Ashi Ronaldo said...

just one question i read report on ET defence that army has most amount of unspent modernization funds http://economictimes.indiatimes.com/news/defence/rs-37000-crore-of-defence-ministrys-modernisation-budget-remains-unutilised-army-worst-spender/articleshow/50842129.cms

ashok said...

THE FIG QUOTED OF 51 BILLION DOLLARS IS PERHAPS WHAT THE BABUS OF MOD HAVE TALLIED AFTER MERGING THE THREE SERVICES REQUIREMENTS . THE GDP DOES NOT SANCTION SUCH VAST INCREASE AND SO WILL THE GOVT AND THE FINANCE MINSTER PERHAPS WHAT WE CAN EXPECT IS BESIDES THE OROP AND PAY COMMISSION INCREASE IN THE REVENUE BUDGET THE CAPITAL BUDGET MAY ONLY INCREASE BY 5TO SIX PERCENT . IN CASE IT IS MORE THE MOD BABUS WILL QUIETLY LET A FEW BILLION LAPSE AT THE END OF THE YEAR AS HAS BEEN THE PRACTICE . THE SPLURGING OF CRORES BY MOD MUST BE REFLECTED UNDER A SEPERATE HEAD AND SHOWN SEPERATELY . THIS IS WHERE THE SAVINGS CAN OCCUR

Anonymous said...

When money supply is tight, the forces have to come out with innovative solutions. We cannot have a manpower intensive army & at same time expect equivalent gadgets. A modern army is fast, nimble & lethal. Our army works on manpower intensive defensive mindset & at same time wants Cold start gadgets. Our airforce cannot think beyond shiny gadgets , that too 100% imported. When French wanted to transfer Mirage production line to India, IAF refused & now they are spending billions to upgrade the same. IAF has refused to give additional orders to Tejas, while we are ready to spend 6-7 billion on only 36 Rafale while we still want 42 squadrons. Navy is only saving grace in forward planning

Anonymous said...

There needs to be a priority.
One example we cannot have jaguar re-engine AND mirage upgrade AND Rafale. Anyone should do.
Same with transport. IAF should learn to,do,with AVro replacement and not insist on MTA. Rationalise and reduce variety.

Army needs artillery , infantry weapons + better personal!protection gear on highest priority. We need to,reduce casualities in day today anti terror ops.

Anurag Upadhyay said...

Great post :)
The aspect you mentioned is missing in the analysis by other defence experts. They only mention defence expenditure as Percentage of GDP, which in reality reflects nothing about how much govt is spending. But finally it's nice to see someone showing defence budget as percentage of total budget.

Further I think it's better to mention defence budget as percentage of total budget of other countries also. For eg.
UK (Around 5%), China (6-7%), USA (16%), Pakistan (33%).

Military enthusiasts forget that Military expenditure (excluding budget of CPFs and CPMFs) already acquires large portion of total budget. So govt simply can't increase it more. From govt side, it is needed to increase revenue and tax collection significantly. Only then can military budget will see a good rise in future. On military side, it is expected that certain military reforms are implemented like reducing the size of Indian army; outsourcing of non core services and improving teeth to tail ratio; increasing indigenisation; Reforming Procurement directorate etc.

The scenario of military telling govt what it wants is like a fantasy which seldom gets fulfilled. Govt should simply tell military what budget can be provided, and not just in present but also future estimates should be given. This will lead to a more realistic military planning, better administrative changes and prioritized acquisitions.

Raahul Kumar said...

Bharat is the 6th ranked military spender in the world, at 47.9 billion dollars. The problem isn't the budget, but the fact that it is mostly wasted on salaries and pensions instead of equipment. More capital expenditure, not more money is needed. And why does the Army not spend the money it is given every year?

https://en.wikipedia.org/wiki/List_of_countries_by_military_expenditures

What is needed are more drones and TATA's Kestrels and a big reduction in manpower. At least a 40-50% cut is needed, so the remaining men can get bulletproof vests, better guns, night vision gear and drones and APCs,tanks, armour etc etc.