Immense Expense for Defence? Myths and Realities of Budget 2021

Defence budget’s inadequacies far outweigh the politically stated positives.

The increasing mismatch between resource requirement and fund availability has led to the present adverse situation.

(Photo: The Quint/Ankita Das)

“Unless India stands up to the world, no one will respect us; In this world, fear has no place; Only strength respects strength.”

Dr APJ Abdul Kalam

The contemporary and emerging security challenges, particularly the Chinese military intrusions in the Himalayas and Pakistan’s collusion cum proxy war, makes the spectre of a two-front war a reality. This requires a quantum jump in India’s defence capabilities to bridge the burgeoning defence technological and infrastructure gap with China.

Ironically, the Indian defence budget as a percentage of Gross Domestic Products (GDP) has been on the decline, and on factoring the inflation and cost escalation, the defence budget growth BE to BE is actually negative. The increasing mismatch between resource requirement versus fund availability has thus led to the present adverse situation.

May Require a Budget for a Smart Joint Warfighting Capability

The Defence Budget FY 2021-22 has once again been a dampener to national defence with the realities of its inadequacies far outweighing the politically stated positives. Indeed it is well understood that to revive the economy, funds will need to be invested across several growth sectors from manufacturing, health care to infrastructure, yet successive budget cuts driven by fiscal considerations rather than changes in the security environment have diluted the deterrence and preservation of territorial integrity against our adversaries.

The challenge lies in either a ‘defence forces sized to budget’ by tuning its size, shape and mandate or a ‘budget sized to the defence forces’ by enhancing fiscal support. The reality is that neither can be done beyond an elasticity level.

This may require a matching budget for a smart joint warfighting capability in tune with the threats and desired capabilities.

Myth #1: Immense Expense is Mainly in Defence

“Immense expense is mainly in defence” has a pleasing rhyme but does not reflect reality. The reality is that the total allocation for defence in the Union Budget 2021-22 is Rs 4.78 lakh crore including defence pensions, which is a marginal hike compared to Rs 4.71 lakh crore last year, a paltry increase of 1.48 percent as compared to 1.82 percent the previous year.

In real terms with inflation and cost escalation of defence materials, it is not only below the last BE but is a comparatively negative allocation. Even excluding defence pensions, it is a meager 7.34 percent rise over last year. As a percentage of central government expenditure, defence spending has seen a YoY decrease from 15.5 percent in 2020 to 13.72 percent in 2021. Excluding pensions, the allocation comes to around 1.63 percent of the GDP, which is even lesser than the 1962 apathy of 1.64 percent of GDP.

The defence expenditure is insurance for the nation to protect its sovereignty and to pursue its national interest. The present threats can turn into adversity in 2021 itself and cannot remain unaddressed. Given the fluctuation in our growth rate, it is felt that an average 2.2 to 2.5 percent of GDP excluding defence pensions or an increase of 13 to 15 per cent YoY less pensions should be able to meet the base budgetary requirements of modernisation and sustenance.

Myth #2: Capital Allocation has Gone up

The capital allocation has gone up by 18.75 percent being the largest ever increase. However, figures can be deceptive. The reality is while it is a “star in the otherwise dark night”, in real terms it would satisfy barely 50 percent requirement, resulting in major new schemes being pended for the subsequent year. The low percentage fructification of schemes under the Annual Acquisition Plan is an indicator of the outcome reality. The capital component has a non-modernisation component and a modernisation component which has a committed liability sub-component and a new schemes sub-component.

Much of the capital expenditure allocated to the defence ministry will go towards fulfilling India’s contractual obligations as committed liabilities on purchases made like Rafale or already under progress from abroad. The Indian committed liabilities may be deferred but not the global component. Important big-ticket projects will thus have to be carried forward. Further, any increase in Revenue and Pensions expenditure will be siphoned off the capital fund.

Hopefully, to bridge the present gap, prudence in the RE stage may emerge for additional allocation as also big-ticket clearances not traditionally delayed at CCS level for populistic diversions.

The positives to acknowledge are the hopes of a dedicated domestic capital budget with a roll-on appendage and the assurance that the “capital defence budget” will be non-lapsable as advised by the Finance Commission.

Myth #3 : Skewed Revenue to Capital Ratio, a Result of Unsustainable Pension Bill

This is only partially true. Pensions and salaries are based on actuals. The reality is MoD budget directly pays nearly 5.1 million people, of which 1.4 million are uniformed personnel, 3.2 million are pensioners (a quarter of them defence civilians) and serving 3,98,433 defence civilians and other heads. It is true that traditionally pension increase does result in a drop in capital component and vice versa as seen in the present budget. Yet it cannot be weighed against modernisation needs. In the present defence budget, the pension bill has reduced by Rs 17,775 crore or about 13.4 percent. This could be because aabout Rs 18,000 crore was to be paid on account of pension arrears in 2020-21. Further, there has been a DA freeze.

The challenge to control pension bill is to review retirement age, enhance lateral induction and remove pension component from the defence budget to give the real picture of budgetary support.

Myth #4: Has Given a Boost to Atmanirbharta in Defence

The reality is procedures, policies and indigenous efforts will only bear fruits if provided with sufficient funds which remain elusive. The focus on ‘atmanirbharta’ (self-reliance) in defence could result in ‘atmanishedh’(self-denial) with limited funds available for any new major schemes under Make in India especially projects under Make 1 category or under Strategic Partnership. Further, self-reliance in defence is not always a cost-effective option and was adversely commented on by CAG for escalatory cost.

On the flipside, payments to DPSU and OF can be deferred resulting in additional orders like for ammunition, LCA Tejas and naval platforms. However, this would only reinforce the lack of level-playing ground for the growth of private industry. Besides matching structural and mindset changes at MoD level besides fund assurance is missing.

To conclude, the reality of the present defence budgetary model is that it gives extremely limited fiscal space for addressing present “hollowness” and shows apathy to new schemes for modernisation to address the elusive “30:40:30” equipment profile. A holistic politico-military transformation is the need of the hour. To be capable to counter future threats, the nation must address all three critical components: Transformed politico-military culture, transformed defence planning process and transformed joint service capabilities through supportive budgetary reforms.

An effective transformation strategy in the Indian context must tackle the following six issues: The “bigger the better” syndrome, the absence of a strategic culture exemplified by void of a national security strategy, the sustenance and technology voids in tune with contemporary warfare, the lack of reforms in the defence budget, bureaucratic decision-making apathy and risk aversion, lack of policy stability and the absence of harnessing joint force capabilities.

(The author was the former director general of the Indian Army's Mechanised Forces from 2015-2017. This is an opinion piece, and the views expressed above are the author’s own. The Quint neither endorses nor is responsible for them.)