By Sunanda Natrajan
Unsurprisingly enough, the 2017-18 budget did not have much to offer to Indias moribund defence sector. India has consistently boasted the worlds second-largest army, but it has also been the worlds largest arms importer since 2012. Allocations to the defence sector are primarily aimed at indigenising the countrys military industrial base and ultimately, achieve the goal of self-reliance. However, to what extents that objective has been realised, is a question that is yet to be answered.
The 2017 defence budget
In 2017, Finance Minister Arun Jaitley announced a marginal hike of six percent in defence funding for the Indian armed forces. In 2016-17, the budget accounted for 1.72 percent of the GDP which dropped to a paltry 1.62 percent in the following year. Experts have recommended investing a minimum of 2.5-3 percent of the GDP, to help scale up technical progress and counter Chinas expanding might. However, despite such vehement proposals and pleas, the sectors allocation has witnessed an average increment of only ten percent over the last three years.
The budget, which amounts to Rs 2.74 lakh crores, includes Rs 1.82 lakh crores allocated for net revenue expenditure and the remainder for capital expenditure, which primarily relates to modernisation-related projects. But again, the modest increase from Rs.2.58 lakh crores corresponding to the 2016 budget is unlikely to cater to the plan of large-scale weapons purchases and might not even be sufficient to meet the impact of the risen inflation and depreciated Indian rupee. In addition to this, the imposition of customs duty on military imports makes things worse.
What does it mean for Indian defence?
As of now, the Indian military is finding it hard to gain access to even primary gear like bullet-proof vests and assault rifles. Out of the two components, revenue and capital, it has been observed that the increases in the overall budget are attributed to hikes in the revenue component while the capital component has remained relatively stagnant. Since 2010-11, the funds are mainly being channelised towards acquiring more workforce and increasing personnel, and therefore, not much is left to be invested in capital acquisition. And so, the revenue budget has seen an increase of 20 percent since last year while comprising 67 percent of the total outlay.
Another interesting observation pertains to the unspent funds in the sector. Almost every year, the Ministry of Defence (MoD) has been surrendering ten percent of their funds, and as a result, the Ministry of Finance has been unable to allocate that amount. Even last year, approximately 8.67 percent of the allocation for capital acquisitions remained idle as defence projects could not get through in time. Out of the total capital budget, the Army has suffered the most because it has only utilised 45-50 percent of its allocated budget productively.
The liabilities scenario adds up to present the defence sector in a very chaotic state. In 2016-17, committed liabilities were calculated to be around Rs 62,609 crores, which had to be made up for by extracting funds from the 2017 budget, and hence, only Rs 8,590 crores were left for new acquisitions. Moreover, the Army which accounts for 53 percent of the revenue budget allocations uses most of it to meet pays, allowances and most importantly pensions. In 2017-18, only 17 percent of the total budget for the Army was earmarked for capital expenditure while the same for Navy and Air Force was 51 percent and 58 percent respectively. With respect to modernisation too, only the Air Force has seen a considerable increase in its budgetary utilisation whereas that in the Army and Navy has been close to nil.
Need for capital acquisition and technical advancement
On top of that, one has to also pay attention to the role of the private sector in Defence. Even though Prime Ministers Make in India did have a sizable impact on investments by increasing the stakes of foreign defence contractors, the lack of specific incentives to the defence sector continues to remain an obstacle for strong private participation. For example, the Infrastructure Status has been granted to the Affordable Housing sector by the Finance Minister. It allows the industry to avail key tax-related benefits. But the same has not been granted to the defence sector despite repeated demands. Even though there has been a small allocation made for prototype development under the Make procedures, in the absence of long-term contracts, the certainty of volumes, selection and transparency measures, etc. there is very little incentive for the private players to make significant investments in Indian Defence.
To put it very simply, budgetary allocations for the defence sector have chiefly focused on increasing personnel, and increased personnel inevitably implies increased expenditure on salaries and allowances which is where the bulk of the funds have gone. On the other hand, heavy arms imports severely impacted by a sharp upturn in global arms prices (almost a 15% price hike) also led to the creation of a large account of Committed Liabilities, and that takes a toll on the budget too. With these to pay for, there is nothing left for capital acquisitions and technology-based investments to boost the modernisation process. The Finance Minister had declared an increase in the allocated budget last year too. But just like every year, after the revised estimates stage which accounts for currency depreciation, inflation and other macroeconomic variables, the final amount ends up being incredibly insufficient to meet the demands of the sector.
What to expect this time?
Time and again, governments have declaimed the mantra of self-sufficiency and indigenising defence but rarely have any of them effectively pursued the objective. In light of the current careless state, the common taxpayer should expect that the MoD recruit fewer soldiers and invest more in new capital this financial year. India is facing a twin threat from China and Pakistan and mustering courage through numbers is not the way to go about it. The sector is in dire need of technologically advanced equipment and ample stockpiles to be maintained in times of need. Even though we have the third-largest army after USA and China, our military may not be able to provide adequate bang-for-the-buck because of scarce resources available for training and leaner defence equipment. A quick-fix solution is to scale down the personnel and invest in training the officers we have.
Furthermore, from submarines to aircrafts, there are critical gaps that cannot be ignored. And most defence acquisitions dont go through due to the lengthy bureaucratic processes, in addition to lack of funds. Therefore, the upcoming budget for the defence sector should hopefully aim towards making investment procedures and channels more accessible in order to appropriately incentivise the private sector. Last year, the Finance Minister had stated that their budget was one for the poor. Maybe the Modi government should propose the 2018-19 budget as one for the protectors of our nation.
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