Defence budget must be capability-driven

THE annual budgetary process is well underway and the expected allocation for the nation’s security under the defence head is a matter of great interest and greater concern. India has an inimical neighbourhood, both on the western and northern fronts. While the western adversary has been a constant irritant, it does not pose a major threat by itself. The main issue of concern is and will remain China, with whom the unsettled land borders stretch across the Himalayas. The security situation in the neighbourhood, as well as globally, remains unpredictable and volatile.

In the past, we have been mostly reactive in dealing with any crisis situation, not only militarily but even the monetary requirements were met in an emergency mode. While there has been a regular annual increase in global defence outlays, especially of the USA and China, the sudden jump in the case of a country like Japan is a stark pointer to the fragile security environment, which majorly factors in our northern adversary.

A clear perception of desired capabilities linked to timelines is essential for meeting the security challenges that confront the nation, in at least a medium time frame of seven to 10 years.

It is a well-known truism that building capacities and developing capabilities need time, while intentions can change rapidly. The bottom line for capability development is the fiscal outlay. Infusion of high-end technology in military systems and equipment, which in the present day includes cyber, space and unmanned platforms, is cost-intensive.

However, every year we see only a marginal increase in the defence budget, which is not even adequate to overcome inflation. In fact, it has been decreasing as a proportion of total government expenditure. During the last 10 years, the annual defence budget as a percentage of the GDP has shown a decline, with the ratio for the last year being the lowest since the 1960s. This has been well below the desired levels. The Parliamentary Standing Committee on Defence had recommended that defence expenditure should be 3 per cent of the GDP to ensure adequate preparedness of the armed forces, based on threat perceptions, and developing long-term deterrence capabilities against hostile neighbours.

The allocation for the Ministry of Defence has shown a much lower annual growth as compared to the average growth in overall Central government expenditure of 14 per cent. Since 2011-12, the capital outlay for defence grew at an annual average rate of 7 per cent, while the overall capital expenditure of the Central government grew at 13 per cent. The share of capital outlay for defence in total government capital expenditure decreased from 41 per cent to 23 per cent in this period. The increase in capital outlay for defence over the last two years, which includes expenditure on big-ticket platforms such as tanks, naval vessels and aircraft, as well as a large and varied inventory of smaller systems, equipment and infrastructure, has been around 10 to 12 per cent, while capital expenditure of the Central government has gone up by around 25 to 29 per cent.

It may well be argued that the competing fiscal requirements for national development, which includes a multitude of projects and government initiatives, civilian infrastructure, healthcare and education, among others, may preclude any substantial increase in the defence outlay. While this needs to be appreciated in a developing nation like ours with a burgeoning population living at subsistence levels, it is ironic and distressing that even the reduced allocations for defence are not fully utilised.

Budgetary constraints and labyrinthine processes have undoubtedly been a dampener in acquisition of military weapons and equipment. Repeatedly, we see the lapsing of allocated funds at the end of the financial year. The solutions to all this have been highlighted often enough, not only by the armed forces but also by the Parliamentary Standing Committee for Defence.

First and foremost, the defence budget must be capability-driven and not intention-driven! The total annual outlay is always falling short of the projected requirements. To safeguard against slippages due to procedural tardiness in procurements, it is imperative to make the Capital Budget ‘non-lapsable’ and ‘roll-on’ in nature, with a three-to-five-year time span. During the recent winter session of Parliament, the Standing Committee on Defence has once again stressed that a ‘non-lapsing fund’ for military modernisation must be created so that the mid-year need for additional grants and budgetary allocation is avoided.

At present, there is no separate allocation of funds for committed liabilities and new schemes, as both are covered under capital acquisitions, contrary to recommendations made by this committee. Under the present rules of business, allotted funds lapse at the end of the financial year on March 31, hence the pressing need for an amendment in making the capital head of the defence budget ‘non-lapsable’ and ‘roll-on’. This would also enable meeting urgent defence needs during critical situations. The draft Cabinet note for a non-lapsable defence modernisation fund has been under consideration by the government for quite some time now and its approval needs to be accorded expeditiously. The situation demands solutions, not shuffling of papers.

Having had this long experience of underfunding and underutilisation, maybe it is time for a fixed amount to be transferred every year to a defence modernisation fund that can be managed by the RBI or a designated bank. This fund should be drawn upon to make acquisitions in a time-bound manner. A necessary concomitant would be transparent acquisition processes, whether from domestic or foreign sources. Lapsing of capital funds, convoluted procurement processes and red tape, with no accountability, have no place in modern-day governance, least of all in the area of national security. It is time to make a bold move in this Budget.

On February 1, the Finance Minister will present the Union Budget, which will be the last full-year annual financial statement by the present government. It is fervently hoped that due importance will be given to the monetary cost of ensuring national security, not only in terms of enhanced outlay but also by making provisions to obviate non-utilisation of funds.

Most importantly, the defence budget should not be viewed as a drain on the national economy. With emphasis on high-quality indigenous defence production, both by private players and efficiently managed defence public sector undertakings and the large dual-use ecosystem that this creates, a major portion of the defence expenditure can well be seen as an engine of economic growth.