Hike for defence, but upgrade may need more

It is a long-established, desirable criterion in Indian economic planning that our yearly defence budget expenditure approximates to at least 3% of our Gross Domestic Product (GDP). But this has remained wishful thinking, more so in times of relatively higher level of national threat perception as experienced recently, indeed continuously being on a downward vector over the past five years specifically. In the current fiscal, after the dramatic 23.9% contraction in our economy during April-June 2020 due to the Covid-induced lockdown , defence spending as a percentage of GDP would albeit go up to 2% from the 1.6-odd percentile of the previous five years. This, of course, is a deceptive indicator, effectively not providing enough funds for defence modernisation. Taking the example of the IAF which tends to have capital-intensive procurements, its share of the national budget has varied from 7.4% in 2007-08 to 18.20% in 2017-18, the defence budget varying from $22 billion to $56.9 billion over these years. This year, it is expected to be of the order of 30%.

Over the past five years, defence pensions grab around the same resources as defence capital budget share, both of which individually are approximately half of the total defence revenue budget. Of course, this year on account of the inevitable government focus on health and infrastructure spending, defence spending is bound to decrease as a percentile of total government spending. Given these variable economic indicators vis-a-vis defence spending, it is high time we innovate new money-spinners through projects like defence tax, indigenisation, Atmanirbharta and the like.

Other nations, either by virtue of their inherent wealth or natural assets like oil and gas are able to spend freely on defence. India does not have this luxury. With such heavy oil bills, we need to incur on account of heavy imports. All the more the reason to find monies for defence equipment. One method besides the introduction of a defence tax (attempted after the 1962 debacle at the hands of China) is to pass on some of the burden to the public sector undertakings (PSUs) and the private sector. A classic example would be to charge refineries and other huge establishments, especially along our vast border areas, a certain reasonable share in new acquisitions. The approach was suggested during the procurement considerations for our proposed anti-ballistic missile shield, though nothing apparently came off it. The argument then was that corporations could justifiably be asked to pay for their defence, such as the IAF air defence orbat (order of battle) covering their areas. This was more applicable to our assets on the western seaboard such as Bombay High, the Barauni and Reliance Oil facilities which were vulnerable to Pak-based air threat. This means of fund-raising of course is politically sensitive and perhaps difficult to achieve in our country where an understanding of matters related to security is sub-optimal.

As far as defence pensions go, the only way to curtail them is by trimming the flab, an exercise understood to be currently underway. Getting rid of non-productive assets in the civilian defence-industrial complex is another desirable way. But when we talk of meeting challenges such as what China is currently posing up north, there is no go but to spend more on defence capital budget. Atmanirbharta would be time consuming and perhaps could come in the way of the state-of-the-art military capabilities, more so for the IAF force structure and key high-tech acquisitions of the other two services, such as artillery guns, rockets, aircraft carriers and submarines.

Coming to specifics, though the overall defence budget this year has increased by 1.4% (Rs 4.78 lakh crore against Rs 4.71 lakh crore last fiscal), the capital outlay has gone up nearly 19%, besides an additional Rs 20,776 crore spent on emergent weapon stores post the China stand-off. The allocation for pensions has come down from last year’s Rs 1.33 lakh crore to Rs 1.15 lakh crore, presumably owing to expected increase in the retirement age. But an increase in retirement age would also mean an increment in the revenue budget as officers’ salaries would be paid for a longer period. Whether savings would accrue in terms of the overall defence budget is still a doubtful matter. Also, there was an outgo of Rs 18,000 crore last year on account of pension arrears necessitated by OROP arrears to the pensioners. The proposal to start another 100 Sainik Schools with NGO help, though laudable, is going to be challenging as it was tried with the existing 22 Sainik Schools not too successfully. A good aspect of the budgetary proposals is the ‘non-lapsable’ defence budget scheme as per the Finance Commission’s recommendations. Those familiar with the defence acquisition process would know the travails of lapsed budget allocations. Often, the months and years of evaluations, trials and negotiations go asunder if a service is unable to spend the allotted funds within the financial year.

There may also be a change in the fiscal year to coincide with the calendar year and along with the new non-lapsable clause, the defence forces would definitely be in a much better space pursestring-wise. So, Rs 1,35,060 crore earmarked for capital outlay could be used more meaningfully too. The Army gets around Rs 37,000 crore, the Navy Rs 33,000 crore and the IAF around Rs 54,000 crore. The IAF funds would address the outgos for the 83 Tejas and additional Rafales and modifications of SU-30s and Mirage 2000. The 19% increment in capital budget is known to be the highest in the past 15 years. So, whilst the considerable increment in capital outlay and non-lapsable clauses are to be welcomed, we need to ensure that there is no overspend on revenue and pension heads. As the economy revives in the next two years, India needs to strive for 3% of the GDP in defence allocations.