India’s Defense Budget is Inadequate for Military Modernization

In an otherwise pragmatic budget for 2015–2016 that has been hailed as growth oriented, Finance Minister Arun Jaitley has not done enough to give a much needed boost to military modernization. Also, the small hike in the defense budget will not be adequate to make up the critical deficiencies in India’s defense preparedness; nor will it help to meet the growing threats and challenges facing the country and India’s increasing responsibilities as a regional power.

In fact, the increase of Rs 24,357 crore (US$ 3.92 billion) from Rs 2,22,370 (US$35.86 billion, Revised Estimates for FY 2014–2015) to Rs 2,46,727 (US$39.8 billion, Budgetary Estimates for FY 2015–2016) is too low to even allow for inflation, which is running at about 6.0 to 7.5 percent. The rupee’s steady slide against the U.S. dollar to Rs 62 to a dollar has eroded its purchasing power considerably. Annual inflation in the international prices of weapons, ammunition, and defense equipment is generally between 12 and 15 percent. Each year’s delay in the procurement of operationally critical items substantially increases the burden on the exchequer.

Of the total allocation for defense, the army will get Rs 1,04,158.95 crore (US$16.80 billion), the navy Rs 15,525.64 crore (US$2.50 billion), the air force Rs 23,000.09 crore (US$3.70 billion), the ordnance factories Rs 2,884.23 crore (US$0.46 billion), the Defence Research and Development Organisation Rs 6,570.09 crore (US$1.06 billion). The remaining amount of Rs 94,588 crore (US$15.25 billion) has been allotted on the capital account for the acquisition of modern weapon systems, including initial payments for 15 Apache attack helicopters and 22 CH-47F Chinook medium-lift helicopters, C-17 heavy-lift aircraft, and frigates and submarines.

The armed forces also need to upgrade their command and control systems and substantially improve their intelligence, surveillance, and target acquisition capabilities if they are to become proficient in launching effect-based operations in a network-centric environment riddled with threats to cyber security. It is well known that India plans to spend approximately US$100 billion over 10 years on defense modernization.

It has been the practice to return large chunks of funds unspent year after year. The funds earmarked on the capital account were fully spent by the government for the first time in FY 2011-12. In the current year (FY 2014-15), the MoD was unable to spend Rs 12,622 crore (US$ 2.04 billion) from the funds allotted for modernisation. Of this, an amount of Rs 5,992 crore (US$ 0.97 billion) was diverted to the revenue account for routine expenditure. The remaining amount of Rs 6,630 crore (US$ 1.07 billion) is once again proposed to be returned unspent to the exchequer.

As a ratio of the projected gross domestic product (GDP) for FY 2015–2016, India’s defense expenditure is pegged at 1.74 percent vis-a-vis 1.76 percent in 2014–2015. India will spend 11 percent of the total government expenditure on defense this year. The United States spends 4.0 percent of its GDP on defense, China 2.5 percent, and Pakistan 3.5 percent. It has been empirically established that defense expenditure of up to 3 percent of the GDP makes a positive contribution to socioeconomic development.

India’s per capita expenditure on defense is less than US$10, while the average expenditure of the top 10 spenders in Asia is US$800 approximately. India’s soldiers-to-citizens ratio, at 1.22 per 1,000 citizens, is among the lowest in Asia. The average of the top 10 Asian nations is about 20 soldiers per 1,000 citizens.

Parliament’s Standing Committee on Defence has repeatedly recommended the gradual raising of defense expenditure to 3.0 percent of the GDP. However, the 13th Finance Commission had recommended that the nation’s defense expenditure should progressively come down to 1.76 percent of the GDP by 2014–2015. Successive finance ministers appear to have decided to pay heed to this unjustifiable advice.

While India’s military modernization has been stagnating, China’s People’s Liberation Army (PLA) and its sister services—the navy, the air force, and the nuclear strike force the Second Artillery—have been modernizing at a rapid pace for almost two decades, backed by a double-digit annual hike in the defense budget. At US$106 billion, China’s official defense budget for the current year is US$131.57 billion (yuan 808.23 billion), 12.2 percent more than the previous year and over three times India’s planned defense expenditure. As China invariably conceals many items of expenditure on security, its actual expenditure is likely to be over US$160–170 billion.

China is investing heavily in modernizing its surface-to-surface missile firepower, fighter aircraft, and air-to-ground strike capability. It is acquiring strategic airlift capability, modern aircraft carriers, new submarines, improving command and control and surveillance systems and is enhancing its capacity to launch amphibious operations. It is also upgrading the military infrastructure in Tibet to sustain larger deployments over longer durations. Besides an all-weather railway line to Lhasa, China is engaged in constructing new missile bases, airfields, and roads and military encampments close to the border.

Despite the long list of obsolescent weapons and equipment in service with the Indian armed forces, the present military gap with China is still quantitative rather than qualitative. In case India’s military modernization continues to stagnate, this gap will soon become a qualitative one as well. By about 2020–2025, China will complete its military modernization and will then be in a position to dictate terms on the resolution of the territorial dispute if India continues to neglect defense preparedness.

The reasons for India’s lackadaisical approach to military modernization include the shortage of funds on the capital account for major defense acquisitions, the inability to spend even the allotted funds due to bureaucratic red tape in decisionmaking, and the lack of a robust indigenous defense industry because of excessive reliance on uncompetitive ordnance factories and defense Public Sector Undertakings (PSUs).

Given India’s increasing vulnerabilities and rising international demands on it to act as a net provider of security as a regional power, the country’s defense expenditure is inadequate to create the capabilities that the armed forces will need in future. India’s political leadership and the bureaucracy that guides it must learn to look at defense expenditure as a form of insurance: if properly utilized, it deters military adversaries from contemplating war and enables the armed forces to acquire the capabilities necessary to fight and win if deterrence fails.

Gurmeet Kanwal, a former brigadier in the Indian Army, is a Delhi-based adjunct fellow with the Wadhwani Chair in U.S.-India Policy Studies at the Center for Strategic and International Studies in Washington, D.C.

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Gurmeet Kanwal