Boots on the ground need bucks in the wallet - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Tuesday 25 June 2019

Boots on the ground need bucks in the wallet

By Ajai Shukla
Business Standard, 25th June 19

The Union Budget for 2019-20 next week will trigger the predictable chorus of criticism that the capital allocation is inadequate for modernising the military’s warfighting arsenal – such as tanks, artillery guns, warships and combat aircraft – that should at minimum match, or ideally outclass, what our likely enemies will pit against us in war. This concern, while valid, misses a greater shortcoming: the government’s continuing failure to financially provision for the 100,000 new troops it has sanctioned, but has still to adequately fund.

A dozen years of steady manpower growth, in which the army’s payroll has risen six-fold, have seen no commensurate rise in the revenue budget. This has grown only in the mid single digits – just enough to cover inflation, but not an expanding force. Military planners worry they are close to a financial implosion, caused by a double whammy: a growing force alongside growing pay and pension. Compounding this is the increased cost of equipment due to the Goods and Services Tax (GST), and the imposition of customs duties on defence imports, even of essential weaponry. None of these burdens are compensated for in recent budgets.

Take the growing cost of manpower: Since 2008, the addition of almost 100,000 combat soldiers have taken the army’s numbers up to 1.26 million; while the air force has grown to 155,000 and the navy to 83,500 -- making up a one-and-a-half million-strong military. Starting in 2008-09, the army added two mountain divisions (some 50,000 soldiers) to boost border defences in Arunachal Pradesh. Then, in 2011-12, the United Progressive Alliance (UPA) government unwisely consented to the army’s plea to raise a new “mountain strike corps” (MSC), comprising two more divisions and another 70,000 soldiers. The two defensive divisions are raised and deployed, as is the first of the MSC’s two divisions. For now, the National Democratic Alliance (NDA) government has placed the second division on hold. But the troops already raised, including supporting artillery, engineers, signals and logistics units, must be paid, trained, equipped and maintained. The army has set up several new military stations where these formations are located. Where is that money coming from? Since the government has not allocated extra money, the army is forced to generate it from within.

The government sanction letters (GSLs) that green-lighted these four additional divisions, as well as two tank brigades raised along with them, committed extra funding and specified the stages at which payments would be made. That commitment remains on paper with the army still to receive any budgetary increments. Until the government makes good on what the GSL promised, the army must sustain the new units by diverting resources from existing formations. This is naturally hollowing out the army.

In previous instances of large-scale new raisings – such as after the 1962 debacle or, to a lesser extent, after the 1999 Kargil conflict – the defence revenue budget allocations showed a sharp upward rise, caused by the additional expenditure of those raisings. Since 2005, however, allocations have risen evenly by an annual 6-8 per cent, with the exception of a sharp jump in 2008 after the 6thCentral Pay Commission (6thCPC) awarded a major salary boost. Even the salary raise of the 7thCPC in 2016 was not accompanied by a corresponding rise in the revenue allocations. So the famously adaptive Indian army “makes do” by sharing its already meagre resources within a larger pool.

Adding to the military’s manpower costs is the government’s implementation of One Rank One Pension (OROP) in 2015-16. However, with pensions allocated under a separate budget head, the government has no choice but to make available the amount that is disbursed.

Another crushing budgetary burden the military faces is the imposition of high rates of GST. Procurement of “stores”, a high-volumes category that includes ammunition, tentage, clothing, etc, is taxed at 18 per cent, while the military pays a whopping 28 per cent GST on each vehicle it buys. Since GST was imposed on the military without provision for reimbursement, and without allocating additional funds, the finance ministry effectively takes back a large percentage of the funds it allocates to defence. This affects the military not just at apex procurement levels but down to the smallest units, which can now buy much less with their already limited training and contingency grants.

Further, the government has imposed customs duties on the import of defence equipment, which was earlier exempt from taxes. This eats into capital procurements and the purchases of spares for foreign equipment, both of which have significant import components. While the laudable aim of customs duties is to promote indigenization, it has significantly reduced the military’s buying power. Besides, with army stores and equipment taxed at 10 per cent compared to the 3 per cent rate imposed on aerospace components, there is an inverse logic at play: the items that comprise the bulk of imports and most need to be produced in India, are taxed at the lower rate. 

The pernicious practice of conjuring up achievements without actually funding them is gaining currency. As a part of the officially denied Cold Start doctrine, numerous military units were moved in preceding years to new locations closer to the border, in order to allow them to be launched into combat without lengthy and give-away movements up to their launch pads. Little money was made available for this: it was left to the army to scrape and scrounge and get existing units to share accommodation. Similarly, after a spate of terrorist attacks on military unitsthe defence ministry sanctioned in 2016-17 a project for walling vulnerable cantonments and installing CCTV cameras and a central monitoring facility. Predictably, no budgetary allocation was provided. Consequently, not a brick has been laid, nor a rupee spent.

Similarly, seeking to address damaging reports that the military was so short of ammunition that it could not fight beyond a few days, the defence ministry announced with fanfare the grant of financial powers to senior military commanders to purchase ammunition for up to ten days of intense combat – the so-called “10-I stocks”. However, with no additional funding line allocated, the procurement power was unsupported by financial resources. Any purchases of ammunition must be made from the already stressed army budget.

Given this track record, it would be unwise to expect that next week’s defence allocations will be based on a holistic evaluation of national security threats, the wherewithal needed to deter or counter them and the funding that is required. Instead, successive governments have taken their cue from bodies like the Finance Commissions, which have recommended that defence expenditure be progressively reduced as a percentage of Gross Domestic Product (GDP). In a step forward, the 14thFinance Commission, which made recommendations on the disbursement of central government finances for 2015-2020, recommended that defence revenue expenditure be pegged to the GDP. Though the GDP figure itself remains disputed, it would be safe to anticipate that the rise in defence allocations would remain in the mid single digits. 

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