A bigger, not better, defence budget - Broadsword by Ajai Shukla - Strategy. Economics. Defence.

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Thursday 3 February 2022

A bigger, not better, defence budget

Even as the total allocation to defence has increased, it has fallen as a percentage of GDP


By Ajai Shukla

Business Standard, 4th Feb 22       


In a perception management exercise that accompanied the annual Union Budget on Tuesday, the ministry of defence (MoD) sought to convey that it has significantly raised the defence allocations and created the policy conditions needed for the domestic defence industry to flourish and thrive. In a series of upbeat press releases, Defence Minister Rajnath Singh’s formidable public relations machinary put out the following factual points: First, of the total government outlay of Rs 39.45 trillion in the Union Budget of 2022-23, the MoD was allocated Rs 5.25 trillion, or 13.31 per cent of total government spending. There was silence on the fact that – even as Chinese troops of the People’s Liberation Army (PLA) continue squatting on territory that we claim as our own – this was the lowest allocation in percentage terms since the 1950s. Furthermore, as a percentage of Gross Domestic Product (GDP), the defence allocation amounted to just 2.03 per cent, threatening to fall below the 2 per cent threshold.


Second, the MoD announced that military modernisation and border infrastructure development was at the centre stage of the national security and defence planning process. To support this, the MoD pointed to the steady rise in the defence capital outlay from Rs 86,740 crore in 2013-14 to 1.52 lakh crore in 2022-23 – an enhancement of 76 per cent over a period of nine years. While that sounds like a healthy growth rate, it actually amounts to less than 5 per cent, compounded annually – barely enough to cater for inflation and foreign exchange rate variation.


Third, in a high-profile push to indigenous defence enterprises under the ‘Aatmanirbhar Bharat’ (self-reliant India) scheme, it was announced in the Union Budget that 68 per cent of all capital defence procurement would be earmarked for indigenous manufacturers. In 2021-22, the MoD had reserved 58 per cent of all capital procurement for Indian entities. The enhanced target will, however, prove difficult to implement and monitor, since an order placed on an indigenous defence manufacturing entity might well be placed onwards, as sub-orders, on foreign entities. For example, an order of Rs 1,000 crore, placed on indigenous entity “Company A” could be discharged by that company with a foreign component of 50 per cent that would be difficult to track.


Another initiative that the MoD dealt with in the Union Budget was the hand-holding of seven new Defence Public Sector Undertakings (DPSUs) that were created as a result of the “corporatisation” of the Ordnance Factories. This required earmarking a sum ofRs 1,665 crore in Revised Estimates (RE) of 2021-22 and Rs 1,310 crore in Budget Estimates (BE) 2022-23 for their planned modernisation. Additionally, Rs 2,500 crore were set aside in BE 2022-23 and in RE 2021-22 as Emergency Authorization Fund.


The only one of the three services that has received a significant rise in its capital allocation is the navy. In a long-overdue recognition of the importance of maritime security, the navy’s capital budget has been enhanced by about 43 per cent, from an allocation of Rs 33,254 crore in FY 2021-22 to Rs 47,591 crore in FY 2022-23, a rise of Rs 14,337 crore. This increment will be needed to support the acquisition of new platforms, such as six air-independent propulsion (AIP) submarines being acquired under Project 75-I, a second indigenous aircraft carrier (IAC-2), 57 twin-engine deck-based fighters (TEDBFs) and four more P-8I Poseidon long-range maritime patrol aircraft to keep a watch over the Indian Ocean. The navy is also creating operational and strategic infrastructure that will be needed when the tri-service maritime command is operationalised in Karwar, near Goa.


Alongside the ramping up of naval warfighting assets and infrastructure, there is growing recognition of the need to boost coastal security and policing to prevent intrusions into coastal cities and ports that could lead to more terrorist incidents such as the 26/11 Mumbai strikes. Towards this, the capital budget of the Indian Coast Guard has been enhanced from Rs 2,650 crore in FY 2021-22, by over 60 per cent to Rs 4,246 crore in FY 2022-23. This will provide the wherewithal needed for building up assets such as offshore patrol vessels, maritime reconnaissance ships and aircraft, establishment of a coastal security network and building up technical and administrative support structures.


In addition the capital budget of the Border Roads Organisation (BRO) has been augmented by 40 per cent from Rs 2,500 in the current year to Rs 3,500 crore in FY 2022-23. With an eye on the Chinese, this is intended to expedite the creation of border roads, bridges and important tunnels, such as at Sela and Nechiphu. In 2021, BRO executed a record 102 roads and bridges at extreme altitudes and weather conditions. This includes the world’s highest motorable road at Umling La, at an altitude of 19,024 feet.


Another boost for defence R&D relates to the earmarking of 25 per cent of the Defence Research & Development Organisation (DRDO) budget for engagement of industry, startups and academia. The DRDO’s capital budget allocation is up 5.3 per cent from Rs 11,375 crore in BE 2021-22 to Rs 11,981 crore in the current year, providing only a limited boost to indigenous R&D projects. 


The DRDO has multiple modes of engagement with industry and academia. It engages industry as Development Cum Production Partner (DcPP), Development Partner (DP) and as Production Agency (PA) during the execution of projects and programmes. Currently, the DRDO engages about 20,000 industries of various sizes in the development of various systems, sub-systems and technologies, directly and indirectly. Through its Technology Development Fund (TDF) scheme, DRDO extends financial support to Indian micro, small and medium enterprises (MSMEs) and startups for indigenous design and development of defence products, components and subsystems. The fund is utilized for developing new technologies as required by DRDO, services, and DPSUs.


The DRDO is working with more than 250 academic institutes on different defence R&D problems for basic, applied and targeted research. It has established 10 advanced research centres in various academic institutions. The DRDO has also proposed to set up chairs for specific areas in various universities for long term engagement with academic institutions.


 At the macro level the stabilisation of personnel costs – which comprises salaries and pensions – is to be welcomed, since this will allow more money to be funnelled into equipment modernisation. There is still more scope for the army to cut its bloated manpower through organisational reform. This process was under way, but was interrupted by the tragic death of the first Chief of Defence Staff, General Bipin Rawat. It must now be resumed without further delay.

1 comment:

  1. It seems that India's revinues have increased, so even when the amount allocated to defence has increased, it doesn't reflect as such as a percentage of GDP. I wonder what the Indian military has to spend as capital expenditure in 2022-23, by which I mean, what major military equipment does India need to procure and pay for in the current year? What is India purchasing from domestic arms manufacturers in significant numbers? Has the defence ministry spent all the funds allocated to the military last year, or have the remaining funds been allocated to the current year, too?
    Ajay, please keep us up to date on news to do with the IAC-2 and the SSN's that India wants to add to it's naval fleet.
    Why are naval projects getting delayed leading to huge cost overruns? This seems to be plaguing every major naval power, except for perhaps China.


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