The highs and lows of what the defence budget hides and what it reveals
The most important message to come out of the annual defence budget 2012-2013 of Rs 1,93,408 crore (about USD 39 billion) is hope for the top global companies desirous of doing business here. The 17.63 per cent hike over last year’s allocation is indicative of the government’s commitment to defence acquisitions in sync with India’s image as a rising major power. This is precisely what defence minister, A.K. Antony says at every forum. Despite excruciatingly slow reforms in the defence procurement procedure, and given the global recession and declining defence budgets in the developed world, global defence companies are expected to remain steadfast reiterating the mantra of a long haul in India. The other message from defence increase is political. While India does not intend militarisation like China, it will nevertheless remain a serious player in the Asia-Pacific region, where big power manoeuvres are expected to be played out this century.
Once the overarching signals are understood, the rest is business as usual. To know how much India’s defence budget hides and how little it reveals, capital and revenue outlays need to be viewed separately. Regarding capital allocations, which is of interest to defence manufacturers and the three services as well, three issues need to be put into perspective. First, there is nothing sacrosanct about annual capital allocation figures. Revised estimates and not annual capital allocations should be watched and analysed for trends in defence expenditure. In mathematical terms, annual allocation plus supplementary grants, which the government is free to give to the defence services every quarter of the year, make up for the revised estimates of the previous year. So, if any capital acquisitions amount is returned unutilised, like Rs 3,055 crore this year, it becomes clear that by itself allocations do not mean much. The annual capital allocation is a dangled carrot; the question is how to get it.
This takes us to the second issue. Capital allocations for three defence services, the army, navy and the air force, are also not sacrosanct. The defence ministry at will, without consulting the services, can use capital allocations of one service for the other. This makes the case-by-case purchasing system treacherous. In a highly personalised functioning between services headquarters and the defence ministry, acquisitions have much to do with service’s ingenuity at framing its case than critical operational reasons. This says a lot about the army, which with the largest acquisition budget got the least goodies. Bereft of any service personnel amidst them, powerful bureaucrats are not expected to understand much about operational requirements.
The third issue concerns contractual obligations, which at present stand at over 70 per cent. This is the amount committed to OEMs for purchases already made. It is thus clear that annual capital allocations are deceptive, and all talks about military expenditure in terms of the GDP are meaningless. For example, experts say that India should devote three per cent of its GDP towards defence; at present it stands at 1.9 per cent. Ideal would be if instead of annual allocations, financial commitment for long term purchases are made (according to service’s long term perspective planning). But that is a different story.
Revenue allocations have a twin purpose; provide salaries to servicemen and as part of modernisation, make certain upgrades to existing equipment. This is more relevant to the army being manpower intensive. As force levels of the air force and navy are structured around equipment, most of its upgrades come from the capital outlay. Fully conscious about it, the air force and the navy are now taking the life-cycle cost of purchased equipment seriously, insisting that these be dove-tailed into the initial purchase cost. The army, once again, seems to be behind times. The Master General Ordnance (MGO), responsible for product support, is not part of army’s equipment purchasing committee; he struggles for adequate product support. Thus, the overall annual defence allocations in the absence of long term financial commitment, is a mere ritual done each year.
Probably, the only thing certain about defence budget 2012-2013 is the government resolve to maintain the Rashtriya Rifles (RR) at its present levels. Its annual allocation has gone up substantially from Rs 10.43 crore to Rs 252 crore. The government neither has any intentions of downsizing RR in Jammu and Kashmir, nor hopes to make much progress on the peace process with Pakistan.