Defence and Development are two sides of the same coin and a trajectory in the growth of a nation. Both these are capital heavy investments with competing demands and thus require a fine balance. The complexity gets compounded by the geopolitical melee, escalating threat matrix and turbulence of Covid impacted economy. The budget will thus never be adequate but must never be insufficient especially wherein it impacts the defence of a nation and its national security interests. The challenge lies in either a ‘Defence Forces sized to Budget’ by tuning its size, shape and mandate or a ‘Budget sized to the Defence Forces’ by matching fiscal support. The reality is that neither can be done beyond an elasticity level and the sweet spot has to be found in a collaborative and integrated approach.
Despite the increasing threats from both China and Pakistan and emerging security challenges, India’s spending on defence has dropped in terms of the government’s total expenditure over the past few years. The myth that only diplomacy can subjugate emerging security threats, is a self-inflicted injury and a fallacy ploy that has too often boomeranged on the nation. A resilient economy needs matching military strength to provide the secure environment needed for its sustained growth. Similarly, an integrated deterrence with modern defence forces is central to national security and needs an economic investment as national insurance.
The Positives and Challenges of Defence Budget 2022
The Defence Budget 2022-23 has certainly given the intended policy support boost to Atmanirbharta in Defence by increasing the capital allocation percentage to 68% for the domestic sector. Yet the absence of a roll-on appendage will impact its optimization. While the Make in India through IDDM will get increasing traction but the issues of foreign components and materials in IDDM procurement or alternatives to the banned import list items do not truly reflect its Indian character. Besides the issues of price indexing, import substitution must be clearly defined and verified in terms of indigenous content (cost, subassemblies, design and raw material) by an independent verification agency including IPR holding (both foreground and background).
The incentive to Defence R& D by dedicated allocation of 25% of the Defence R&D budget shall certainly incentivize industry-led research and encourage collaborative efforts in a PPP model. This step, while encouraging new capabilities in creating and sustaining technologies shall aid in creating an IP culture provided mindsets change and there is hand-holding, mutual trust and mentoring. However, the Budget for Research & Development (R&D) in Defence is a meagre Rs 11,981 crore (2.28% of defence budget). So in real terms, the buck will be limited.
The replacing of the Special Economic Zones with new legislation to enable states to become partners in ‘Development of Enterprise and Service Hubs’ is a progressive step. Yet the key remains the centre-state synergy and mutual trust above petty politics. This will not only give a boost to the manufacturing hub and boost employment but be the foundation of a defence ecosystem.
The commitment to set up an umbrella body for Defence Equipment Certification, border infrastructure development, extending tax incentives are all well-meaning steps in the right direction yet hold their cultural challenges. BRO’s capital budget has jumped by 40 per cent, from Rs 2,500 crore last year to Rs 3,500 crore, while the Coast Guard has seen a 60 per cent enhancement, from Rs 2,650 crore in 2021-2022 to Rs 4,246 crore this year. The border infrastructure particularly on our northern and eastern borders requires a whole nation approach, inter-ministry synergy, centre and state collaborative model with time sensitivity and accountability.
Figures Matter, Context is the King
At the macro level, India’s Defence spending is ranked the third-largest in the world yet discredited as the second-largest importer in the globe. The silver lining has been a decrease in arms imports percentage, its diversification and an increase in export percentage as compared to previous years. Yet India has no defence industry in the top 30 in the world, its global innovation index stands pegged at 46th and it is not amongst the listed top 33 in defence R&D. Thus there are structural and policy challenges that merit a holistic transformation to address all three critical components; transformed politico-military culture, transformed defence planning process and transformed joint service capabilities through supportive budgetary reforms and allocations.
Overall defence expenditure for FY 2022-23 has been pegged at Rs 5,25,166 crore, just a 4.4% hike over last fiscal’s revised estimates and 9.8% over budgetary estimates. The defence budget works out to 2.04% of GDP (compared to 2.15% last year) and more pragmatically near 1.5% of GDP less defence pensions which is a steady decline. Incidentally, the defence budget was 1.64 % of GDP in 1962 when the nation woke up to a rude shock. The average global estimate is approximately 2.4% in terms of GDP. To meet its commitments, the military’s requirement is a minimum of 2.5% (less defence pensions). The present fiscal large gap thus restricts defence capability building severely. Even as a percentage of central government spending, the present defence budget is 13.30 % as compared to 13.74% last budget, which is a year on year decline much contrary to the escalating threat matrix.
Modernisation of military forces is primarily driven by the capital outlay within each year’s budget. Budgetary allocation towards capital expenditure for this year is Rs 1,52,369.61 crores and just 12.82% higher than 2021-22 (BE). It must be noted that there is a significant reduction as compared to an 18.75 % rise in the preceding financial year. The capital component has a non-modernisation component and a modernisation component which has a committed liability sub-component and a new schemes sub-component. Much of the capital expenditure allocated to the defence ministry will thus go towards fulfilling India’s contractual obligations as committed liabilities leaving limited scope for major modernisation plans. The 15th Finance Commission had made a recommendation to establish a “dedicated, non-lapsable fund called the Modernization Fund for Defense and Internal Security (MFDIS)” to address the issue of optimal utilization peculiar to defence procurement. Such a statute would not only result in fund utilization but also provide a boost to indigenization within the defence sector.
The tri-service capital distribution has had its peculiarities this year. Indian Army’s capital budget went down by 12.2 %, the Indian navy got a massive jump of around 43% and the Indian Air Force a marginal increase of 4.5% as compared to the budget estimate (BE) of last year. This must be analysed holistically at the macro level under the prism of integrated defence capability and future warfighting needs.
Revenue budget estimates for 2022 has increased marginally this year to Rs 2.39 lakh crore from Rs 2.33 lakh crore last year; a marginal hike of 9.89 per cent. The bulk of it will go to the pay and allowances component leaving minimal for sustenance and maintenance. The revenue versus capital ratio remains skewed at 61:39 of the total expenditure less pensions and MoD (Civilians) allocation. Pensions account for just under a quarter of the total defence budget at 1.19 lakh crore. It is a silent fact often put under the carpet that a quarter of the pensioners are defence civilians. The challenge to control pension bills is to review retirement age, enhance lateral induction and remove the pension component from the defence budget to give the real picture of defence budgetary support.
Inter-Service Allocation Dilemma
The relevance of oceanic and aerospace domains in integrated capability building and their past neglect due to embedded mindsets of counter-terrorism/insurgency and attritional land warfare has come to the fore. It’s an indication of moving from threat cum capability-based approach to capability-based approach in synchronised integrated capability building. Also, it indicates moving from compartmentalised deterrence by defence /punishment to an integrated deterrence by denial. Force planning, force structuring, force equipping and force application are an integrated effort to counter future threats.
Yet the reduction in Army budget must not be a self-goal of ignoring the present and predicting the future. Predicting the future is easy; getting it right is tough especially in the military domain. A balanced and flexible approach is thus required based on an integrated deterrence strategy and warfighting doctrine which is specific to our national security interest, threats and operating environment. Compartmentalised approach to warfighting will be detrimental. We must prepare and procure for the wars we are going to fight and not necessarily for those we fought. Time-sensitive prioritization of threats is thus important for building deterrence capabilities based on a value, risk and vulnerability analysis.
Some Macro Lessons
Smart Procurement: Procurement has both a science and art component like warfare. The art component weighs heavier. Army continues to languish with little accountability, focus, continuity or competence in smart outcome-oriented procurement. Thus has lost the major chunk in capital procurement possibly due to the lack of clarity of the priorities, ability to circumvent the procurement hurdles and expend the allocation in time. Smart procurement requires creativity to beat the barriers of both processes and bureaucracy with outcome orientation. This also requires continuity and specialization. Airforce and Navy are much smarter in this sphere. Primarily, both IAF and IN are big-ticket platform-centric services and have mastered the art of bypassing the DPP (now DAP) essentially through inter-governmental routes or IN through Indian Shipyard. Thus, they can spend their allotted budget, and generate higher committed liabilities forcing an increased allocation. The Army has limited examples of inter-government routes yet those few have been success stories. The Army continues to fight through DAP bureaucratic apathy under traditional Make 1 or Strategic Partnership for its big tickets which have only led to frustrations in both time and outcomes.
Future Technologies and Desired Capabilities: Joint force capability building remains unfortunately silent in the Defence Budget 2022, yet hopefully not unaddressed. Cyber, Space, IW, AI and areas of disruption technology require a commitment for an exclusive focus yet for an inclusive integrated tri-service capability. The notion of victory remains redefined by perceptions and narratives in the digital world.
Strategic Voids: The budget has again highlighted the void of a national security strategy that can give clarity to policy construct and decision-making apparatus. Continuity of strategic direction is a factor of clearly defining ends, ways and means of national security. Besides the void on a National Defence University has impacted the imperative of specialization and professional military education. A lot more strategic thought needs to be invested in matters of national security in general and defence in particular.
To conclude, national defence is the prime responsibility of the government with the defence forces its principal executers. The reality of the present defence budget is that it has given limited fiscal space for the otherwise positive intent. The competing needs of the nation and its financial support are well understood, yet investment in defence remains the foundational insurance. The macro budgetary reforms and national security strategy also require greater traction.
-The author is a PVSM, AVSM, VSM has had an illustrious career spanning nearly four decades. A distinguished Armoured Corps officer, he has served in various prestigious staff and command appointments including Commander Independent Armoured Brigade, ADG PP, GOC Armoured Division and GOC Strike 1. The officer retired as DG Mechanised Forces in December 2017 during which he was the architect to initiate process for reintroduction of Light Tank and Chairman on the study on C5ISR for Indian Army. Subsequently he was Consultant MoD/OFB from 2018 to 2020. The Officer is a reputed defence analyst, a motivational speaker and prolific writer on matters of military, defence technology and national security.The views expressed are personal and do not necessarily carry the views of Raksha Anirveda.
