The exhilarated motto “India First, Citizen First” is indeed as inspirational as “Today’s era must not be of war”, yet devoid of the geo-political context and realities of threats to the nation.
To keep both India and its citizens first, the nation will have to secure them from the burgeoning threats across the turbulent borders that continue to cast its shadow on the nation. India will need a more credible deterrence with redefined capabilities, structures and doctrines, which remains challenged with chinks exposed as in the recent past.
To deter, deny and defeat threats requires a long-term vision with the adequacy of resources for desired capabilities and matching budgetary reforms. The fiscal resources would never suffice in a single budget; thus it requires prioritisation based on value, vulnerabilities and risks in the temporal term.
Ironically, an institutionalised vision to identify and tackle threats to national security remains a glaring void and the national effort is in disarray in the absence of a National Security Strategy.
The bureaucracy and politicians dealing with matters of defence are certainly sharp, intelligent and seasoned, but hardly educated in matters of national defence.
The populist factor in the budget, especially in view of the incoming elections also weighs on its qualitative focus. Thus, there exists a mismatch in policy formulation, resource allocation and desired execution. The means do not empower the ways to achieve the ends.
Defence capability building takes time while the intentions of adversaries can change quickly over time. India’s global rise will thus be a complementary factor of India’s economic and military resilience, which remain insurance for its global voice through diplomacy, and global stature through development.
The Sun Shines: Growth Incentives in the Budget
Budget 2023 does bring about smiles to the middle class with the much-awaited tax reforms and investment and saving incentives. The capex (capital expenditure)-to-GDP rising from 2.7% in 2022/23 to an estimated 3.3% in this budget (effective capex will be Rs 13.7 lakh crore, forming 4.5% of GDP) is positive. It empowers the nation’s growth trajectory, which is driven by economic growth, technology and capital inflow.
The budget brings hope for a continued economic recovery through the wide multiplier effect of public capex, which can create more jobs, spur demand and lead businesses and industry to spend more money on capital expenditure. Thus, public capex can create long-term capacities for higher economic growth and boost indigenous technologies.
Strategically it could also encourage start-ups and young entrepreneurs. India is also likely to continue to attract an increase in FDI inflow with its promising economic growth, largely middle class willing to spend and an expenditure growth that will increase to Rs 15 crore from 2022 to 2050.
Overall a positive Union Budget 2023 sees the sun rising on India. Yet with the clouds of threats to its national security getting dark, a storm from across the borders to destabilise the nation and its growth trajectory cannot be discounted. The wise hope for the best, yet prepares for the worst. This is where the defence budget lacks foresight and pragmatism.
The Clouds Overcast the Sunshine – Defence Sector Ignored
Defence and Development are two sides of the same coin and follow a common trajectory in the growth of a nation. Both these are capital heavy investments with competing demands and thus require a fine balance.
The Defence Budget will thus never be adequate but must never be insufficient. The sweet spot has to be found by policymakers, and which has been missed in the present budget.
The Union Budget for the Financial Year 2023-24 envisages a total outlay of Rs 45 lakh crore. Of this, the Ministry of Defence has been allocated a total Budget of Rs 5.94 lakh crore. Even as a percentage of central government spending the present defence budget is 13.30% as compared to 13.74% in the last budget, which is a year-on-year decline despite the escalating threat matrix.
The overall defence budget works out to 2.04% of GDP (compared to 2.15% last year) and more pragmatically near 1.7% of GDP less defence pensions which is subpar.
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. More importantly out of every rupee 1 spent by the Government only 8 paisa goes to the defence, which includes salaries and pensions too. Can this slim capex availability be adequate for a nation facing turbulent borders, terrorist threats and escalating threats across the border?
The Capital Allocations for modernisation and infrastructure development of the Defence Services has been increased to Rs 1,62,600 crore representing a rise of Rs 10,230 crore (6.7%) over FY 2022-23.
The capital component has both non-modernisation and modernisation components. Much of the capital expenditure allocated to the defence ministry will thus go towards fulfilling India’s contractual obligations, as committed liabilities leave limited scope for new schemes.
The 15th Finance Commission had made a recommendation to establish a “dedicated, non-lapsable fund called the “Modernisation Fund for Defence and Internal Security” (MFDIS), to address the issue of optimal utilisation peculiar to defence procurement. Such a statute would not only result in fund utilisation but also provide a boost to indigenisation within the defence sector.
Alas, the macro reforms in the budget go begging. Further, it must be understood that it is not the spending power of the services that are lacking but the processing lethargy in the system and delays for big-ticket approval beyond the services at CCS and MoF level, which upset the applecart, albeit sometimes with a populist diversionary intent.
According to 2023-24 defence budget documents, an allocation of Rs 2,70,120 crore has been made for revenue expenditure that includes expenses on payment of salaries and maintenance of establishments. The budgetary allocation of revenue expenditure in 2022-23 was Rs 2,39,000 crore. A paltry increase of 8.8 %, which essentially covers inflation (average 6.8% in FY 2022). Thus force and equipment sustenance will continue to pose challenges.
The revenue to capital ratio of the Defence Budget 2023-24 stands at 68:32. The budgetary outlay for the Ministry of Defence (Civil) has been pegged at Rs 8,774 crore and an amount of Rs 1,38,205 crore has been allocated for defence pensions. The increase of defence pensions from Rs 1.19 lakh crore to Rs 1.38 lakh crore essentially covers inflation.
The challenge to control pension bills is to review the retirement age, enhance lateral induction and remove the pension component from the defence budget to give the real picture of defence budgetary support. In the inter-service allocation, Air force tops the CapEx allocation with Rs 57,137 Cr (up from Rs 53,749 Cr. ⬆6.3%), followed by the Navy at Rs 52,804 Cr (up from Rs 47,737Cr. ⬆10.64%) and the Army at Rs 37,241 Cr (up from Rs 32,597 Cr. ⬆14.25%).
Percentage-wise, the biggest jump is for the Army, which is also the largest force, for its sustenance and modernisation. Besides, while the sea and aerospace will be the future once the turbulent land borders are pacified, the present land-centric threats cannot be ignored or responses diluted.
The Indian Air Force has the highest share of capital expenditure and the Indian Army has the lowest. This is a default situation due to the big-ticket purchases and ensuing committed liabilities of the air force and navy. Yet the inter-service allocation needs to transit to a joint force allocation under budgeting to HQ IDS, which remains dwarfed.
Joint force capability building remains unfortunately silent in the Defence Budget 2023. Cyber, Space, IW, AI and areas of disruptive technology require a commitment for an exclusive focus yet for an inclusive integrated tri-service capability.
Yes, there are some positives too. The Capital Budget of Border Roads Organisation (BRO) has increased by 43% to Rs 5,000 crore in FY 2023-24 as against Rs 3,500 crore in FY 2022-23, which is a positive commitment to continued infrastructure strengthening in the border areas, particularly the Northern borders.
To further foster innovation, technology development and strengthen the Defence-Industrial eco-system in the country, iDEX and DTIS have been allocated Rs 116 crore and Rs 45 crore respectively representing an enhancement of 93% for iDEX and 95% for DTIS.
The incentive to Defence R&D by dedicated allocation of 25% towards strengthening Research and Development in Defence, the allocation to DRDO has been enhanced by 9%, with a total allocation of Rs 23,264 crore in BE 2023-24. Yet, both in resource allocation for R&D and output, India remain weak.
The Union Budget 2023-24 has also announced the revamped Credit Guarantee scheme for MSMEs, which will take effect from 1st April 2023 through the infusion of Rs 9,000 crore in the corpus. This will enable additional collateral-free guaranteed credit of Rs 2 lakh crore.
Further, the cost of the credit has also been reduced by about 1 per cent. This scheme will give a further fillip to the MSMEs associated with the Defence Sector and contribute to the Aatmanirbharta focus.
Further, the Budget has provided Exempt-Exempt-Exempt (EEE) status to the Agniveer Corpus Fund; a concept that remains challenged in the manifestation of its operational intent. The payment received from the Agniveer Corpus Fund, by the Agniveers enrolled in Agnipath Scheme 2022, is proposed to be exempt from taxes. It remains debatable as a professional or a populist measure for a top-down driven government initiative scheme.
Time to Introspect
Procurement has both a science and art component like warfare. The art component weighs heavier. Army continues to be procedure-oriented rather than outcome-oriented. It languishes with little accountability, focus, continuity or education in matters of fiscal management in smart outcome-oriented procurement.
Smart procurement requires creativity to beat the barriers of both processes and bureaucracy with outcome orientation. This also requires continuity, specialisation and better civil military fusion. Air force 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 the Indian Naval 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 what it has have been success stories. The Army continues to fight through DAP and DPM’s snakes and ladders for its big tickets requirements, which have only lead to time and outcome penalties.
The budget has once again highlighted the absence of a National Security Strategy that can give clarity to an integrated approach to national security. Additionally, absence of an Indian Defence University has impacted the imperative of specialisation and professional military education. A lot more strategic thought needs to be invested in matters of national security in general and defence in particular.
The Prudent Approach
The story of defence budgetary deficient is ironically a tale of mismatch the world over. The Indian scenario is no different except that there is a lack of apathy to empower the brave fighter to prevail in today’s conflict and be prepared for the future.
Thus, the challenge lies in either an ‘Army sized to Budget’ or a ‘Budget sized to the Army’. Given the need to balance growth with security in an adverse security environment, a pragmatic approach may achieve both.
Thus, there has to be fresh thinking on the need to find innovative solutions for meeting the modernisation objectives for retaining combat overmatch within a realistic budgetary forecast for countering future escalating threats.
Internally the defence forces need to plan their modernisation by establishing priorities in the near, short and long-terms, based on the principle of Value, Vulnerabilities & Risk, undertake restructuring to “Right size, Rebalance and Reorient” the military as a joint fighting force through budgetary optimisation and synergistically match “End, Ways and Means”. Finally the buck counts for the bang.
-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