The defence of a nation is the prime constitutional responsibility of the government in power with the defence forces as its principal executers. The government transforms intentions into fiscal allocations to bridge capability gaps. In turn, the defence forces translate budget based on value, risks, and vulnerabilities into capabilities, to find the sweet spot between the trio of the three Ms – Manpower, Modernisation and Material (Sustenance). Thus, it is an integrated approach to national security between all elements of national power which reflects the synergy between the Ministry of Finance (MoF), Ministry of Defence (MoD) and the Armed Forces. The National Security Strategy (NSS) stands as the guiding beacon for synergy and cohesion of thought. Ironically, both the elusive NSS and adequate fiscal allocation reflect wanting gaps for India.

Paradox of Defence Budget

Nations must prepare for future challenges because intentions can change fast but capability building takes time. The paradox is that defence budgeting is not populistic budgeting but an insurance to the nation, yet petty politics focus more on populistic poll budgeting as it has higher short-term visibility and gains. Thus, while the threats and challenges to our national security have magnified and manifested manifold, India’s response remains archival. Balancing the risks between present force vulnerabilities and future force capabilities further complicates the equation.

Defence budgeting is a synergetic approach to ensuring the security and safety of the nation and its citizens. The bureaucracy and politicians dealing with matters of defence are certainly sharp, intelligent, and seasoned, but hardly educated in matters of national defence. The populistic factor in the budget especially in the shadow of incoming elections also weighs in its focus. The defence forces also fail to be assertive to thump the table. Thus, there exists a mismatch in policy formulation, resource allocation and desired execution. The means do not empower the ways to achieve the ends. Accountability and responsibility rest ironically in the ambiguity zone.

Budget Has a Price on National Security

In the present global geopolitical disorder defined by strategic security instabilities, strength flows from economic might but economic might warrants stability and stability comes only when a nation is strong enough that it does not have to sacrifice its national interest to avoid war and can if challenged preserve it by war.  This relationship between the defence budget and national defence beyond vote bank politics must be understood. The myth that only diplomacy can subjugate emerging security threats, is a self-inflicted injury and a fallacy ploy to which India remains a victim. Power flows from the barrel of the gun but the gun costs money. Thus, the guns versus butter debate is flawed. A Viksit Bharat first needs a Surakshit Bharat to convert vision into reality and slogans into outcomes.

Lessons of Contemporary Wars

The global conflicts of the 21st Century, offer valuable insights and lessons. The nature of war and its blood and gore remains enduring. Their character evolves with a tectonic shift in the goals, rules, players, technologies, and instruments of war.  Proxies and non-state actors are an integrated evolution of multidomain wars. Thus, the lines between peace and war have become increasingly blurred, with overlapping boundaries and unlimited players. Short wars are an illusion, and their duration is often longer than intended. Wars require stamina and an indigenous responsive defence industrial base. Further, the notion of victory is now a narrative of information warfare and perception management. Technology is a necessity for combat overmatch, yet its adoption and optimisation by empowered human capital and matching restructuring cum doctrines remain suboptimal.

The government has given ₹ 6.2 lakh crore (USD 74.82 Billion) for expenditure on defence, a 4.72 per cent increase over the FY 2023-2024 which was allotted ₹ 5.94 lakh crore. The average inflation for 2023 has been pegged at 5.4% by RBI

Indian Threat Matrix

Kautaliya stated four types of threats – external threat externally abetted, external threat internally abetted, internal threat internally abetted and internal threat externally abetted. Today India faces all four in an escalatory multidomain continuum. To keep both India and its citizens secure, the nation will have to protect itself from the escalating threats that continue to cast its shadow on the nation.

The recent Kargil and Ladakh have been wake-up calls for the threat that stands on our unbolted doors. Our deterrence has failed, and our actions have been reactive and defensive resulting in knee-jerk emergency procurements. It’s the young Bravehearts in uniform who saved the day by valour at an avoidable cost of their precious lives. Accountability for the loss of lives must remain of those who allowed such a situation to manifest and couldn’t protect these young lives.

Much has been achieved in recent times, both in capabilities and infrastructure, yet the gap particularly with China remains wide and expanding both qualitatively and quantitatively. We cannot turn a blind eye to this fact and need to double our efforts. Our primary multidomain threat is China and needs priority in addressing present threats and creating desired future multi-domain capabilities before it’s too late. China only understands Power.

Defence Budget 2024: Debunking Assumptions

Myth #1: Defence Expenditure being the largest component of the Budget overburdens the Economy.

Reality: The government has given ₹ 6.2 lakh crore (USD 74.82 Billion) for expenditure on defence, a 4.72 per cent increase over the FY 2023-2024 which was allotted ₹ 5.94 lakh crore. The average inflation for 2023 has been pegged at 5.4% by RBI. Thus, it has less real purchasing power even without considering market hikes. As compared to the Revised Estimates (RE)  stage allocation for the FY 2023-2024, there is a marginal decline in allocation from 13.74% of the total budget in 2022 and13.18 % in 2023 to 13.04% in 2024. The defence budget as a percentage of GDP is also declining and remains at 1.89% as compared to 2.15 in 2022 and 2.04 in 2023. If the pension component is removed, it borders around the 1962 allocation of 1.64% before the Chinese invasion! The average global estimate is approximately 2.4%  in terms of GDP.

More importantly out of every ₹1 spent by the Government only 8 paisa goes to the defence which includes salaries and pensions. Can this slim capex availability be adequate for a nation facing turbulent borders, terrorist threats and escalating threats across the border?

Myth #2: The capital allocation has gone up manifold and will result in desired modernisation goals and Aatmanirbharta in Defence

Reality: 27.67% goes to capital, 45.5% to revenue (14.82% for revenue expenditure on sustenance and operational preparedness and 30.68% for pay and allowances), 22.72% for defence pensions and 4.11% for civil organisations under MoD.

The Capital Allocations for modernisation and infrastructure development of the Defence Services have been increased to ₹ 1.72 lakh crore representing a paltry rise of 6.2% in FY 2024-25 which stood at ₹ 1.62 Lakh crore, as against a rise of 6.7% in FY 2023-2024 over the preceding year. This is a percentage decline.

The capital component has a non-modernisation component and a modernisation component which has a committed liability sub-component and 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 new schemes. Hopefully, to bridge the present gap, prudence in the RE stage may emerge for additional allocation as well as big-ticket clearances not traditionally delayed at the CCS level.

The revenue expenditure has been pegged at ₹ 2.82 lakh crore with an increase of 1.81% against the previous year’s allocation of ₹ 2.77 lakh crore. This year 92,088 crore is for sustenance and operational readiness as against 90,000 crore the previous year marking an increase of 2.33%. The figure when compared to price escalation and inflation tells it all.

Myth #3: The skewed revenue-to-capital ratio is a result of the unsustainable pension bill.

Reality: This is only partially true. The revenue to capital ratio stands improved at 62:38 from 68:32 in the previous year. Pensions and salaries are based on actuals. The reality is MoD budget directly pays nearly 5.1 million people, of which 1.44 million are active uniformed personnel, 3.2 million pensioners (a quarter percentage of defence civilians) and 0.4 million serving defence civilians and other heads.

Total budgetary allocation on account of defence pensions is ₹ 1,41,205 crore which is 2.17% higher than the allocation made during 2023-24 (₹ 1.38 lakh crore) essentially catering for increased pensioners. In the last monetary policy of 2023, the Reserve Bank of India (RBI) Monetary Policy Committee (MPC) projects CPI inflation at 5.4 per cent in 2023-24 (FY24), unchanged from earlier. Thus the percentage reveals the true picture of the increase.

The challenge to controlling 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

The Defence Pension Budget, however, is big in absolute numbers due to the large number of retired personnel which itself is a function of soldiers being compulsorily retired early from 36 years of age onwards owing to the requirement of maintaining a young and physically fit military. Thus India has 2.4 defence pensioners for every serving soldier while the ratio for civilians is approximately one pensioner for each serving employee. It is also worthwhile to mention that the average per capita pension of defence personnel is much lower than a Central Govt civil employee. These remain hidden and treasured.

Traditionally pension increase does indeed result in a drop in capital component and vice versa as seen in the present budget. Yet it cannot be weighed against modernisation needs. The challenge to controlling 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.

The Silver Linings

All is not as dark as it may seem. The Government’s intentions despite poll compulsions seem noble though allocation is suboptimal as the nation marches to its destination of a $5 trillion economy within a few years and a $10 trillion economy by the end of the decade.

The allocation to Border Roads Organisation (BRO) at ₹ 6500 crore marks an increase of 30% and is welcomed for border area infrastructure development. The financial provision made during the budget this year, will, apart from promoting strategic infrastructural development in the border areas, also boost socio-economic development in that region along with promoting tourism.

The Coast Guard’s increased allocation adds teeth to its arsenal to address the maritime emerging challenges. The allocation will facilitate the acquisition of fast-moving patrolling vehicles/interceptors, advanced electronic surveillance systems and weapons.

The budget has also underlined the need for self-reliance in defence technology and manufacturing through innovation and research involving all stakeholders. ₹1 lakh crore corpus will be established with a 50-year interest-free loan for long-term financing research and innovation in sunrise domains which also includes deep defence technology. This new scheme is aimed at bolstering advanced technologies for defence purposes and accelerating the ‘Atmanirbharta’ (self-reliance) initiative. This is a 3% increase in Defence R&D, yet the R&D allocation as a percentage of GDP remains one of the lowest for India at below 1% of GDP. This requires a long-term perspective and a substantial increase.

Another positive has been the allocation for Ex-Servicemen Contributory Health Scheme (ECHS) from ₹5431 crore in FY 2023-24 to ₹6968 crore in 2024-25, which is a 29% increase. Yet the ECHS structure, process and scope fall much below the aspiration of the veterans and not at par with health insurance sector schemes.

 

 

Takeaways

No defence budgetary is ironically sufficient the world over. Given the need to balance growth with security in an adverse security environment, a pragmatic approach would be to find the sweet spot.  Thus, there has to be fresh thinking on the need to find innovative solutions for meeting the modernisation objectives for smart overmatch over threats within a realistic budgetary forecast. Budgetary allocation and budgetary reforms need a review along with the services to introspect and optimise allocation with capabilities based on a value, vulnerability and risk analysis.

-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