Guest Post: Col.(Retd) Pavan Nair
Considering the large size of our population, its high rate of growth, and millions living below the poverty line, the Government faces serious challenges of resource mobilization to provide adequately for satisfying even the minimum needs of our people. It is apparent that significant increases in allocations for defense in the future can be envisaged only by constricting the flow of funds to the social development sectors.
26 August, 1996, N. N. Vohra, Former Defense Secretary
(In a Foreword to ‘India’s Defense Budget and Expenditure Management’ By Amiya Kumar Ghosh, Lancer Publishers, New Delhi, 1996. The outlay on Defense during FY 1996-97 was Rs 29,505 crores)
The Kargil Review Committee Report, Para 9.21. - - - Some questions have been raised about the impact of declining defense expenditure on the nation’s capacity to counter effectively the Kargil intrusion and, in particular, the preparedness of the jawans for high altitude conflict. The evidence available to the Committee does not show that a paucity of resources was per se responsible for any lack of preparedness for the Kargil conflict.
Para 9.24. It is obvious, however, that over the years actual defense expenditure has been below the amount required by the defense forces to perform efficiently the tasks allotted to them. This has affected the process of modernization and has also created some unacceptable operational voids. Given the country’s resource constraints, the scope for enhancing defense outlays is somewhat limited without tightening up fiscal discipline elsewhere and ensuring a high growth rate of 6-7% for the economy. Hence, the defense Services must seek to extract the maximum value from each defense rupee. This will call for some drastic measures like restructuring of the defense forces, improving cost effectiveness of manpower, retraining and redeployment, dispensing with avoidable and unnecessary expenditure, rigorous prioritization, and focusing resources in areas likely to enhance the effectiveness of the defense forces in meeting the emerging challenges to the country’s security. In other words a total reform of defense structure, its interface with civil government, defense production and procurement is called for.
(Kargil Review Committee Report 1999, emphasis added. The outlay on Defense during FY 1999-2000 was Rs 45,694 crores)
The Mumbai terror attacks have given an entirely new dimension to cross-border terrorism. A threshold has been crossed. Our security environment has deteriorated considerably. In this context, I propose to increase the allocation for Defense, which is a part of non-plan expenditure to Rs.1,41,703 crores. This includes an amount of Rs 54,824 crores for capital expenditure. Needless to say, any additional requirement for the security of the nation will be provided for.
16 February 2009 Pranab Mukherjee
Background
Defense economics has not been a subject for serious study or debate in Indian academic or military circles. Little or no literature is available with the exception of a few books in the area of defense accounts. Economists and activists have long argued that
defense related expenditure needs to be curtailed. Opinion is clearly divided between the developmental lobby and strategic thinkers who wield influence with the political leadership. This paper will attempt to make a realistic assessment of current levels of defense spending by evaluating the efficacy and intensity of military expenditure. Indeed, some arguments have been made before but bear repetition in the current scenario. Parliament passes the defense budget with little or no discussion. The media is largely ignorant or chooses to ignore the issue of defense spending. The view across the political spectrum and indeed the strategic community is that any exercise to limit defense spending amounts to compromising national security and is therefore not a viable consideration. Whilst it is true that development cannot take place in an insecure environment, defense expenditure (DE) in a developing country directly impacts the outlay on social spending. The "guns versus butter" argument is valid especially when the guns (and missiles) are not buying the security the country needs against asymmetrical threats from within and without.
In the Indian context, DE pertains to the external defense of the country by the regular armed forces. Expenditure on internal security, law and order, border management and fencing, coastal security and intelligence comes under the purview of the Ministry of Home Affairs. Border roads are taken care of by the Ministry of Surface Transport and the Indian Coast Guard comes directly under the Ministry of Defence (MoD). The defense budget forms the single largest item of discretionary expenditure. The outlay on defense has seen more than a three-fold hike in the decade after the war in Kargil from Rs 45,694 crores in 1999-2000 to Rs 1,41,703 crores in 2009-10 (All figures pertaining to DE have been taken from
www.indiabudget.nic.in and are budget estimates unless otherwise stated). During this period there has been no accretion in force levels except for the raising of an additional corps and command headquarters from within the manpower ceiling of the army and a few units and formations for manning missile systems which can be used to deliver nuclear warheads. Two mountain divisions have recently been sanctioned for deployment in the North-East but the financial impact will be felt only when the formations complete raising. Force multipliers like UAVs (Unmanned Aerial Vehicles) and satellite imagery have become available. Electronic surveillance has become available down to unit level. The import route has been used extensively for modernization of the three services. It is contended that excessive dependence on imports and exercising the nuclear option in 1998 has taken military related expenditure to unsustainable levels.
The three-fold increase in expenditure in the last decade is not in real terms since inflation and the depreciation of the rupee have to be taken into account. In real terms, this amounts to a 75% rise assuming an average annual inflation rate of 12% and depreciation of 10.5%. This is a substantial hike considering the fact that the decadal growth of military expenditure worldwide in constant 2005 US dollars till 2008 was 45%. This includes the expenditure on the global war on terror which has raised US defense related expenditure to its highest level since the Second World War (Stockholm International Peace Research Institute [SIPRI] Military Expenditure Database 2009,
www.sipri.org).
India is in the top-ten list of military spenders while it stands at number 128 out of 177 countries in the
2008 UNDP Human Development Index. China, the second lowest in human-development in the military-spending list is ranked at number 81 (www.undp.org). Human security must surely form a part of national security. The situation on the internal security front has deteriorated considerably. This can be attributed at least in part to the poor human development parameters affecting hundreds of millions of citizens who eke out an existence at sub-human levels. India has the dubious distinction of being home to the largest number of indigenous terrorist organizations. State police forces are ill-equipped to handle insurgency or terror. The Naxalite threat no longer remains just a menace and needs to be dealt with at various levels and not merely as a law and order problem. Coastal security is practically non-existent. . This has become apparent after the unhindered ingress of terrorists using the sea route. There are several dimensions of security which cannot be ignored. Defense budgets seldom meet the requirement of any military. There are always better weapon systems, heavier caliber guns and more lethal aircraft to be procured. Nuclear warheads, missiles, delivery and command and control systems are prohibitively expensive. Internal security which has remained neglected for several years can also consume a large share of available resources. There is thus a need to balance expenditure on internal and external security while keeping both within reasonable limits. This may be stating the obvious, but it needs to be stated.
Finance Commission on Defense Expenditure
In its wisdom, the Eleventh Finance Commission (EFC) which submitted its report in June 2000 laid an upper limit of up to 3% of the GDP for DE. It is worth noting that the informal NATO guideline for DE is 2% of GDP, though several countries notably the US have crossed that limit. Para 4.17 of the EFC states, “- - aggregate defense expenditure could reach 3% of GDP by 2004-05. We would emphasize that while the required resources may be provided, all possible measures for securing economy in defence expenditure should be taken.” Official DE in 2000 was at 2.3% of GDP. The EFC also noted (Para 4.15) that the fiscal deficit was expected to fall to 4.5% of the GDP by 2004-05, thereby implying that the hike in DE over the next few years had been facilitated by the improved fiscal situation and other measures suggested by the EFC to increase the availability of funds for both capital and revenue expenditure.
The specified limit of 3% has been observed only by excluding several items like the cost of the MoD and the expenditure on military pensions which by itself amounts to 15% of the total defense outlay. Several other items like the Jammu and Kashmir Light Infantry (JAKLI, a regular regiment of the army consisting of thirteen battalions) and the Coast Guard are also excluded. A substantial part of the cost of the nuclear arsenal and allied systems is excluded. All para-military forces including the ones directly involved in border management are excluded. The Parliamentary Committee on Defense spends most of its time on personnel matters and resolving issues of protocol between the service chiefs and the defense secretary. The Committee looks at DE but beyond stating that DE should be pegged at 3% of GDP, it has nothing substantial to contribute. Clearly, parliamentary oversight and control seems to be missing. For several years, DE in aggregate has crossed 3% of GDP.
The Nuclear Dimension
The expenditure on the nuclear arsenal is an additional burden on the economy. It is immaterial whether or not this cost is included in the defense budget. C Rammanohar Reddy in an article in the Hindu published in 1999 states that a poor man’s arsenal could cost anything between 0.5% and 1% of the GDP per year for about ten years till all systems are fully deployed. The capital cost of developing, testing and deploying systems over a period of say ten or twelve years could be between 6% and 10% of the GDP with a recurring and maintenance cost element to be added separately. Assuming an overall cost of 8% of GDP, the total expenditure at current levels has crossed Rs 4,50,000 crores. This cost has been split over several years between the Department of Atomic Energy (DAE), the Department of Space (DOS), the Defense Research and Development Organiation (DRDO) and the army, navy and air force for delivery systems. The amount spent by each department or arm is not visible since it is merged with overall expenditure. It is therefore not possible to compute the current cost of nuclear deterrence, which for better or for worse forms an important leg of the country’s strategic posture. An assessment will however be made subsequently to arrive at the additional amount to be added to DE which currently includes the expenditure of the DRDO which has developed missiles and the cost of their deployment in the three services. Nuclear deterrence implies deploying air, land, sea and submarine based missiles besides delivery systems and command centers with communications and built in redundancy. India has also opted for an anti-missile system. The overall cost of the nuclear triad which includes nuclear powered submarines which are under construction and procurement has directly impacted available fiscal space and subsequently developmental spending.
As per the defense minister, India imports 70% of its weapon systems. These include delivery and data acquisition systems like aircraft, ships and submarines which are accounted for under conventional DE. India is the second largest importer of arms after China. Certain systems like the Airborne Warning and Control System (AWACS) has been procured primarily to provide early warning of a nuclear as also conventional attack. AWAC systems have been around for several decades and India is in the process of developing its own system. Having gone overtly nuclear has actually spurred the procurement of additional systems which could have been developed within the country in due course. Clearly, the option to go nuclear, besides its own costs has added to the expenditure on conventional arms. Nuclear protagonists often state that conventional spending is likely to reduce when nuclear deterrence is in place. This is certainly not the case in the sub-continent and is getting reflected in Indian DE. We need to look at what constitutes DE.
Defining DE
The Stockholm International Peace Research Institute (SIPRI) defines DE as the expenditure on armed forces (including strategic forces and military space applications), ministries and government departments engaged with the armed forces (defence accounts, estates, canteen), military accommodation, land and facilities, pensions, research and development, para-militaries trained and equipped like the regular army as well as military aid in terms of peace-keeping forces and equipment given to other countries. DE excludes the cost of civil defence, disaster relief and military aid received. This definition has been accepted by most countries across all continents with minor variations and forms the basis of reporting of military expenditure.
Developing countries tend to report lower DE since developmental aid is linked to the quantum of such expenditure. This is achieved by showing legitimate items of expenditure under several heads outside the defense budget. Costs of ministries and accounting departments are generally excluded. Expenditure on military pensions which amounts to 10% to 15% of official DE is excluded by several countries including India (since 1985) and Pakistan (since 2000). Arms imports can be paid for by barter or off the defence budget. Pakistan excludes capital costs. The Rupee deal concluded between India and Russia during the early nineties was primarily a defence deal but was shown as a bilateral commercial agreement. Defense equipment (tanks, guns, ships, aircraft) worth ten billion US dollars (at 1990 rates) was supplied over two decades in exchange for goods exported to Russia. The entire amount was added to the external debt. The Rupee deal was negotiated under favorable terms; however a substantial amount of money was excluded from legitimate DE for several years. The Rupee deal has run its course, so higher levels of expenditure have now started showing up in the defense budget.
The cost of military pensions in the current year is Rs 21,790 crores. This was the entire outlay on defense till as late as 1993-94 and excludes the further hike in pensions announced in the budget for personnel below officer rank amounting to Rs 2,100 crores. The cost of the MoD which includes the outlay on the JAKLI and the Coast Guard, as also the defense accounts department, canteen department and its own secretariat is Rs 3,170 crores. Both these items taken together (Defense Services Estimates, Civil) are debited to several sub-heads under the General Services head. The CPMFs involved in border management, an important aspect of external security (Assam Rifles, BSF, ITBP, and the Sashastra Seema Bal or SSB) cost Rs 11,397 crores. These forces come under the operational control of the army during war just as the Coast Guard comes under the control of the navy. This cost along with the cost of other para-military forces is debited to the Police sub-head within the General Services head. As stated earlier, it is not possible to compute the cost of the nuclear arsenal but post the nuclear deal, we are aware that 35% of reactors are for military use, therefore the cost to be added to the defense budget could be assessed by adding 35% of the budget of the DAE and DOS which is also responsible for the development and testing of longer range ballistic missiles and satellites for military purposes. This amounts to about Rs 4,456 crores. This is a conservative estimate. Thus the official defense budget amounting to Rs 1,41,703 crores excludes an amount of Rs 40,813 crores or 29% of the allotment. DE in aggregate amounts to Rs 1,82,516 crores which is above the 3% GDP limit specified by the EFC. Unfortunately, defence analysts ignore this aspect when discussing the defense budget. Splitting DE amounts to obfuscation and should be avoided since it can confuse planners and parliamentarians alike.
In addition, the cost of border fencing, border roads and military aid to several countries like Afghanistan, Tajikistan, Nepal and Bhutan running into thousands of crores is shown in the expenditure of various other departments and ministries. The fiscal deficit which is expected to hit an all time high of 6.8% in FY 2009-10 is bound to rise further since defense equipment worth over 20 billion dollars or 1.65% of GDP is already in the pipeline or has been cleared for procurement using the import route.
Defense Budgeting and Classification of DE
The British abandoned the system of budgeting being followed in India a few decades ago and adopted a functional system in which accounting is done not only by service but by command functionality. Thus ‘British Forces in Iraq’ is a separate head. The expenditure in each theater of operations is visible and can be assessed. If we need to check the expenditure say in the Siachen sector or on counter-insurgency operations in the Valley, it would need a major exercise. In fact, the first head of account in the British system is ‘Strategic Nuclear Forces’ under which each aircraft, ship, submarine and missile along with warheads and manpower is accounted for.
The current system of budgeting is purely incremental and depends on how much money the Finance Ministry can make available or how much pressure the defence minister can exert on his counterpart in North Block. This has resulted in ad-hoc allotments being made to the services which individually project inflated requirements which are never met. This becomes clear by observing flat-rate increases over the previous year’s budget estimates. There was a 10% hike in the budget estimates for DE for 2008-09 (Rs 105,600 crores) from 2007-08 (Rs 96,000 crores). Similar hikes have been made for several years. The unprecedented hike of 34.2 % this year over last year’s budget estimates is mainly on account of the implementation of the report of the Sixth Pay Commission. Revenue or recurring expenditure takes care of salaries and maintenance and like pensions is a fixed cost. This can be worked out in advance. It would be better if the MoD could indicate the amount of capital funding available service wise for modernization for say five years so that the service chiefs could plan accordingly. This can also take into account the expenditure on internal security and developmental schemes over the same period. This is an exercise which the National Security Council (NSC) should undertake. Larger procurements like the 126 multi-role combat jet aircraft deal could be factored in separately. Ideally, a long term perspective plan should be accepted in advance. Such plans exist on paper but have been ignored by governments across the board since inter-service priorities cannot be decided and resource-mobiliation is always a problem. The plans remain internal projections of the services made to the MoD.
Classification of DE as a percentage of the GDP does not bring out whether the money is being spent efficiently; or given a particular force level, is adequate or inadequate. It also does not reflect the growth of DE if GDP expands over a period of time. India has seen substantial growth over the past several years. Pakistan spends a higher percentage of its GDP on defense; however when we compare the combat potential of the two armed forces in terms of manpower, tanks, ships, aircraft and artillery, Pakistan’s unit spending per combat soldier or tank or ship is much lesser. This aspect is examined in a subsequent paragraph. Besides efficacy (bang for the buck), the intensity of DE (overall share or burden) does not get reflected in its representation as a percentage of GDP. It would be better to compare DE as a percentage of the total budget rather than central government expenditure. In this case, it emerges that whereas India and Pakistan spend between 15% and 25% of the total federal outlay, China spends about 7.5% (China’s National Defense 2008, White Paper on Defense, January 2009). Defense analysts question the transparency of Chinese DE but it must be stated that China’s human indicators are way ahead of India and Pakistan and it can actually afford to spend a higher proportion of its budget on defense, which it does not. Clearly, both the efficacy and intensity of Indian DE needs review. It is not in anyone’s interest that the country has a weak or ill-equipped army, navy and air force but there is need for oversight, economy and prioritization. This was stated unequivocally by the Kargil Review Committee (KRC) in its report (Para 9.24 quoted above). Unfortunately, the Group of Ministers seems to have overlooked this aspect. The KRC was competent to make specific recommendations regarding restructuring and wasteful expenditure but chose not to do so. That the KRC stated that drastic measures were required for the efficient utilization of the defense rupee, amounts to a severe indictment of the state of civil-military affairs. It would be interesting to obtain the views of the members of the KRC on the current levels of defense spending.
The Purchasing Power Parity (PPP) Argument
Comparison of military expenditure at market exchange or current rates does not give a correct picture since the cost of manpower, equipment and training varies vastly between countries. This is especially applicable to developing countries like India where goods and services are much cheaper than the developed world. For instance, the cost of equipping, training, paying and maintaining a soldier is about a third in India compared with the US. Similarly, money spent for importing military equipment would buy a much larger basket of civil goods locally. The table below indicates DE of the top ten military spenders for 2008 at both market or current rates and PPP rates and as a percentage of national GDPs for 2007. Also included is the overall percentage share of these countries in world military expenditure and percentage expenditure within the top ten in PPP terms. Conversion to PPP rates has been done using International Comparison Program data (benchmark year 2005), available at the World Bank website, www.worldbank.org.
MILITARY EXPENDITURE IN CURRENT/PPP US DOLLARS (BILLIONS)
CURRENT(2008) % GDP(2007) % SHARE(World) PPP % SHARE (Top 10)
1. USA 607.0 4.0 41.5 1.USA 607.0 46.0
2.China 84.9 2.0 5.8 2.China 201.8 15.3
3 France 65.7 2.3 4.5 3. Russia 130.1 9.9
4. UK 65.3 2.4 4.5 4. India 90.2 6.8
5. Russia 58.6 3.5 4.0 5. Saudi Arabia 59.4 4.5
6. Germany 46.6 1.3 3.2 6. France 57.2 4.3
7. Japan 46.3 0.9 3.2 7. UK 55.3 4.2
8. Italy 40.6 1.8 2.8 8. Germany 41.9 3.2
9. Saudi Arabia 38.2 9.3 2.6 9. Japan 39.3 3.0
10. India 30.0 2.5 2.1 10. Italy 37.3 2.8
TOP TEN TOTAL 1083.2 74.0 1319.5 100.0
WORLD TOTAL 1464.0 2.4 100.0
Source, SIPRI Military Expenditure Database 2009 for market rates, percentage of GDP and share of world expenditure. Data pertains to expenditure for 2008 and includes military pensions and allied costs as estimated by SIPRI. SIPRI is of the view that using PPP data for military expenditure has limited relevance. DE for India for 2009 including Defence Services Estimates (Civil) and defined military costs is about 38 billion dollars at current exchange rates.
The top-ten countries incur 74% of total military expenditure. Within the top ten-countries, there is a vast variation of expenditure in absolute terms as well as GDP terms ranging from 0.9% to 9.3% of national GDP. Typically, smaller middle-east countries incur much higher expenditure in GDP terms. World military expenditure has been hovering at about 2.5% of GDP; however the US contribution is very high (41.5%) and boosts the average GDP figure. Thus, military expenditure for the rest of the world amounts to 1.85% of GDP. Indian DE for 2007 at 2.5% of GDP is much higher than this figure. Current spending is at 3.15%. At current market rates, India is at number ten in the list whereas at PPP rates, India is at number four which is in keeping with the fact that it has the third largest army, the fourth largest air force and a blue water navy. India’s DE for 2008 is 90 billion dollars at PPP rates and is touching 115 billion dollars in the current year. Whether this level of expenditure is justified is a matter for civil society including the strategic community to consider. Indian DE amounts to 2.1% of world military expenditure. Within the top ten countries, this amounts to 6.8%at PPP rates and 12.65% if US spending is ignored. Analysts point out that India’s per-capita military expenditure is very low, in fact the lowest in the list above. This is true for current as well as PPPP rates but is considered a specious argument when Indian DE is compared with other items of public spending.
Priorities in Public Spending
The Human Development Report 2008 (www.undp.org) indicates the level of public spending in the areas of health, education and defence. The expenditure includes federal as well as regional or state expenditure. The table below indicates expenditure of selected countries as a percentage of GDP under the three major heads. All figures have been extracted from Table 19 of the UNDP report. To compare the data, intra-country ratios of the three major heads have been calculated. The BRIC group of countries has been included besides figures for USA and UK. Argentina has been included as a special case being a country which graduated from medium to high human development. The countries are listed in descending order of rank in the Human Development Index (HDI).
PUBLIC EXPENDITURE (% OF GDP) AND RATIOS THEREOF
Country HDI Rank Health(H) Education(E) Defence(D) Total H/E H/D E/D
USA 12 6.9 5.9 4.1 16.9 1.16 1.68 1.43
UK 16 7.0 5.4 2.7 15.1 1.29 2.59 2.00
ARGENTINA 38 4.3 3.8 1.0 9.1 1.13 4.30 3.80
RUSSIA 67 3.7 3.6 4.1 11.4 1.02 0.90 0.87
BRAZIL 70 4.8 4.4 1.6 10.8 1.09 3.00 2.75
CHINA 81 1.8 1.9 2.0 5.7 0.94 0.90 0.95
INDIA 128 0.9 3.8 2.8 7.5 0.23 0.32 1.35
Data for health pertains to 2004. Data for education and defence expenditure pertains to 2005. The expenditure on health in India is still at about 1% of GDP, federal expenditure being 0.4%. Aggregate expenditure on defence in the current year has crossed 3% of GDP.
There is considerable variation in public spending on health, education and defence between the developed countries (USA and UK) and BRIC countries. This is primarily due to the higher cost of goods and services as discussed in the paragraph on PPP rates above. However ratios between heads can be directly compared. The health to education (H/E) ratio is near or above unity for all countries excluding India which indicates that equal and more often higher weightage has been given to health over education. In the case of India, the ratio is abysmally low. China which is the next lowest is 400% higher. It is apparent that health expenditure as compared to education expenditure needs a substantial hike. The health to defence (H/D) ratio varies considerably between countries. The higher developed countries have a much higher ratio indicating that allocation for health is several times more than the allocation for defense. In the case of India, the ratio is not only the lowest but also about a third of the ratio of the next lowest that is China which is also the next lowest in the list in human development. Health expenditure needs to be hiked by three hundred percent to about 3% of GDP to reach the levels of China. It appears that expenditure on health has been suppressed due to much higher allocations made to both education and defense. The education to defense (E/D) ratios also vary considerably. India is at number five of the seven countries in the list. This perhaps indicates that there is a need to reduce DE since the spending on education seems adequate. There is a pronounced imbalance in public expenditure between the three heads which needs to be corrected. The total per-capita expenditure on health (central as well as state expenditure) is about a third of the per-capita expenditure on defence. This low level of funding is the prime reason for poor health parameters which in turn keeps a large proportion of the population in perpetual debt and poverty. The UN millennium development goals pertaining to mortality rates and poverty are not likely to be achieved mainly on account of poor spending and delivery in the health sector. The Finance Minister in his budget speech has stated that the proportion of poverty would be halved by 2014. This will involve lifting about 100 million people above the poverty line in five years if we use Planning Commission norms. This seems highly unlikely at current levels of health expenditure. The fresh allocation for federal spending on health in the current year is Rs 22,641 crores or merely 0.4% of GDP.
The India-Pakistan Equation
The armed forces of both the countries are organized, trained and equipped in a similar fashion; hence defense related expenditure which is a function of combat power can be compared by a comparison of force levels. Force levels evolve over a period of time depending on threat perceptions. India has vaster land and sea frontiers to guard and therefore needs greater combat power in terms of manpower, tanks, guns, ships and aircraft. The table below indicates manpower levels and major items of armament of the two countries (Source, Indian Defense Yearbook, 2009, Natraj Publishers, Dehra Dun).
MAJOR ITEMS CONTRIBUTING TO COMBAT POWER
ITEM INDIA PAKISTAN RATIO
Active Manpower 1.288 million 0.619 million ~ 2:1
Tanks 4059 2461 1.65:1
Guns 4500 1629 2.75:1
Combat Aircraft 565 360 ~ 1.6:1
Ships/Submarines 26/16 6/8 3:1
It will be seen that though the ratios vary between 1.6:1 and 3:1; it would be prudent to take an overall figure of 3:1 since larger armed forces have larger establishments, inventories and tails. This will also be erring on the safe side. Weightage between different items is being ignored though the overall allocation to both armies is much higher than the other two services. This is an indicative ratio which also covers several other items like aircraft carriers, infantry fighting vehicles, naval aviation, transport and training aircraft, helicopters, self propelled artillery and nuclear capabilities not included above. An alternative methodology would be to compare the number of combat units like infantry battalions, armoured and artillery regiments and combat squadrons. This would however yield a comparatively lower ratio since inventories and establishments have a financial impact.
The table below shows the heads of military expenditure of the two countries. DE in Pakistan is much less transparent and excludes several items including capital costs, pensions and nuclear related costs. In addition, foreign military aid which adds to defence capability is excluded. An assessment has been made of these items. Current exchange rates have been used to convert respective currencies into US dollars. Information of Pakistan federal spending has been taken from the website www.finance.gov.pk.
HEADS OF EXPENDITURE 2009-10
ITEM INDIA PAKISTAN
Federal Budget Rs 10,20,837 crores ($ 212.67 billion) Rs 2,48,230 crores ($ 31 billion)
Defence Budget 09-10 Rs 1,41,703 crores ($ 29.52 billion) Rs 34,300 crores ($ 4.28 billion)
Capital Expenditure Rs 54,824 crores included above $ 2.14 billion (50% of above)
Military R and D Included in DE (3.3% of DE) $ 0.24 billion (3.5% of DE)
Pensions Rs 21,790 crores ($ 4.53 billion) $ 1.02 billion (15% of DE)
Foreign Military Aid Nil $ 0.7 billion
TOTAL $ 34.05 billion (16% of Federal Budget) $ 8.38 billion (24.7% of Budget)
% GDP 2.7% 4.5%
The ratio of DE between
India and Pakistan works out to about 4:1 when their combat ratio is at 3:1. Though Pakistan is spending a much higher proportion of its GDP on defense, it is getting more bang for the buck. Please note that costs of the MoD, para militaries and nuclear systems have been excluded for both countries. If India were to spend at the rate of Pakistan, it would result in a saving of 8.9 billion dollars or Rs 42,700 crores. This is a significant sum of money amounting to 0.74% of GDP and is nearly double the allocation for federal spending on health. A saving of even half this amount would be significant. The reason for a higher rate of expenditure per combat soldier, tank or ship needs to be assessed. Larger inventories, too many headquarters and establishments, ceremonial units, bands and air display flights of fixed and rotary wing aircraft are only a few areas which need to be looked at. In addition, manpower utilization and rationalization needs examination. Pensions have been rising exponentially. If the retirement age of soldiers subject to their being medically fit is raised to 45 years, a significant amount of money could be saved. Pensions should be payable only after completing 20 years of colour service. In the US army, the age of retirement from active service for enlisted soldiers which was 55 years has now been raised to 62 years. However this has also been done to enable late entrants to complete 20 years of pensionable service. It is interesting to note that the official allocation for the Pakistan defense budget falls short of the expenditure on military pensions paid by India even though the overall percentage spending on defense is much higher. The entire outlay of the Pakistan budget is well below India’s outlay on defense spending. Using the $ 1.25 a day norm, poverty rates in Pakistan are significantly lower at 22.6% compared to 41.6% for India (www.undp.org). Clearly, military spending and muscle has not improved the lot of the common Indian citizen.
Internal / External Security
During the tenure of the NDA government, a separate head of accounts was created for police-modernization. It had become clear that state police forces were neither equipped nor trained to tackle terrorism. Law and order being a state subject, it was rightly appreciated that resources available with states were inadequate to meet the requirement of procuring automatic weapons, as also bomb-disposal and protective equipment. This was reinforced in a big way when terrorists struck Mumbai. Lathi wielding policemen had to grapple with terrorists armed with automatic weapons. It has become obvious that allocations made over the years were inadequate to meet even minimal requirements. The amount allocated during FY 2008-09 was a mere Rs 1,340 crores. Even this amount was not fully utilized. Post Mumbai, this was increased to Rs 1,385 crores in the interim budget and to Rs 1,815 crores in the budget announced on 6 July. DE was hiked by thirty five thousand crores. Police modernization continues to be neglected.
Coastal security has been ignored at the country’s peril. In 1993, the sea route was used to land explosives for the Bombay blasts. In 1994, under the United Nations Convention on the Law of the Sea, EEZs of littoral countries were extended from 100 to 200 nautical miles. India ratified UNCLOS III in 1995. The Coast Guard which is responsible for the EEZ was thus required to cover a much vaster area with the same resources. Over the years, ships and aircraft have been acquired but with some eighty vessels and fifty aircraft, guarding an EEZ of over two million square kilometers is a near impossible task. The Navy being the senior service should have been given this responsibility with the resources of the Coast Guard under its command. A blue water navy is of little use when the seaboards remain unprotected. The resources of the states and the local marine police need upgrading. The concept of making the marine police entirely responsible for waters which extend to five nautical miles (9.25 km) needs a re-look. There is a need for integration between internal and external security and defense on both the land and sea frontiers.
Force levels of CPMFs have been rising steadily and it is expected that a million men will be under arms by the end of the next financial year (2010-11). The threat posed by the Naxalite insurgency has been gaining momentum. Merely deploying additional forces will not resolve the issue and will result in militarization of the state. Development of infrastructure, creation of employment and improving health parameters should be undertaken on priority. CPMFs deployed in these areas must also have access to resources which can be used to win over hearts and minds by constructing schools and health centers. Op-Sadbhavana conducted by the army in Ladakh and Jammu and Kashmir is an excellent example of security forces getting involved in development.
Defense Production and the Arms Bazaar
India with the third largest Army in the world, the fourth largest Air Force and a blue water navy is today a doubtful regional power due to its weak economy and dependence on imports of armaments. - - - The danger is that with the thaw in our relations with the USA and our craze for new gadgetry, we could easily fall into the laps of salesmen. Hard thinking is necessary before we keep changing our technology base.
Coonoor 1994 Sam Manekshaw
Field Marshal
(In a foreword to ‘Indian Arms Bazaar’ by Maj Gen Partap Narain, Shipra Publications, New Delhi, 1994)
Defense production and procurement is a major area of concern. There are thirty nine Ordnance Factories and eight public sector undertakings (PSUs) employing over 300,000 workers producing ships, tanks, guns, helicopters and fixed wing aircraft besides ammunition, boots and tents. Yet, we import the bulk of our cutting edge weaponry. Production capacities are not being utilized. The cost of items is borne by the services from within the defense budget. Some items produced by Ordnance Factories are more expensive than the cost of import. The Arjun tank powered by a German engine, developed by DRDO and now being manufactured at Avadi is one such item. The Light Combat Aircraft or LCA, when inducted will be another. Defense PSUs like BEL and BEML make higher profits since their products are used by sectors other than defence; however defence PSUs even while showing nominal profits need heavy capital investment which comes from the PSU pool. Thus the real cost of defense production does not get reflected in DE. Some of the Ordnance Factories can be closed down and the equipment can be manufactured by the private sector. This is difficult to implement since defense workers form a fair-sized vote bank and have strong unions. The state therefore continues to subsidize the inefficient use of resources at the cost of developmental spending.
The Defence R and D establishment (DRDO) needs major overhaul. The P Rama Rao Committee has made several recommendations. Large establishments not producing worthwhile results need to be pruned. There have been a few success stories like the Agni series of missiles. The DRDO works in isolation and the services tend to disregard its capabilities. Some laboratories could be merged to make the organisation more cost effective. This is a subject for evaluation after the implementation of the Rama Rao Committee Report. The DRDO takes up Rs 4,757 crores which is 3.3% of the defense budget. In addition, an amount of Rs 3,723 crores has been charged to capital expenditure which is a combined head for the three services for equipment development and delivery. Like the DRDO, the quality-control and inspectorate organization is bulky and seems to have too many overheads.
The forces prefer import to indigenous production for a variety of reasons including the inability of the DRDO to meet qualitative requirements (QRs) and the inordinate delay in the production of the equipment. The forces themselves must take a part of the blame for projecting unreal requirements. This does not happen when the import route is used since QRs are formulated to conform to the range of equipment available. Weapon systems have a life cycle of about 20 years which gets written down if it takes ten years to produce the equipment. Politicians and bureaucrats, both civil and military, prefer the import route especially from western countries for extraneous reasons. The Defense Procurement Procedure (DPP) has been streamlined, yet an important aspect like offsets has yet to yield the required dividends. The problem of middlemen has been resolved by foreign suppliers opening offices in New Delhi. There has been a proliferation of defense glossies supported directly or indirectly by arms manufacturers. India has become a hub of the world’s arms bazaar. Little wonder that foreign manufacturers want a hike in the 26% FDI limit imposed on joint ventures in the defense sector.
Conclusions
Besides external defense, internal security and human-development form a vital part of the overall security and well-being of the nation. Is the rupee being spent wisely? The answer is in the negative both in terms of quantum and efficacy. DE has risen to unsustainable levels in the last decade primarily on account of dependence on imports and nuclearization. There is a trade-off between defense and developmental spending specifically in the area of health which becomes visible in poor human-development parameters like infant mortality rates and child malnutrition. Bangladesh is well ahead of India in these parameters. Internal security has been neglected for too long. There is a need to balance overall expenditure to meet the challenge of the emerging economic and strategic scenario. Force levels need to be reviewed. Like obsolete equipment, obsolete organizations should be dispensed with. The army has become equipment and staff oriented. It also remains manpower-intensive with too few junior officers and a large tail. The Thirteenth Finance Commission could look into aspects of internal and external security to come to a reasonable limit for both. It would also be expedient if the Commission specifies what constitutes defense spending and whether Defense Services Civil Estimates should form part of defense expenditure. DE must be capped at current levels.
The effects of the global recession are still to play out. Oversight, therefore, needs to be exercised in all areas of government spending. There is no scope for empire building. The plan to send two men into space at a cost of Rs 12,500 crores is an example of incorrect priorities. The defense forces form an important part of the nation’s fabric, yet they must not be a drain on its limited resources. For the armed forces, the country comes first, always and every time and they will rise to the occasion as always. The political leadership must therefore take the service chiefs into confidence with regard to the fiscal situation. With global warming on the horizon; floods, droughts and severe cyclonic storms will occur with increasing frequency. Water is going to be in short supply. These are only some of the challenges which the country and its armed forces will face in the not too distant future. Wars as we have known them will more often be avoided. Hence the need for a lean armed force, a well equipped and trained police force and state policy which will deter a potential aggressor from posing a conventional, nuclear or asymmetrical threat. Only then can the war against poverty and hunger be won.
Colonel Pavan Nair, the author of this guest post, is an engineer by training, and a retired Indian Army officer who has served with distinction in Bangladesh, Kashmir and Sri Lanka. His email address is pavannair1@gmail.com.
Related Links:
Pakistan Must Fix Primary Education Crisis
Pakistani Children's Plight
India's Arms Buildup
Growing US-India Military Ties Worry Pakistan
India: Home to World's Largest Illiterate Population
India-Pakistan Military Balance
South Asia Human Development Slipping
India and Pakistan Contrasted in 2010
Introduction to Defense Economics
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