Lacking long-term focus

The government cannot allow un-expended defence funds to lapse at the end of a financial year

Gurmeet Kanwal Delhi

New challenges to the traditional national security threats faced by India are gradually emerging. Bangladesh is the new hub of international Islamist terrorism. Political uncertainty in Nepal and the spread of Maoist militancy across several states have added to India's internal and external anxieties. Insurgencies continue to simmer in Pakistan and Sri Lanka and Myanmar is plagued by ethnic uprisings as well as a nascent movement for democracy. Though far from an island of calm itself, India is surrounded by a sea of instability. Despite these emerging threats, India's defence expenditure continues to decrease in real terms and as a percentage of the Gross Domestic Product (GDP) year after year. It has decreased progressively from 3.59 per cent in the Financial Year (FY) 1987-88 to 2.3 per cent in the FY 2005-06.

The gap between the needs assessed by the services and what is actually made available is invariably large. In the FY 2004-05, the services projected a requirement of Rs. 1,03,150.70 crore but the Minister of Finance (MoF) provided Rs. 77,000 crore in the budget. Though the defence budget increased to Rs 83,000 crore in the FY 2005-06, the gap between the requirements projected by the services headquarters and the expenditure approved by the MoF remained approximately the same. The shortfall between the requirement and the allocation was over 25 per cent. It is worth noting that the defence budget has not been debated in Parliament in recent years and, therefore, there is no scrutiny of the reasons for this glaring anomaly.

Capital expenditure that goes towards modernisation of the armed forces has been the main casualty of the drop in the average annual growth rate of defence expenditure. Even as the share of capital expenditure was falling as a percentage of the defence budget (from 31.8 per cent in 1991-92 to 26.95 per cent in 1997-98), the rupee depreciated by about 75 per cent against the US dollar and other hard currencies.

Taking inflation also into account, this resulted in the complete stoppage of the replacement of obsolescent equipment and force modernisation as whatever funds still remained in the capital account kitty in real terms, had to be utilised to meet previous contractual liabilities for weapons and equipment already acquired or in the pipeline.
This dismal situation emboldened Pakistan to launch its aggression into Kargil in May 1999 and still shows no signs of improving. While examining the budget proposals of the Ministry of Defence (MoD) for the FY 2004-05, Parliament's Standing Committee on Defence made the following observations: "The Committee note that the Budget Estimates for the Defence Services at Rs. 77,000 crore… leave only about Rs. 1,000 crore for new schemes/acquisitions. The Committee are extremely concerned… (that) several schemes/projects which are at various stages of finalisation would have to be deferred." Parliament's Standing Committee on Defence has argued for long that the budgetary allocations being made for defence are grossly inadequate. The 11th Finance Commission had also recommended that defence expenditure should be raised to around three per cent of the GDP by the FY 2004-05.

The Finance Minister's political compulsions in not being able to raise the defence expenditure by cutting down wasteful subsidies that amount to over Rs 100,000 crore are compounded further by the inability of the MoD and MoF to fully utilise even the allotted funds. Over the last five years, on average, a budgeted amount varying between Rs. 5,000 to 9,000 crore remained unspent annually. Of this large chunk of unexpended funds, approximately 75 per cent underutilisation was in funds earmarked for capital expenditure or modernisation. Clearly, despite the much-trumpeted reform in the procurement process, the acquisition of new weapons and equipment by the armed forces is still mired in red tape.

The services continue to be plagued by large-scale shortages. Obsolescent war machines are sill deployed for frontline duty. Artillery guns of World War II vintage like the 25 Pounder and the 1960s technology-based 75/24 Indian Mountain Gun have only recently been phased out of service. The Indian Air Force is still flying re-furbished MIG-21s with an alarming accident rate that does no credit to its fine reputation as an excellent fighting force. The acquisition of a large number of force multipliers like long-range rocket artillery and surveillance systems for the army, submarines for the Navy and replacement fighter aircraft for the air force is still under "active consideration" several decades after their requirements were first projected. The ongoing Revolution in Military Affairs (RMA) is passing the armed forces by and this is likely to prove extremely detrimental to national security interests in the long run.

During the Kargil conflict, there was a rush to import a large number of critical items of equipment and spares, including 155-mm Bofors artillery ammunition. General V P Malik, the then Chief of the Army Staff (COAS) had stated that the army "… would make do with what we have." It was a startling statement for a chief to make in the middle of an ongoing conflict and reflected the gross neglect of the political leadership and the bureaucracy over several decades. Since then, the conventional military capabilities of the Indian armed forces, particularly the army, have been seriously degraded by a progressive decline in the defence expenditure even as commitments for internal security duties and counter-insurgency operations have increased in Jammu and Kashmir and the northeastern states. With the present state of affairs, another Kargil-like conflict is waiting to happen.

The virtues of long-term defence planning do not need to be emphasised. Military capabilities take several decades of painstaking effort to build. These must not be subjected to the vagaries of annual budgetary exercises. Only a long-term financial commitment can ensure that systematic and methodical planning can be undertaken for the modernisation of the armed forces. Former Finance Minister Jaswant Singh had created history of sorts by instituting a rolling, non-lapsable defence modernisation fund of Rs. 25,000 crore in the interim budget for the FY 2004-05. This progressive measure did not find favour with the new government and it failed to ratify the decision by incorporating it in the defence budget.

Without such a fund, large amounts of the planned capital expenditure will continue to be surrendered year after year due to paralysis in decision-making. There is no reason to allow un-expended defence funds to lapse at the end of a financial year. These must be carried forward, only then can long- and medium-term strategies for force modernisation be implemented in a realistic manner. The Finance Act must be amended to permit such budgetary practices. Security and good governance are pre-requisites for development. If there is no improvement in the national security environment, economic investment will not flow to India in the quantum that the nation needs to lift its people above the poverty line. In as much as this, the defence budget has a far greater impact than is generally assumed.

             
The author is Director, Security Studies and Senior Fellow, Observer Research Foundation, New Delhi

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