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.