An IDC Analysis 


New Delhi, 05 May 2003


India’s Defence budget 2003-04 stands at $14bn (including $1.8bn unspent in 2002). Last year when the Indian Parliament hiked India’s Defence estimates by 15% to $13.8bn, there was rejoicing in the Armed Forces who hailed it as the “Silver Bullet Budget,” which would lead to modernisation, especially for the Army and Navy which had witnessed years of neglect. Services headquarters had thoughtfully crafted the demands, after taking into account urgent operational needs including imports. However one year later in March 2003 the Defence Ministry was compelled to surrender $1.8bn as unutilised.

The official explanation tabled in Parliament was that a sum of $543m was saved under the revenue head mainly under stores, and $1.3bn remained unspent from the capital head mainly under aircraft, aero engines, other equipment and Naval Fleet. This amount was carried forward in the current $14bn budget.

The steps to streamline procurement, improve combat readiness including nuclear and intelligence aspect through the newly formed Defence Procurement Board, and the proposed Chief of Defence Staff structure have been slow starters with political inaction, and inter-service rivalry derailing all good intentions including those for imports.

A former Vice Chief of Staff, and a member of the National Security Advisory Board stated. “The Defence Budget of a Nation in a democratic country is the only voice for the operational needs of the Armed Forces. If it is not properly monitored, then the system stands failed and operational capability is likely to suffer. The previous year’s budget was either flawed, or the Armed Forces were denied what they asked for.” The truth is probably the latter.

It is in this context that India’s Defence Budget 2003–04 deserves analysis. Most major decisions on foreign purchases for the Army, which include the 155mm Howitzers, SMERCH batteries and modern EW and communication systems appeared to have been held back, though 3400 rifles were imported from Israel.

The Navy still awaits the final clearance for its 6 Scorpene Submarine building programme at MDL, for which the yard has already been funded. The acquisition of Gorshkov and MiG 29 Ks seem bogged down on costs, and appear to be linked with the supply of two Akula class nuclear boats and 4 TU 22M MR nuclear capable bombers.

The IAF has been struggling for 15 years, to conclude the 66 Advance Jet Trainer (AJT) deal worth $1.3bn. The Czech firm Aerovodochy has offered the L 159 B with the Honeywell F124 engines at a cost of $400 million less than the preferred Hawk 115 deal, with Boeing entering the fray for co- production with HAL. Interestingly funds remain earmarked for all these projects and all other equipment, but the political and bureaucratic hurdles are still difficult to surmount. Many of DRDO’s programmes, like the short range Trishul SAM, have not fructified and in other cases time schedules indicated to the Services could not be met, precluding import of substitutes in time.

The Budgetary System and Process

The Defence budget is tabled in Parliament along with the National budget on 28th February every year after reviewing the requests received from the Armed Forces and funds are provided under five Main heads. Four are on Revenue Account (one each for the Army, Navy, Air Force and Ordnance Factories). These cater for the operating costs of the Services including pay and allowances, stores, ordnance, fuel and inescapable operational and predictable costs.

From 2002 under a directive called the New Revenue Financial Management Strategy first attempted for the Master General of Ordnance, the scheme has been extended to the three services with vastly delegated powers. During the mobilization of the Armed forces in 2002 in OP Parakarma, the system on the revenue account worked well and operational deficiencies were made up. Each service is now permitted to replenish or repair an existing system, but under the fifth head Capital Account, the Services are totally at the mercy of the bureaucrats in the Ministry of Defence, whose procedures are cumbersome and dilatory, even for minor acquisitions.

To clear an import, the DRDO and various other Defence boards have to concur that the item cannot be indigenously made, while in larger purchases clearances are required from the vigilance agency, nominated eminent persons group and the Cabinet. It is for this reason that outlays on capital works, purchases of vessels, aero-engines and aircraft, plants and machinery have had to be deferred.

For better accounting a new head Defence Research and Development has been separated from the Army to oversee and control DRDO projects. For 2003, the DRDO has been provided $596 million for their revenue account and $198 million for capital expenditure and this possibly includes a provision for the Anti Ballistic Missile Defence system being planned with Green Pine radar, indigenous equipment and imports, besides the on going Agni missile, radar and other projects like the LCA.

Indian Army 

The Army has been allocated a total of $7.5 billion, which is 53% of the defence budget, and $6.2 billion is under the revenue head which includes $2.8 billion for pay and allowances for the 1 million strong uniformed force and civilians. $2.7 billion stand earmarked for stores, ordnance and works and the balance for transportation, inspections, auxiliary services and the Rastriya Rifles, (the Infantry arm that is deployed in terrorist infected Jammu and Kashmir). The Government had earlier stated that it would fund this arm, which spends $240m per year, from the Home Ministry budget.

The capital account for the Army is only $1.2 billion and will possibly cover the cost of import of UAVs, the 155mm gun project, SMERCH batteries, Prithvi Missiles, SAM systems, radars and the helicopters (including Lancers, Cheetahs and ALH to be supplied by Hindustan Aircraft Ltd) and other communication and ancillary equipment. The Army is short of 12,000 junior officers and when that shortage is made up the revenue account will swell. The Army has shelved its plans to reduce its strength.

Indian Navy

Ever since the Indian Navy’s combined fleets successfully executed the classical Naval maneuver off Pakistan and threatened to blockade Karachi, during the Kargil war in mid 1999 and contributed to the early capitulation of the Pakistan Army, there has been greater understanding of its role in war and peace. The US–India naval cooperation in the Indian Ocean for patrolling post 9/11, further ensured that the Navy’s needs for augmentation were met. Hence the Navy’s share of the defence budget for 2003 has increased from 14% to 18% amounting to $2.6 billion. The revenue allocation of $1.1 billion includes, $296 million for pay and allowances for the 63,000 uniformed and almost equally large civilian force in dockyards. Stores and ordnance are set to consume $466 million and an allowance of $76 million has been designated for the Joint Staff, which possibly includes the cost of the Andaman Joint Command and CDS structure. The figure is surprisingly high and could include nuclear command and control facilities of the strategic force, since Air Marshal TM Asthana had been appointed as the SFC. Other military nuclear assets or aspects like the ATV project are not mentioned specifically in the budget.

The increased capital allocation of $1.54 billion for the Navy presents an interesting analysis as the service is all set for expansion. The 15 year plan for ship building was approved by the Government to raise the strength of ships from 135 to 185, which to many analysts appears an over optimistic target. It is the slow process of ordering and construction that deserves attention. The construction of three Type 17 frigates (INS Shivalik, Satpura and Sayhadri ) at Mazagon Dock has been accelerated and the first was launched in April, while the repeat order for the three Delhi Class Type 15A and three Type 15 B  ships is also on track at MDL. The 6 Scropene submarines are also to be built at Mazagon Docks, which was allocated $256 million compared to only $46 million in 2002, and the French Defence Minister was in India in end April to hasten matters. This indicates expansion of orders and the challenge will be whether the yard can absorb so much in one year, as final decisions are still pending.

Garden Reach Ship Builders and Engineers. Ltd at Kolkutta, which is to build the two large LSTs and deliver the Type 16 Beas and Betwa frigates, has been allocated $71 million. The Cochin Shipyard, which has bagged the firm order for the 37,000-ton Air Defence Ship (Aircraft carrier) whose steel is to be cut this year, has been allocated $39 million. The Indian Navy disbursed $ 272 million in 2001, $229 million in 2002 and has allocated $266 million for 2003 to the Russian yards for the 3 Severnoye designed Krivacks of Project 1135.6 and Kilo class submarine upgrades and for retro fitting Klub missiles. Interestingly a sum of $412 million has been depicted as “purchase of Naval vessels from other sources” and could include the payment for two DSRVs the Navy has tendered for, advance payments for Gorshkov, one FAC from Ramta Israel and acquisition of Air Cushion Vehicles when these materialise. The Naval aviation and aero engines and other equipment have been allocated $225 million and the Navy’s RFI’s are out for acquiring Maritime Reconnaissance aircraft with preferences from USA (PC 3 Orions), Russia (TU 142 and TU 22M) while HAL will supply the Dorniers, Chetaks, and ALH and upgrade the Dorniers with ELTA radars. It is evident the Navy’s and the shipyards’ work for 2003 is cut out and will need speedy decisions by the Government and speedier implementation, as funds do not appear to be the constraint. The new Naval port Seabird has been allocated $65 million for construction of jetties, while Naval Dockyards have been allocated $32 million for retaining walls and augmentation for which tenders have already been floated. 

Indian Air Force

The Indian Air Force budget for 2003 is set at $3.4 billion, which has come down to 23% as against 25% allocated to it in 2002. The IAF revenue budget for a 110,000 strong service is $1.9 billion and the capital budget is $1.5 billion. The IAF operates the VIP transport squadron and receives revenue for services rendered, and new aircraft are due to be inducted. Boeing and Embraer Legacy are mentioned. The pay and allowances head is allocated $471 million while air stores, aero engines, ordnance and POL are expected to consume $1.2 billion. A head “special projects” and other expenditure has been allocated $29 million which is interesting as at present the major nuclear deterrent is the IAF responsibility, and may be it is for this facility. In the case of Capital allocation the largest component is kept for aircraft and aero engines at $1.3 billion. The IAF is awaiting clearance for the 66 AJTs and will incur payments for the additional IL 78 tankers, Israeli Aerostats, Phalcon system, UAVs and the SU 30MKI project, besides payments to Hindustan Aircraft Ltd for purchases of aircraft and helicopters and MiG upgrades and Mi-17 purchases.

Coast Guard

The 5500 strong Coast Guard, India’s youngest service which operates 53 ships, 24 Dornier aircraft and 18 helicopters proved to be up to the task of looking after economic security off the coasts of India. The CG is becoming less reliant on the Navy for manpower and has developed a philosophy of carrying out repairs to its ships from civil yards and contractors, and at times at remote places where their ships operate. This has proved to be economical. the Ministry of Finance traditionally funded the Coast Guard but the funds were controlled by the Joint Secretary in the MOD. This year as a departure it is budgeted under the Defence Head of Civil Estimates and has received an appropriation of $142 million. This will cater for its revenue expenses and its acquisition programme of two large and two small OPVs from Goa Shipyard, Griffon Hovercraft from GRSE, placement of orders for two pollution control vessels, two Dorniers and four helicopters and possibly two surveillance aircraft. The ATR-42 has been shortlisted. The Dorniers will see progressive replacement of the Super Maec radars by the ELTA maritime radar. The Coast Guard shortage of Dornier pilots is being made up by the IAF.


Once again the Government of India has adequately funded the defence forces for all their requirements, but the proof of the pudding will lie in how swiftly the sanctions are accorded and programmes for acquisition and construction are monitored. If decisions are delayed by the bureaucracy and politicians it will once again not be possible for the armed forces to fully utilize the capital allocations. The government has also stated that its nuclear deterrent is in place, and recently the fromer DRDO Adviser K Santanam allayed fears and doubts at the Gen. Sinha memorial lecture by Raja Menon at USI, by explaining the yeilds and readiness pattern of India's nuclear arsenal under scientists control, but the budget projections are silent on this, and are possibly buried somewhere in the above figures. 

(Courtesy Asian Military Review)


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