The national budget for the year 2006–07 has a total federal
outlay of Rs 563,991 crores ($126.8 billion), of which $20
billion or Rs 89,000 crores are earmarked for defence, a 7.2%
increase over the previous year’s budgeted military
expenditure. The projected defence spending is 2.4% of
GDP –– a
virtual Lakshman Rekha hovering around 2.5% for so many
years –– much below the expectations of military-planners who
have been campaigning for a sustained spending of more than 3%
of GDP to speed up the ongoing modernizing process.
Pakistan and
China’s figures are around 4 to 4.5%.
Overview
Some analysts have branded the budget as innocuous,
quite an apt phrase for the defence part of it. The
allocation/estimate in the last fiscal 2005–06 was Rs 81,700
crores (Rs 83000 crores was the original estimate) which was
about 8% over the grants for the preceding year 2004–2005 when
there was an unprecedented hike of 28% with $6 billion worth
of defence deals that took India ahead of China for the first
and only time.
Of the Rs 89,000 crores defence budget, Rs 37458 crores –– or
42% of the total outlay which is more by Rs 4383 crores than
last year –– is earmarked for capital expenditure or the
purchase of arms and equipment. A point to note is that in the
last year, the defence ministry failed to spend Rs1300 crores,
thus marking a turnaround from earlier years, when it
surrendered much more money earmarked for purchasing modern
arms. The revenue expenditure of 58% though it is a lot more
for the Army, signifies a need for streamlining the manpower
and older weaponry. South Block sources said, the Army is
likely to get just over Rs 40,000 crores, the IAF about Rs
25,000 crores and the Navy possibly a little over Rs 15,000
crores. Of this the revenue expenditure is likely to be ––
Army Rs 32,300 crores, Airforce –– Rs 9860 crores and Navy ––
Rs 6715 crores. The outlay for the 39 state-run ordnance
factories is Rs 976 crores while for the Defence Research and
Development Organisation is Rs 3008 crores.
Capital Expenditure
Much of the capital outlay is expected to be cornered by big
ticket deals concluded in the last two years viz. the
refurbished Russian aircraft carrier Admiral Gorshkov, the 66
Hawk jet trainers bought from Britain and six Scorpene
submarines from France –– payments for which are spread over
several years. With these big acquisitions already contracted,
Defence Minister Pranab Mukherjee is now free to initiate or
renew negotiations on projects that had willy-nilly been
pushed onto the backburner. Among these are the modernisation
of the artillery, a crying need for the army and, of course,
the multi-billion dollar order for 126 multi-role combat
aircraft for the Indian Air Force that is so tantalising for
global arms majors.
Initial action is also in the process for purchasing a
complement of surveillance planes and ASW helicopters for the
Navy and a large number of tanks from
Russia to
replace the ageing armoured corps assets, besides air defence
equipment. The Navy is also planning to repeat an order for
three warships (updated Krivak class) from Russia. However,
after the payments for deals already closed, there may not be
much to spare for newer acquisitions unless the MoD goes in
for supplementary demands for defence funds later.
Expenditure Management
While a generous defence budget is always sought by the
Services, more efforts need to be made towards prudent
expenditure management. A major portion of the budget goes
into revenue expenditure, thus adversely affecting capital
outlay for modernization. This should be a concern in the Army
where manpower costs are on the rise. If the global trend in
manpower reduction and revolution in military affairs (RMA) is
given due consideration, the money saved could be utilized to
make the Indian Army technology savvy. Although there has been
a comprehensive delegation of financial powers for revenue
expenditure in all the three wings of the Services, there are
still cases of project delays, cost escalation and even
surrender of funds. While the procurement manual for revenue
stores has come as a handy guideline, the integrated financial
advisor (IFA) system has not boiled down to all levels. The
IFAs are 'necessary evils' for expenditure management and
hence should be institutionalized and strengthened.
Defence Production
With regard to capital expenditure, most of it goes for
foreign procurements. While
China is
pumping at least $60 billion in 'selective' modernization,
Pakistan by investing mostly in nuclear and missile fields has
achieved strategic parity with India. Against such trends,
India's emphasis on 'incremental' and 'across the board'
modernization serves little purpose. Instead, the spotlight
needs to be on 'selective' modernization’. While Indian money
has substantially revitalized military industrial complex
(MIC) in Russia and Israel and created jobs there, very little
is left to invest in the domestic market. The ordnance
factories and defence PSUs have not been able to reduce the
country's dependence on foreign markets despite their long
existence and full support from the government. Until
recently, 'defence' was treated as a 'holy cow' and private
sector had only a peripheral role to play in making supplies
to the services. If the new procurement manual for capital
stores is implemented in spirit, this will mean at least 30
percent of out flowing funds remaining within the country
through an ‘offset’ policy and requests for proposals (RFP).
However, the government as well as the Services should
consider some kind of preferential treatment for domestic
suppliers including the private vendors. Only with a mature
and successful MIC in the country, can India assert itself as
a major power in the world arena.
(Figures
are indicative only) |