Defence spend lowest since 1962 war

[kurup]

Budget Analysis: Defence spend lowest since 1962 war, despite army’s China focus; little money left for Rafale





Beneath the bland 10 per cent rise in defence allocations in the interim budget presented in Parliament on February 17 is the uncomfortable reality that Indian defence spending will touch a 52-year low in 2014-15, in terms of percentage of Gross Domestic Product --- 1.74 per cent of GDP this year, and 12.7 per cent of government spending. The last time defence allocation was lower was 1962, when the military got 1.5 per cent of the GDP, in keeping with the trend through the 1950s. The Chinese attack in October 1962 led to emergency imports, raising defence expenditure to 2.32 per cent that year. Since then, this year’s allocation is the lowest.
Meanwhile, the US and Russia spend around four per cent of GDP on their militaries, the UK and France spend 2.3 to 2.5 per cent, Pakistan spends close to 3 per cent, and China declares an expenditure of slightly over 2 per cent, but is believed to actually spend 3 per cent if hidden funding is included.

Ironically, India’s spending cut coincides with an effort to boost capability on the China border. But while the army’s modernization budget has almost doubled, the air force (IAF) --- traditionally the biggest spender on modernisation --- has seen funding slashed, endangering its multi-billion dollar plan to purchase 126 French Rafale medium multi-role combat aircraft (MMRCA).

The army, which is raising a mountain strike corps for the Himalayan border, has received enhanced revenue funding for recruiting and salaries for some 80,000 additional soldiers. Simultaneously its capital budget will rise --- from Rs 10,749 crore this year to Rs 20,661 crore in 2014-15 --- for buying weaponry to equip the new corps, including rifles, machine guns, artillery, helicopters and communications equipment. The cabinet had cleared Rs 64,000 crore for this, which will be required over the coming 8 years.

The army has gained at the cost of the equipment-intensive IAF. While the air force has again been given the lion’s share of the capital budget, its allocation has been trimmed to Rs 31,818 crore, which is Rs 4,199 crore less than the current year’s modernisation budget.

This will pose serious problems for the IAF’s drive to seal the Rafale contract with Dassault. With the contract value estimated at $16-20 billion, the IAF would have to pay Rs 10,000-15,000 crore as advance while signing the contract. Given the IAF’s pre-committed capital expenditure --- i.e. instalments on equipment bought during preceding years --- this year’s reduced budget will make it difficult to fund such a massive pay out.

Meanwhile, the IAF’s burden of pre-committed payments has reduced somewhat after the MoD’s termination of the Rs 4,650 crore contract with AgustaWestland for VVIP helicopters, following corruption allegations. But heavy instalments will continue for several years from the Rs 26,000 crore purchase of ten C-17 Globemaster III transport aircraft; the Rs 6,000 crore purchase of six C-130J Super Hercules transports. The IAF also faces difficult choices between a host of impending purchases; besides the Rafale, contracts are also impending for 22 AH-64 Apache attack helicopters and 12 CH-47F Chinook multi-mission helicopters, together worth some Rs 12,000 crore; a Rs 15,000-18,000 crore deal for new Honeywell engines for the IAF’s Jaguar strike aircraft; and the on going purchase of Sukhoi-30MKI and Tejas Mark I fighters that are being built and supplied by Hindustan Aeronautics Ltd.



Of the overall defence budget, the army will get about half (see chart); the IAF will get a little short of a quarter, while the navy’s share reduces marginally to 15.6 per cent.

The two smaller services remain far better modernisers than the army. Both spend about two-thirds of their money on new equipment (capital expenditure). The army --- which remains a manpower-intensive, low technology force --- uses less than one-fifth of its budget for modernisation.



Defence Minister AK Antony has not backed his frequent public exhortations for indigenisation with money. The Defence R&D Organisation (DRDO), which has long argued for at least 7 per cent of the budget to boost indigenisation, will get its customary 5 per cent. About half of that will be used for actual R&D.

The defence allocations starkly highlight the marginal role of tri-service jointmanship. A token Rs 2,418 crore --- one per cent of the defence budget --- is allocated for tri-service organisations like the headquarters of the integrated defence staff (IDS) and the Andaman & Nicobar Command (ANC). India’s only tri-service operational command, based in Port Blair, remains an outpost that is noticed more by Southeast Asian countries than by New Delhi.

Broadsword: Budget Analysis: Defence spend lowest since 1962 war, despite army’s China focus; little money left for Rafale

 

[third eye]

Not a big problem for India, I think Modi will dedicate to improve relationship with China.

Which is the right thing to do.

There is enough space in Asia & the world for India & China to move forward .

We stand to gain much more by not fighting than by fighting.

 

[sudhir007]

what about navy
there is no news or information why the mod always ignore them

 

[spectribution]

We spent 45bn $ last year out of 34bn $ budget. Actual spending lies on PPP not GDP.

 

[kurup]

what about navy
there is no news or information why the mod always ignore them

 

[Arya Desa]

Current polls show that BJP can definitely win 220 seats or more.

But Congress still has a few months to play all the dirty tricks they have. Including their secret weapon called the AAP.

How convenient this "AAP" shows up right before election. They seem like a created party to take away from BJP's potential voters. If these congressi dogs are something, they are perhaps the most cunning people on Earth.

 

[kurup]

India’s Interim Defence Budget 2014-15: An Appraisal

On February 17, 2014, the Finance Minister while presenting the Interim Union Budget 2014-15 to the Parliament, allocated Rs 2,24,000 crore (US$ 37.15 billion as per the prevailing average exchange rate) for the national defence. The interim defence allocation, which represents a 9.98 per cent increase over the 2013-14 defence budget is exclusive of Rs 53,582.15 crore for defence pension that includes Rs 500 crore on account of the government’s acceptance of the armed forces’ long-standing demand for One Rank One Pension (OROP) principle. Although the interim budget is relevant till the new government presents a regular budget after the 2014 general elections, it nonetheless sets a broad roadmap for various ministries and departments. Defence being a major charge on the central government budget, it is worthwhile to look at the interim allocation that impinges on the modernization and other needs of the Indian armed forces.

Interim Budget: Growth Factors and Key Elements

It is noteworthy that the 10 per cent hike in the interim defence budget is with respect to both budget estimate and revised estimate of 2013-14 allocation. In other words, there has been no upward or downward revision of the defence allocations provided in the previous budget. With the overall 2013-14 allocation remaining same, the capital expenditure has, however, been revised downward by 9.07 per cent or Rs.7868.48 crore, which has been added to the revenue expenditure. Around 46 per cent of upward revision of the revenue expenditure has been necessitated due to the increase in pay and allowances of the three armed forces.

The increase in the pay and allowances is also the main reason for bulk of the hike in the interim defence allocations. Suffice to mention that in the new budget, 48 per cent of the total increase is accounted for by the hike in armed forces salary component. Compared to this, the capital expenditure, which mainly caters to the modernisation requirement of the armed forces, has contributed to only 14 per cent of the total hike.

Table-1 below provides a comparative overview of the key elements of the interim defence budget 2014-15 and the defence budget of 2013-14. Among others, it brings out clearly that although the growth of the interim budget is higher than that of the previous year’s budget, the growth, as mentioned earlier, is consumed by swelling revenue expenditure. Consequently, the capital expenditure, its growth and its share in total defence budget cut an unimpressive outlook. An interesting aspect of the table is that the share of defence in GDP and total Central Government Expenditure (CGE) has moved on opposite direction. It is largely due to the difference in the growth projection of these two parameters. While the nominal GDP is assumed to grow by 13.4 per cent in 2014-15, the CGE is estimated to grow by 5.9 per cent.

Interim Defence Budget: Share of Defence Services

Among the defence services, the Army with an approximate budget of Rs. 1,18,231 crore accounts for 53 per cent of the total interim defence budget, followed by the Air Force (Rs 54,262 crore; 24 per cent), Navy (Rs 37,627 crore; 17 per cent), the Defence Research and Development Organisation (DRDO) (Rs 11,960 crore, five per cent) and the Ordnance Factories (Rs 1,873 crore; one per cent) Among the three armed forces, Army has the highest (19 per cent) increase in the budget. While the Navy’s budget has been increase by a modest 3.5 per cent, the Air Force’s budget has been contracted by a 5.6 per cent. The DRDO on the other hand has got a 13 per cent hike in its budget.

Impact on Modernisation

The 10 per cent hike in the overall defence allocation notwithstanding, there has only been a marginal increase in the capital acquisition budget of the armed forces (Table II-V). Of the three armed forces, the Army is only service which has got an impressive hike in its modernisation budget. Much of its growth is however concentrated on ‘Other Equipment’ which caters to missiles and artillery guns among other. This may provide a cushion to the Army to finally sign to pursue its long-delayed procurement deals of ultra-light howitzer, Javelin anti-tank guided missile and night vision equipment.

Compared to the Army, both the Navy and the Air Force have witnessed a decline in the capital acquisition budget, with the latter bearing a heavy brunt. The sharp decline of the air forces modernisation budget, especially from the ‘Aircraft and Aero Engines’ head is surprising, given that it is on the verge of signing several multi-billion dollar deals including for medium multi-role combat aircraft (MMRCA) programme for which French Rafale has been declared winner way back in January 2012. Given that its budget has been reduced sharply, it is very unlikely that the Air Force could sign this much talked about fighter deal in 2014-15. Some of Air Force’s other programmes which are likely to be affected include the multi-role tanker aircraft and heavy and attack helicopters.

Funds for ‘Make’ Projects

The interim defence budget has made a provision of Rs 35.7 crore for prototype development under the ‘Make’ procedure. The interim budget also shows an upward revision of 2013-14 allocation for ‘Make’ projects from Rs one crore to Rs 29.34 core. The higher allocation for Make projects notwithstanding, it is not clear as to what projects the funds are allocated for. The much talked about ‘Make’ projects - Tactical Communication System (TCS) and Future Infantry Combat System (FICV) - which were under the discussion for long time are now virtually in limbo, due to the indecisive on the part of the defence ministry and the complexity of the procedures. More importantly, the MoD is currently engaged in simplifying its ‘Make’ procedure, the implementation of which is unlikely to happen in 2014-15. Given this, the allocation under the ‘Make’ head seems to be unrealistic.

Conclusion

The 10 per cent growth in the interim defence budget although looks impressive from outside, it has a poor outlook on the modernisation front. Much of the hike in the interim budget is consumed by the increase in salary, leaving very little to meet the modernisation requirements, particularly of the Indian Air Force which has lined up several deals for contract signing. From a long term perspective what is of more relevance is that given the continuous steep rise in the pay and allowances of the 1.4 million strong Indian armed forces, the pressure on modernisation would be felt more acutely in the coming years. This is more so, given the given the prevailing poor economic outlook, increasing subsidy bill, growing demand from social sector on union budget, and limited fiscal space available with the government.

India’s Interim Defence Budget 2014-15: An Appraisal | Institute for Defence Studies and Analyses

 

[Levina]

Conclusion

The 10 per cent growth in the interim defence budget although looks impressive from outside, it has a poor outlook on the modernisation front. Much of the hike in the interim budget is consumed by the increase in salary, leaving very little to meet the modernisation requirements, particularly of the Indian Air Force which has lined up several deals for contract signing. From a long term perspective what is of more relevance is that given the continuous steep rise in the pay and allowances of the 1.4 million strong Indian armed forces, the pressure on modernisation would be felt more acutely in the coming years. This is more so, given the given the prevailing poor economic outlook, increasing subsidy bill, growing demand from social sector on union budget, and limited fiscal space available with the government.

India’s Interim Defence Budget 2014-15: An Appraisal | Institute for Defence Studies and Analyses

The 10% growth in budget will also be eaten away by the low rupee value.
Btw what happens to the deals made before the rupee lost its sheen?
Will India have to pay extra now for the defence deals for the earlier deals???
how does it work?