Military modernisation lacks enough funds

Amit Cowshish and Rahul Bedi

Amit Cowshish
Ex-financial Adviser, Acquisition, MoD

Rahul Bedi
Senior Journalist

India’s defence budget for the upcoming financial year indicates, yet again, the ever widening gap between the vast money customarily demanded by the armed forces and the relatively modest outlay allocated to them in return, by the federal government.

Like its previous editions, the military budget for the financial year 2022-23, or FY-23, was little more than a regurgitation of routine and predictable notions to overcome the enduring resource crunch and an overall reluctance to accept fiscal reality in an economically depressed milieu.

The total defence outlay of Rs 5.25 trillion for FY-23 represented a year-on-year growth of 9.82%, which, though higher than the FY-22 allocation, was lower in gross domestic product terms, which had dropped from 2.15% to 2.04%. Its share in the total Central government expenditure too has declined from 13.73% to 13.31% at a time India faces a collusive threat along its northern and western borders from nuclear rivals China and Pakistan operating in tandem.

Disturbingly, the abiding gap between the demands of the services for enhanced capital and revenue expenditure for military modernisation and operating expenses, including salaries, too had progressively widened from Rs 23,000 crore in FY 2010-11 to Rs 1,25,480 crore in FY-22.

According to the Ministry of Defence’s (MoD) own estimates that were conveyed to the 15th Finance Commission that wound up in late 2020, the defence budget shortfall in FY-23 could be as high as Rs 2.81 trillion. Over half this amount or some Rs 1.62 trillion was for capital expenditure aimed at military modernisation and augmenting operational capability.

One of the defence budget’s principal challenges, however, remains the ever escalating salary bill of the services that comprises a major share of the revenue budget which caters primarily to operating expenses. This salary component had almost doubled from 36.81% of the services’ total revenue budget in FY-01 to 66.94%, or Rs 1,49,403 crore in FY-23.

The increase in the salary bill of the Army, the most manpower intensive of all the three services, was the sharpest, escalating from 40.36% of its individual revenue budget to 70.78%, or Rs 1,16,707.31 crore for the same two-decade period FY-01 onwards.

Conversely, this massive hike was in inverse proportion to the forces’ stores budget, which catered variously to expenditure on rations, clothing, equipment spares, ammunition and other sundry combat and support kit to keep India’s military battle-worthy. This allocation had dropped by over a quarter from 43.65% to 16.18% during the aforementioned time span for all the three services. Alongside, it had spawned a similar ‘crowding out’ of the services’ ‘works’ budget that catered to expenditure on vital civil infrastructure of buildings and varied installations. This too had declined by almost half, from 9.62% in FY-01 to 5.7% in FY-23, equalling a mere Rs 12,728 crore.

The magnitude of these deficiencies can be gauged from the MoD’s assessment, conveyed to the Finance Commission that the services would face a collective shortfall of Rs 6.79 trillion in their revenue expenditure for FY 21-26, a precipitous gap that could eventually impact operational efficiency adversely.

The obvious reality these numbers reveal is that resources to meet the operational expenses of the services was progressively contracting at a time when they needed them the most, as their responsibilities had multiplied manifold following the continuing stand-off with China’s People’s Liberation Army in eastern Ladakh that began in May 2020. Manpower and salary related issues assume even greater financial significance, as they were interlocked with pension payments, which too had grown almost ten-fold from Rs 12,000 crore in FY-01 to Rs 1.19 trillion in FY-23, and were poised to proliferate further.

Similarly, monetary woes besieged the services capital outlay which had grown a modest 8.5 times from Rs 17,926 crore to Rs 1.52 trillion during the same 20-year period. With an overwhelming proportion of the capital budget, reportedly as high as 85-90%, being consumed by committed liabilities, or payment for previously acquired materiel, limited funds were left over to execute new acquisitions. Former Army Vice Chief Lt Gen Sarath Chand (retd) had told the parliamentary standing committee on defence in 2018 that the marginal budgetary hike had ‘dashed their hopes’ of modernising the force. He further stated that the capital allocation for the Army’s modernisation was ‘insufficient’ even to cater to committed payments or money already owed.

On closer inspection, such fundamental issues find no mention in Finance Minister Nirmala Sitharaman’s budget speech, obscured as they were by grandstanding and populist measures guaranteed to grab headlines. Sitharaman made two such announcements: that 68% of the capital acquisition budget would be reserved for domestic material procurement in FY-23 — up from 58% in the current fiscal. She further announced that 25% of the research and development budget which, in all likelihood, formed part of the overall capital budget of Rs 11,981 crore allotted to the Defence Research and development Organisation (DRDO), would be set aside for the local industry, start-ups and academia to design military equipment to further self-reliance in defence equipment. Both pronouncements might be music to India’s defence industry, promoting indigenisation to some extent, but it would in no way help resolve the overall problem of scarcity of funds for modernisation.

However, amid all the budget’s financial jugglery, the hike in capital allocation for the Border Roads Organisation (BRO) — up from Rs 2,500 crore in FY-22 to Rs 3,500 crore in FY-23 — and the Indian Coast Guard (ICG) — up from Rs 2,650 crore to Rs 4,246.37 crore — were long overdue. Both outlays reinforced the government’s resolve to augment the country’s border and coastal infrastructure, which for long, had featured only as footnotes in the previous defence budgets.

In conclusion, the FY-23 defence budget was more or less in consonance with previous versions, but once more had failed to address the fundamental problems of inadequate capital and revenue outlays. Several military analysts and retired and serving service personnel said it also lacked a ‘road map’ for comprehensive and viable defence financial planning and for networking the myriad capabilities of several MoD instrumentalities like the DRDO, the Indian Coast Guard and the Border Roads Organisation, amongst others. The high-level Defence Planning Committee, set up in 2018, was mandated with this unifying role, but like many others of its ilk, it too appears to have walked into the sunset.

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