China matches India’s expansion in military spending

Right: Attending a Sino-Indian border meeting at the Spanggur Gap near Chushul

Below: Flying back to Leh in an IAF Cheetah past the Panggong Lake

Both our defence budgets reveal only part of what we actually spend

By Ajai Shukla

Business Standard, 5th March 11

The announcement of a country’s annual defence expenditure is as much about geo-political signalling as about budgeting. From New Delhi, where the government announced a 12% increase in defence spending last Monday, here is the big message: notwithstanding our focus on development and social justice; and despite the still uncertain international economic climate, India will spend what is needed for an acceptable level of security.

Finance Minister Pranab Mukherjee, while presenting the union budget in parliament, allocated Rs 164,415 crore (US $36.53 billion) to defence, which amounts to 2.2% of the GDP and 13.07% of government spending. This continues an almost unbroken series of annual double-digit increases over the preceding decade, reflecting India’s economic growth as well as the uncertain security climate in the region.

New Delhi’s security concerns were mirrored in Beijing this morning, with China’s announcement of a 12.7% increase in defence spending for 2011. In a statement that spread ripples of concern through the Asia-Pacific, China raised defence allocations to 601.1 billion Yuan ($91.5 billion), up from last year’s 532.1 billion Yuan ($81 billion).

In March 2010, after Beijing’s relatively modest 7.5% hike in defence spending, China experts had concluded that the People’s Liberation Army (PLA) was tightening its belt in an uncertain economic climate. But with today’s rise, following a year of confrontation in the East China Sea with the US, Japan and South Korea, PLA watcher Rory Medcalf of the Lowy Institute in Australia avers that, “What this budget figure suggests is that deep down, China’s priorities haven’t changed.”

Experts agree that Beijing spends far more on the 2.3 million-strong PLA (a term that includes China’s army, navy and air force) than what it divulges. The additional funds, which are estimated at 50-150% higher than the announced figure, are believed to come from the PLA’s sizeable network of commercial enterprises that include hotels, transportation agencies and vacation resorts. Since Beijing provides no detailed breakdown of government expenditure, funds are also diverted from other government departments.

Hiding the picture

This is also partly true of India. New Delhi masks a number of allocations that are universally regarded as defence expenditure, burying them in the allocations for other ministries. Business Standard has calculated, by applying international norms of what constitutes defence expenditure, that the budget for 2011-12 actually allocates Rs 235,962 crore for defence. A full Rs 71,547 crore of direct defence expenditure has been reflected under other heads.

Consider the following: The MoD budget does not include the defence pension bill of Rs 34,000 crore, nor the defence ministry’s allocation of Rs 4156 crore. Also shown as non-defence expenditure is Rs 7602 crore budgeted for atomic energy; even though this funds the institutions that develop, build and store India’s nuclear weapons. Slipped quietly into the allocations for the Ministry of Road Transport and Highways is Rs 3165 crore for the Border Roads Development Board, chaired by the minister of state for defence, which builds and maintains strategic roads in border areas.

Meanwhile central police and paramilitary forces that are directly employed --- often under the army’s command --- for border security and counter-insurgency operations are funded separately. A Rs 22,624 crore chunk of the Ministry of Home Affairs budget is used for this, including Rs 7369 crore for the Border Security Force; Rs Rs 447 crore for the National Security Guard; Rs 1900 crore for the Indo-Tibet Border Police; Rs 2544 crore for the Assam Rifles; Rs 1601 crore for the Sashatra Seema Bal (SSB); 7625 crore for the Central Reserve Police Force; Rs 968 crore for Border Management and Rs 170 crore for Coastal Security.

This list does not include forces involved in day-to-day policing rather than national security. The allocations left out are Rs 2930 for the Central Industrial Security Force; Rs 40 crore for the National Intelligence Grid; Rs 947 crore for the Intelligence Bureau; and Rs 3309 crore for the Delhi Police. Also excluded is Rs 279 crore budgeted for the Special Protection Group, which handles VVIP security.

Also regarded as non-military expenditure is the Rs 6626 crore allocation to the Department of Space, despite frequent international allegations of technology leakage into the DRDO’s military missile programme. Scrutiny of the Department of Space budget --- with its transparent allocations to individual technology programmes --- reveals conformity with an earlier government decision to firewall the space programme from missile development.

Taking the figure of Rs 235,962 crore as the real defence allocation, the government has actually allocated 3.16% of GDP and 18.76% of government spending to defence. This accedes to a long-standing demand from India’s strategic community for defence allocations to be at least 3% of GDP.

Interestingly, the obfuscation in India’s real defence expenditure goes hand-in-hand with a new transparency in this year’s defence budget. The first project under the “Make” procedure of the Defence Procurement Policy (DPP) --- which is the development of a Future Infantry Combat Vehicle (FICV) by two consortiums led by Indian companies --- has been allocated Rs 118 crore and even provided Rs 82 crore in the revised estimates of 2010-11.

Similarly, the budget breakdown reveals that the funding for “Special Projects”, which is code for the nuclear submarine project, has been allocated Rs 501 crore, up from Rs 292 crore in 2010-11.