Déjà vu on the defence budget

Equipment procurement continues to be crowded out by steadily rising manpower costs

The defence allocations, presented as part of the Union Budget on February 1, highlighted the drawbacks that plague our defence planning. Once again, the military emerges as an over-manned, poorly equipped, early twentieth century force; with a bloated salary bill that leaves little for modernising a vast inventory of obsolescent equipment. The depressing surrender of ~ Rs 7,000 crore of capital budget underlines again our structural incapability to spend even the inadequate allocations we lament. The discussions on the budget make it evident that the political and strategic elite and the public remain largely oblivious to the continuing and dangerous hollowing out of the last resort of the state.

Admittedly, there are difficulties in analysing and comparing defence budgets. These partly stem from this government’s laudable initiatives to simplify accounting and to bring into the defence budget expenditures on military pensions and various defence bodies that were earlier inexplicably excluded. Consequently, comparing the last three defence budgets requires allocations under disparate heads to be extrapolated and tabulated in a common format (the most recent one), so comparisons are made on an apples-to-apples basis.

		A	B	C	D	E	F	G	H	I	J
	Year	Salary bill	Pension bill	Total personnel costs (A + B)	Non-salary revenue allocation	Capital budget**	Non-personnel allocation (D + E)	Total allocation to service (C + F)	Share of personnel costs	Share of capital costs	Share of running costs
	Army
1	2014-15 (Actual)	61639	54348	115987	32216*	13246	45462	161449	72%	8%	20%
2	2015-16 Actual	65352	54116	119468	34823*	20602	55425	174893	68%	12%	20%
3	2016-17 (RE)	78298	75682	153980	36637*	23709	60346	214326	72%	11%	17%
4	2017-18 (BE)	83732	77106	160838	37295*	25176	62471	223309	72%	11%	17%
	Navy^
5	2014-15 (Actual)	5779	2296	8075	7891	22269	30160	38235	21%	58%	21%
6	2015-16 (Actual)	6190	2311	8501	8802	19875	28677	37178	23%	53%	24%
7	2016-17 (RE)	8009	3489	11498	9804	19596	29400	40898	28%	48%	24%
8	2017-18 (BE)	8571	3304	11875	9923	19348	29271	41146	29%	47%	24%
	IAF
9	2014-15 (Actual)	10533	3766	14299	9209	32796	42005	56304	25%	58%	17%
10	2015-16 (Actual)	11287	3774	15061	9734	31198	40932	55993	27%	56%	17%
11	2016-17 (RE)	13613	6422	20035	10204	28211	38415	58450	34%	48%	18%
12	2017-18 (BE)	14619	5296	19915	10183	33556	43739	63654	31%	53%	16%

*    Excludes budget for Border Roads Organisation, but includes for Rashtriya Rifles and National Cadet Corps

**  Capital budget for services only, excludes allocations for DRDO and Ordnance Factories

^    Excludes budget for Coast Guard, but includes for Joint Staff

Using a methodology, where allocations under disparate heads are extrapolated and tabulated in a common format, so that comparisons are made on an apples-to-apples basis, the chart disaggregates the budget allocations to the three armed services: the army, the navy and the air force. The coming year’s allocations to the services amount to ~ Rs 328,000 crore ($ 48.82 billion), or 91 per cent of the total defence budget of ~ Rs 359,854 crore ($ 53.56 billion). The remaining 9 per cent, which is off the chart, includes spending on the Defence R&D Organisation, the Ordnance Factory Board and the defence ministry --- including the Border Roads Organisation, Coast Guard and, mystifyingly, the Jammu & Kashmir Light Infantry (JAK LI), a regular infantry group. Next year, as part of its continuing effort towards defence budget transparency, the government could consider merging Coast Guard allocations as a sub-head in the navy’s budget, and JAK LI allocations into the army’s budget.

Extrapolating current calculations backwards, defence allocations have dwindled from 2.29 per cent of GDP (2013-14, Actual), to 2.28 (2014-15, Actual), to 2.15 (2015-16, Actual), to 2.29 (2016-17, Revised Estimates), to a low of 2.14 per cent in the latest budget. As a percentage of government spending, defence has remained largely constant at 16.4 per cent (2013-14), 17.1 (2014-15), 16.4 (2015-16), 17.1 (2016-17 RE) and 16.8 per cent in the coming year.

The central problem in defence spending, which is evident from the last three columns (H, I and J) of the chart, is the crowding out of equipment procurement by steadily rising manpower costs. An inexorably expanding army, rising salaries due to the Seventh Central Pay Commission (7^th CPC), and raised pensions due to One Rank, One Pension (OROP) are consuming money at the cost of badly needed capital procurement of bulletproof jackets, rifles, artillery, submarines, warships and fighter aircraft. In 2015-16, when only 8 per cent of the army’s budget was buying new kit, the government boosted the army’s capital allocations by ~ Rs 7,500 crore, following that with a ~ Rs 3,000 crore increase in 2016-17 and now ~ 1,500 crore next year. Even so, a salary and pensions bill that consumes an eye-popping 72 per cent of the army’s overall budget, leaves no more than 11 per cent for new equipment.

Even the navy and air force, which traditionally spent more than half their budgets on new equipment, have been pegged down by the 7^th CPC and OROP. In the coming year, the navy will spend just 47 per cent of its money on capital procurement, despite a serious shortage of capital warships. Only the air force will spend more than half its budget on modernisation, thanks to a Rs 5,000 crore infusion to pay for last year’s purchase of 36 Rafale fighters. It should worry planners that an army engaged 24x7x365 on an active Line of Control, in counter-insurgency operations and in staggeringly hostile terrain conditions, makes do with a substantially lower modernisation budget than an air force that faces less immediate challenges.

Nor is this likely to change, going by the 14^th Finance Commission recommendations that focus mainly on meeting manpower expenses. “[Ministry of Finance] projections have provided for an increase in defence revenue expenditure (including salaries) of 30 per cent in 2016-17 which will incorporate the [7^th] Pay Commission impact, with a stable growth rate of 20 per cent per annum in the remaining years”, says the Commission’s report, which made recommendations on the disbursement of central government finances from 2015-2020.

It is noteworthy that finance ministry bureaucrats justify the inadequate capital allocations with the argument that the military is unable to spend its allocated capital budget anyway. This is technically correct: most years the defence ministry returns several thousand crores of unspent capital rupees, or transfers them to the revenue head. But the well-known reason is that finance ministry officials impose an informal slowdown in according approvals as the year draws to a close, causing funds to lapse, and the deficit to appear in a rosier light.

The military, the victim in this game, can only watch helplessly since any significant expenditure requires ministry or cabinet sanction. Individual services can sanction expenditures only up to Rs 150 crore, while the defence minister can spend Rs 500 crore; the finance minister up to Rs 1,000 crore; and cabinet sanction is needed for any procurement larger than that. Unclogging the system and preventing the services from being held hostage by tortuous approvals requires the military’s financial powers to be urgently and significantly raised. Separately, accountability must be fixed for delays in finalising procurement proposals. Technology provides for this; radio frequency identity tags (RFIDs), affixed to each procurement file, could identify how much time it has spent in each office up the approvals chain --- which routinely extends to months. For years, the defence ministry has blithely ignored blatant violations of its own approvals timelines. This must end.

At a broader level, the military --- especially the army --- needs to be co-opted into a concerted process of reducing manpower to free resources for equipment acquisition. The generals must be given ironclad assurances that manpower cost savings would be added onto the modernisation budget. A culture of realistic long-term planning must be promoted by providing funding assurances well into the future, so that key planning documents, like the 15-year Long Term Integrated Perspective Plan, are anchored in financial realities rather than remaining empty wish-lists that slip back at the end of each financial year.