Defence budget: Funding defence in hard times

In the current year’s budget, less than 13% of government expenditure has been allocated to defence, continuing a multi-year trend of falling budgets

By Ajai Shukla

Indian Express, 30th Jan 25

 

The military’s financial planners are awaiting the Union Budget with bated breath. Since the month of September, their various arms, services, directorates and departments have been finalising their financial wish-lists for the year ahead. Soon they will know how much of that will be made available. All that is presently clear is that the military is not amongst the government’s top priorities. In the current year’s budget, Finance Minister Nirmala Sitharaman allocated less than 13 per cent of government expenditure to defence, continuing a multi-year trend of falling allocations.

 

Over the last five budgets, defence spending, as a percentage of central government spending, has fallen steadily from 13.81 per cent in 2020-21; to 13.2 per cent in 2021-22; to 13.65 per cent in 2022-23. Last year, in 2023-24, it was 13.25 per cent and this year it is testing the 13 per cent mark.

 

As a percentage of Gross Domestic Product (GDP), defence allocations have similarly fallen from 2.4 per cent in 2020-21; to 2.12 per cent in 2021-22; to 2.1 per cent in 2022-23. Last year, in 2023-24, it dropped below the 2 per cent mark to 1.97 per cent; and in the current year it dropped to 1.9 per cent.

 

Defence spending as a percentage of GDP is an important marker. Spending up to 3 per cent of GDP on defence is considered acceptable by lending agencies such as the International Monetary Fund (IMF) and the World Bank. The North Atlantic Treaty Organisation (NATO) charter enjoins member countries to spend at least 2 per cent of their GDP on defence, so as to contribute effectively to NATO’s collective defence. China, like India, spends less than 2 per cent of its GDP on defence; while the US spends more than 4 per cent.

 

The services’ capital spend has risen over the past four years by about Rs 40,000 crore, from Rs 131,697 crore in 2020-21 to Rs 172,000 crore in 2024-25. That averages out to a rise of about 7 per cent every year, an inadequate raise for funding a military modernisation programme as ambitious as India’s Atmanirbharta (self-reliance) programme.

 

Capital expenditure

 

The distribution of the capex budget between the three services is disproportionate to the work load that each service handles. Of the 1.5 million-strong military, the army fields 1.26 million personnel, or 84 per cent of the total, with many of them embroiled in active combat in Kashmir and the north-eastern states. Yet, the army’s share of the capital budget has been limited to 22-28 per cent of the total capex allocation. This leaves the army with a limited kitty from which to pay for badly-needed weaponry, such as artillery guns, attack helicopters, personal protective clothing for soldiers, etc.

 

Meanwhile, the equipment-intensive navy, with 5.5 per cent of India’s military personnel, was allocated between 31-36 per cent of the capital budget during the period 2020 - 2025. It remains short of warships – especially capital warships and submarines – that are essential for protecting our 7,500-kilometre coastline, over two million square kilometres of exclusive economic zone (EEZ), the Indian Ocean sea lines of communication (SLOCs) through which more than half the world’s sea-borne trade passes; and global commons, such as freedom of navigation.

 

Paradoxically, the most worrisome equipment shortages exist in the Indian Air Force (IAF) – even though that service already gets the largest share of capex. With just 10.5 per cent of the military donning the IAF’s blue uniform, the air force has been spending between 38-45 per cent of the modernisation budget. That is partly because military aircraft are prohibitively expensive: 36 Rafale fighters cost the IAF US $8.7 billion. The defence ministry’s commitment to the “Make in India” policy makes aircraft even costlier. Each Sukhoi-30MKI fighter built in Hindustan Aeronautics Ltd’s (HAL’s) Nashik plant costs about Rs 100 crore more than the same fighter when it is built in Russia.

 

At the broader level, the defence ministry receives a higher allocation than any other ministry. The broad pattern of allocations remains similar from year to year. In the current defence budget, almost 15 per cent was earmarked for sustenance and operational preparedness. About 57 per cent went on personnel costs: including 30.7 per cent for salaries and allowances, 22.7 per cent on defence pensions and 4.1 per cent on civil organisations under the MoD. Finally, 27.7 per cent was allocated to the capital expenditure head, for modernising the country’s arsenal.

 

Most modern militaries spend between 50-60 per cent of their total defence outlay on the capital account, so that modern weaponry and equipment ensures a combat edge over the adversary. This is a longstanding weakness in India’s military where there is a severe shortfall of funding in high-technology research and development (R&D). During her Budget speech last year, Ms Sitharaman, announced that the government would spend Rs 11,11,111 crore under the capital head. Given the claimants on that amount, the military can get only a limited share of the pie. 

 

Finally, defence budget watchers remain bewildered by the (absence of) accounting logic that governs the grouping of several items. It remains unclear why the allocations to the Border Roads Development Board (BRDB), the Coast Guard organisation (CG) and the Jammu & Kashmir Light Infantry (JAK LI) have been placed in the MoD (Civil) accounting head. The BRDB and JAK LI clearly belong in the Army’s accounting head, while the Coast Guard belongs under the Navy’s head. Similarly, the capital budget was earlier crystal clear, with allocations to each of the three services grouped separately, in their own sub-heads. Now they have all been grouped together and it is impossible to differentiate the army’s allocations from those of the navy and air force. Perhaps that was the intention.