FB   
 
Powered bysps
        Society for Policy Studies
 
 

 
India's military modernisation: Trapped in a fiscal strait jacket
Posted:Feb 7, 2017
 
Print
Share
  
increase Font size decrease Font size
 
By C Uday Bhaskar
 
The nation budget was presented  by Finance Minister Arun Jaitley on February 1  and  the allocation for defence offers some instructive insights about how India  plans to nurture its military - that is the three armed forces: the army, navy and air force.
 
The total allocation for the financial year (FY) 2017-18 is a reasonable Rs 3,59,854 crore ($53 billion) and the increase over the last three years has been steady. In FY 2015-16, the total defence allocation  was Rs 2,94,320 crores and while this  increase of Rs. 65,534 crore is seemingly large - almost 23 percent over a three-year period -- the larger fiscal context provides some anomalous insights.
 
The Indian defence budget is trapped in a strait-jacket which has four structural constraints that impede significant capacity creation and inventory modernisation.  These four strands are the declining ratio between defence expenditure (DE) in relation to GDP;  the steady rise in the revenue component of the DE -- which caters only to the  standing costs of  a 1.3 million-plus military; the under-utlisation of the allocated funds -- particularly in the capital component of the DE which caters to acquisition and modernization; and finally the relative decline of the Indian rupee in relation to the US dollar, which results in shrinking  buying power in the global arms  market.
 
Strand 1: From FY to 2015-16 to the current fiscsl 2017-18, the total defence allocation has increased from Rs 2,94,320 to Rs 3,45,106 and now Rs 3,59,854.  However as a ratio of DE to GDP  it has varied  as follows: 2.15 per cent to  2.29 per cent and now 2.14 per cent.
 
Strand 2: The revenue component for any standing military of a million plus will invariably be substantial and the more recent pay and allowance and pension outflows have been relatively high.  To its credit, the Narendra Modi government, despite some initial hesitation, has moved to resolve a long festering issue for the Indian soldier -- that of restoring pensioner benefits for the retired personnel.  This was peremptorily withdrawn by the Indira Gandhi government almost 40 years ago and successive governments remained indifferent to this injustice.
 
Due to the partial redress of the one-rank-one-pension (OROP) scheme, the revenue outflow of the DE has shown a sharp increase and this will be a recurring cost. Consequently, the revenue to capital ratio has shrunk to the detriment of the latter and the pension graph is illustrative. Over the same four-year period, the pension bill for the Ministry of Defence (MoD) has moved from Rs 60,238  crore to Rs 85,740  crore -- the current figure.
 
The net result of this fiscal allocation is that the revenue to capital ratio after excluding the pension bill (which is for all the civilian and uniformed personnel administered by the MoD) is becoming more slanted towards revenue or standing costs. The ratio of revenue to capital in 2015-16 was 64.6 to 35.4 percent. In the budgeted estimate for 2017-18 it has skewed to 68.4 to 31.6 percent.  This  trend is likely to become more pronounced over the next few years as the government moves to provide  to the soldier what is currently being  paid  to the civilian central government employee by way of   pay/allowances and promotions.
 
Strand 3 : This is the more alarming -- by way of the impact of under-utilisation of funds allocated towards acquisition and modernization. The inventory gaps in the Indian military are YUGE (to use a Trump expression!). One statistic is revealing.  In FY 2015-16, the MoD  returned more than Rs. 13,000 crore from the capital head as unspent. In 2016-17, the unspent amount is closer to Rs. 7,000 crore and this is a less than flattering reflection of the competence  of fiscal planning and management within the MoD.
 
Strand 4:  India is among the top arms importers of the world by way of  foreign exchange spent and the current financial arrangements have led to a situation where the greater part of the capital head is pre-committed over a five- to ten- year period; meaning that inventory acquired is paid in annual  amounts.
 
The Indian rupee has weakened considerably over the last three years. In February 2015 it was Rs 61.63 to the $ and it is now Rs 67.4. Thus the double-whammy is that the rate of induction of new inventory  by the Indian military  is impaired  by both under-utilisation and a weakening rupee.
 
If these structural constraints are not holistically addressed,  the modernisation of  the Indian military will be trapped in a fiscal strait-jacket.
 
(C Uday Bhaskar is Director, Society for Policy Studies. He can be contacted at cudaybhaskar@spsindia.in)
 
 
 
 
Print
Share
  
increase Font size decrease Font size
 

Disclaimer: South Asia Monitor does not accept responsibility for the views or ideology expressed in any article, signed or unsigned, which appears on its site. What it does accept is responsibility for giving it a chance to appear and enter the public discourse.
Comments (Total Comments 0) Post Comments Post Comment
Review
 
 
 
 
Thirteen year old Bhuma (name changed) spends his day at home. He does not go to school, or play with children in his neighborhood to avoid being laughed at.
 
read-more
While the South Asian region has its fair share of reasons to be quarrel over, if there is one thing that has managed to transcend boundaries, it has been the soft power of India. As a melting pot of diversity in itself, its cultures, languages, ethnicities and the like are in a symbiotic relation with those across the border. As a res
 
read-more
The April 13 Mother of All Bombs (MOAB) strike by the United States on ISIS terrorists in Afghanistan has triggered suggestions that a second round of the Cold War is set to begin. Particularly as the new US President, Donald Trump, seems to be brash, abrasive and capable of taking action without thinking of consequences.
 
read-more
India should be extremely wary of any Trump involvement on the Kashmir issue because he would do anything to bring India to the table, writes Dr. Susmit Kumar for South Asia Monitor.
 
read-more
The core parts of the controversial Terminal High Altitude Area Defense (THAAD) anti-missile system have been moved to the site of what had been a golf course in southern South Korea.
 
read-more
spotlight image Mahmoud Ahmadinejad sprang a surprise when he registered himself as a candidate in Iran’s presidential election scheduled for May 19. After leaving the office of President in 2013 at the end of two controversial terms, the firebrand populist has been largely inactive in politics. 
 
read-more
spotlight image I am honored to be here today for the first U.S. government exchange alumni conference for India and Bhutan.
 
read-more
Health of the citizens and the economy of the nation they inhabit go hand in hand and every buck spent on former guarantees a manifold increase in the latter,  said noted public health expert K Srikant Reddy. The lecture 'Health and Development: India Must Bridge the Disconnect' was ...
 
read-more
Column-image

Title: Bollywood Boom; Author: Roopa Swaminathan; Publisher: Penguin; Price: Rs 399; Pages: 221

 
Column-image

Title: Defeat is an Orphan: How Pakistan Lost the Great South Asian War; Author: Myra Macdonald; Publisher: Penguin Random House India; Pages: 328; Price: Rs 599

 
Column-image

  The story of Afghanistan -- of the war against the Soviets and of terrorism that has gripped the landlocked country ever since -- is in many ways also the story of diplomat Masood Khalili, who motivated his people and led them...

 
Column-image

Title: The Golden Legend; Author: Nadeem Aslam; Publisher: Penguin Random House; Pages: 376; Price: Rs 599

 
Column-image

Over the Years, a collection of 106 short articles, offers us interesting sidelights on the currents and cross- currents in the public life of India during two distinctive periods: (I) 1987 to 1991 and (II ) 2010 to the present.

 
Subscribe to our newsletter
Archive