Defence Expenditure: A Challenge for Defence Economists
(Source: Institute for Defence Studies and Analyses; issued March 14, 2017)
By Amit Cowshish
The only sub-theme that vies for pride of place alongside the debate on the alleged shenanigans of an inept civilian bureaucracy is the gross inadequacy of defence outlays. Governments have come and gone since 1947, but the sluggish trajectory of annual defence budgets continues, interrupted only by pay commissions and wars. It does not require any great power of prophesy to rule out a steep hike in the defence budget in the coming years. The history of the defence budget over the past seven decades should be enough to drive home this truth.

More specifically, the growth in annual defence allocations since 2014 only indicates that it is naive to expect that the gap between the demand projected by the Ministry of Defence (MoD) and the actual allocations made for defence in the union budget will soon be a thing of the past.

Defence analysts never tire of mentioning the year 2004 when the then outgoing government made a provision for a defence modernisation fund in the interim budget, seen till date as a bold step to address the problems besetting the modernisation of the armed forces. But it is the same political dispensation which, despite being in power now for almost three years, not only has not revived the defence modernisation fund but has also failed to cut the mustard when it comes to raising the defence expenditure.

There is a continuous lament over inadequate funding and this is invariably attributed to politicians and bureaucrats, widely believed to be impervious to the imperatives of defence and security of the country. Apart from being an unfair characterisation, this has served no purpose all these years and is unlikely to be much help in future.

If anything, this narrative has crowded out the academic discussion on how much should be allocated for defence and, more importantly, how could the government of the day meet the expectations of the defence establishment without an adverse impact on other competing sectors, such as health, education and infrastructure.

The dominant view among the strategic studies community in the country is that the defence budget should be pegged at a minimum of three per cent of the Gross Domestic Product (GDP). Going by this benchmark and without questioning its basis, the defence allocation for 2017-18 should be approximately Rs 2,31,310 crore more than the amount actually allocated in the union budget, excluding defence pensions for which a sum of Rs 85,737 crore has been allocated separately.

This is a huge gap to cover, especially if the fiscal and revenue deficit targets are to be met. The gap cannot also apparently be bridged just by reducing expenditure on other sectors. On the face of it, the government will have to raise its income substantially to be able to almost double the allocation for defence to reach the three per cent of GDP mark. Governments have evidently not been up to this task either because of the serious political cost of raising income through taxation or for other inexplicable reasons. This is where defence economists, and even think tanks, need to step in and suggest a pragmatic way out.

The question that arises every year when the union budget is analysed in seminars and in the media, but remains unanswered, is whether the Finance Minister could actually allocate more funds for defence without, at the same time, causing an adverse impact on other sectors, assuming no positive change in the estimated income. The alternate question would be whether the minister had more options for raising governmental revenues to the extent that allocation for defence could be raised substantially, if not to the extent of three per cent of GDP, without facing any difficulty in giving a rational explanation for rejecting the demand from other sectors for higher allocations.

To answer both the above questions, defence economists will have to deal with a more fundamental set of questions. What should be the pragmatically ideal level of funding? Whether the defence allocation should be fixed at a certain percentage of GDP? If so why? Or, would it be enough to meet the requirement projected by the MoD, irrespective of how much it works out to in terms of percentage of GDP and regardless of the method of costing adopted for working out the requirement.

The basic challenge for defence economists is to demonstrate that there are other feasible ways of skinning the cat during budget formulation. But the challenge is also inextricably linked with the need for rationalisation of defence expenditure, especially if manpower costs cannot be contained in any substantial measure.

There are indeed other steps, such as the creation of joint logistics and theatre commands that could potentially bring down costs and increase operational efficiency. But the thrust for these measures is unlikely to come from within the services or from the political class, unless independent and objective analyses by defence economists points to the imperative of adopting these measures and throws up a roadmap for bringing about these seminal changes.

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