Spending for a modern armed force

by Rohan Joshi and Pavan Srinath — March 14, 2014

While transparency in defence procurement has been repeatedly stated as a focus, no focus on procurement is visible.

On February 6, 2014, India’s defence minister AK Antony announced that an important deal for 126 multi-role combat aircraft could not be signed in fiscal 2013, claiming that there was no money left to support the signing of the deal. The official proposal for what came to be known as the Medium Multi-Role Combat Aircraft (MMRCA) competition dates back to 2005, when the Government of India issued requests for information from prospective vendors. After a laborious vendor selection process that lasted seven years, Dassault’s Rafale emerged as the winner in 2012. Since then, complaints about the vendor selection process, disagreements over specific terms of transfer of technology and India’s ability to make monetary commitments due to a weakening economy have stalled the signing of the contract with Dassault.

This general lethargy in India’s defence management is worrying. Indian Air Force (IAF) force levels are at an all-time low owing to obsolescence, attrition and retirement of aircraft. Force levels have depleted to 29 squadron today, against IAF’s minimum sanctioned strength of 39.5 squadron. Worse, nearly half of IAF’s inventory consists of aging MiG-21s, which have been manufactured domestically under licence since the 1960s. India’s domestic multi-role fighter Tejas, conceived over 30 years ago and meant to replace the MiG-21s, has stalled. It is now expected that MiG-21s will not be retired until 2025, 62 years after the aircraft was first introduced in India.

Issues pertaining to obsolescence do not plague the IAF alone. The Indian army is woefully short of tank ammunition. It is also short of artillery guns, not having inducted any howitzers into the army since the Bofors scandal in the 1980s. Delays in our indigenous aircraft carriers, and conventional and nuclear submarine programs impact India’s defence preparedness. Overall, neither do India’s Defence Public Sector Undertakings (DPSUs) appear capable of meeting the needs of the armed forces – the ubiquitous political lip-service given to ‘indigenisation’ notwithstanding — nor has the Ministry of Defence (MoD) displayed any sense of urgency in procuring equipment and systems needed to sustain the armed forces.

As Ajai Shukla highlighted in February, only 4 percent of the 2013-14 capital budget is allocated for new acquisitions, down from 38 percent in 2010-11. The interim defence budget announced in February 2014 appears to do little to alleviate this systemic decline. Although a 10 percent increase in the defence budget was announced, there was only a paltry 3 percent increase in capital outlay, with revenue expenses garnering a large part of the increase. What little money will go towards defence modernisation from the overall capital outlay is as of yet unknown.

In the context of the budget, Mr Antony’s admission that there was no money left for the MMRCA deal in FY 2012-13 is surprising. Capital allocation for the IAF was increased in FY 2012-13 by 22 percent, conceivably in order to account for the first installment of Rs. 10,000 crore due to be paid to Dassault after the deal was to be signed in FY 2013. If we are told that the IAF has spent all but 3 percent of its allocated capital acquisitions budget for FY 2013, where has the rest of the money gone? The interim budget for FY 2014 has decreased the IAF’s capital allocation budget by about 15 percent (over FY 2013 beginning estimates) to Rs. 31,818 crore. Worse, if the worrying trend of committed liabilities accounting for 95 percent of the capital acquisition budget lingers, this effectively means that the MMRCA deal cannot be concluded in FY 2014-15 either.

If the systemic mismanagement of defence expenses is not concern enough, the issue is exacerbated by the large size of India’s armed forces. All nations routinely reassess the size and strength of their armed forces. In 2008, Russia announced sweeping military reforms that envisioned reducing the size of its armed forces from 1.13 million to 1 million. Similarly, China began reassessing and reducing the size of non-combat units of the Peoples’ Liberation Army. Such a reevaluation is only natural, given the advancements and increasing reliance in force-multiplying technologies that make it unnecessary to maintain a large military.

However, not only are there no routine assessments on the structure of India’s armed forces, their size also continues to grow rather inexplicably. For instance, the decision in 2013 to raise a new “China-centric” strike corps with 45,000 soldiers is perplexing at a time when the army and IAF’s conventional capabilities were already being upgraded along the border and nuclear deterrence exists. This raising will further skew the revenue-to-capital ratio further in favour of revenue allocations, and will add additional pressure on the defence budget at a time when India’s economic growth has slowed. Under such circumstances, it is usually the modernisation outlay that will be impacted.

As Nitin Pai noted in Pragati last week, defence expenditure needs to be grounded in sound economic reasoning. Necessary conditions for this are better public reasoning and legislative oversight. While transparency in procurement has been repeatedly stated as a focus, no focus on procurement is visible. Nor is there much by way of a public account of cost overruns on defence acquisitions, as well as meaningful budget breakups. The effectiveness and seriousness of the current parliamentary standing committee on defence, chaired by Raj Babbar, remains questionable.

Photo: azri zainul

Rohan Joshi is a Fellow at the Takshashila Institution. Pavan Srinath is Manager, Policy Research at the Takshashila Institution.