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India invests 30% of capital budget on defence, has sixth biggest defence spend in the world. Large manpower cut, or massive budget increase are only options.

With weeks to go before the 2018-19 budget, India’s defence establishment is confronting a rude question it can no longer duck. Are we spending too less on defence modernisation or are we maintaining too large a military, and growing? The time to take a hard call between man and machine is now.

India must either raise the defence budget significantly or scale down the military drastically to a more realistic level and build an agile, better-equipped force.

There is no easy answer. From the way you want to look at it, India is either spending too little on defence – by allocating it just 1.6 per cent of our GDP against a global standard of 2 – 2.5 per cent. China spends 2.1 per cent and Pakistan 2.36 per cent. Or, we are utilising an extraordinarily high 30 per cent of our annual capital spending – earmarked for national infrastructure projects such as new highways, railroads and power projects – to modernise the armed forces.

Either way, a point of no return is fast approaching. If the current level of Indian defence spending versus a global-trend-defying expansion of forces continues, an ungainly, thinly-spread military that will have to make do with the traditional ‘jugaad’ system of functioning is a very likely outcome.

Now, would anybody want that?

Questions raised by lawmakers in Parliament are answered in a fairly mechanical process – the language is standardised by the bureaucracy, and the minister usually attempts to be as brief as possible.

Once in a while, however, even this system throws up one-liners that give away more than what meets the eye. On Wednesday, minister of state for defence Subhash Bhamre started his reply to a question on ‘Make in India’ with this – “Defence manufacturing is primarily driven by capital acquisition of defence equipment.”

Although he used the same words in a similar reply in the Lok Sabha in August as well, this one line is at the crux of the failure of Make in India in defence. The private sector can take off with mega billion-dollar arms manufacturing deals only if the defence ministry – its one and only customer – actually places orders.

UNSUSTAINABLY LOPSIDED

For this, the defence ministry needs a healthy acquisition budget that can be used to pay installments as well as the advance given at the time of signing a contract. Unfortunately, over the years, the defence budget has become so unsustainably lopsided that only a small percentage is now available for modernisation – an absolute number so shockingly low that it could dissuade the most optimistic of industrialists from investing in the sector.

The most reliable data on the budget has been generated by the parliamentary standing committee on defence. Headed by BJP stalwart Maj. Gen. B.C. Khanduri (retd), the committee has recently been producing some ground breaking reports that are a mine of information.

These reports clearly show a steady decline in the capital expenditure budget of the defence ministry – it was 32 per cent in 2016-17 from 41 per cent in 2007. One big reason for this has been the recent revision of salaries for armed forces personnel.

This effectively means that over the years, the military has been using more and more of its resources to sustain the assets it has – from ammunition to fuel, salaries and maintenance of infrastructure – than to modernise its equipment.

COMMITMENT ISSUES

Numbers show that even within the shrinking capital budget, the money actually available to initiate a new purchase is minuscule. In the case of the Army, for example, the money available for new purchases in 2016-17 was Rs 2,080 crore or just 14 per cent of its total capital share. This is because the rest of the amount was tied down by legacy purchases or committed liabilities.

This money went to pay installments for systems and equipment bought in the past – tanks, missiles, armoured vehicles that are still being delivered. In the same year, the Air Force had only Rs 3,250 crore for new purchases after 89 per cent of its capital acquisition budget was tied down to pay installments for systems purchased in the past. A number not adequate even for the advance payment of say, the Rs 58,000 crore Rafale deal, forget other smaller purchases.

A reason for this imbalance has been the defence budget that this government inherited from the UPA. Major defence purchases – most of them government-to-government contracts – were signed off by the UPA, with installments now being slowly paid from the defence budget available with the BJP.

If the current trend continues – there are no visible moves as yet to address the issue – a thinly-spread military is the most likely outcome.

SCALE DOWN OR BUDGET UP

An obvious solution to correcting this is to allot the defence ministry a one-time jump or correction in the budget. A big resentment of the military has been that only 1.62 per cent of the GDP is allotted to defence, whereas this number should be scaled up to more than 2 per cent.

Supporters of this move say that the global standard for defence spending is between 2 and 2.5 per cent and that the government is not treating defence as a priority area. They point to a steady decline from 3.18 per cent of GDP spent on defence in 1988 to half of that now.

The other way to look at it is how much can and should India spend on its defence. A common misconception is that Make in India will reduce acquisition costs as we will produce cheaper products here. In fact, for the early years of a true Make in India initiative, the costs will go up tremendously as infrastructure is set up and production starts at sub-optimal levels.

Purchasing an off-the-shelf Rafale, for example, costs half of what it would to actually manufacturing the fighter jet in India. India is currently spending a whopping 29.5 per cent of its annual capital expenditure on the defence ministry alone. This is from the pool that finances highways, ports, housing, border infrastructure, basically, the works.

The other option is to significantly scale down national military strength. India is perhaps the only large nation that has added soldiers to its military in the past few years – approvals are in place to increase strength by 40,000 soldiers for the new mountain strike corps.

Contrary to this, all big armies around the world are scaling down the number of troops they have on active duty. This, in favour of a nimble force that is well equipped and can be transported swiftly to an area of conflict. The biggest example is in the neighbourhood, with China scaling down 3 lakh troops as part of military reforms this year.

India too started this process with an exceptional move to ‘right size’ the Army and rebalance expenditure on the recommendations of the Lt. Gen. (retd) D.B. Shekatkar committee, set up by previous defence minister Manohar Parrikar. While 57,000 troops are being reallocated duties as part of the recommendations, numbers are not being shed and the step isn’t good enough to address the destabilising spiral the defence budget is currently in.

It is time to take a tough call: Raise the budget or scale down forces. Because, history reminds us that half-way solutions can only lead to disasters.

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