Reiterating the utmost prominence given to security of the country, Finance Minister Nirmala Sitharaman, while presenting the annual budget, has said, “National security is the top priority of this Government.” The three wings of armed forces play the supreme role in maintaining security of the country, but in the time of an economic slowdown, and not to mention the ever-growing threat India face from its neighbours, the Government has to look at other avenues, rather than just increasing the military budget in absolute terms.

Some numbers

The allocation for defence in the Union budget saw a marginal hike, which does not cater to inflation and currency exchange fluctuations, compared to last year. Excluding the pensions which stood at ₹1.34 lakh crore, the Government earmarked ₹3.37 lakh crore to defence for FY21. This amounts to an absolute increase of 

• ₹ 22,558 crore and 5.02 percent in total allocation from 2019-20 revised estimate to 2020-21 budget estimate
• ₹ 6,544 crore and 1.98 percent in allocation (excluding pension) from 2019-20 revised estimate to 2020-21 budget estimate
• ₹ 16,015 crore and 13.6 percent in allocation towards pension from 2019-20 revised estimate to 2020-21 budget estimate

The total allocation for defence in FY21, including pensions, stood at ₹ 4.71 lakh crore, compared to ₹ 4.31 lakh crore in FY20. The figure of an increase of 5 percent in the defence total outlay seems a little misleading as this increase is largely due to an increase of 13.6 percent in pension expenditure. So, this year India will spend more to accommodate retired defence personnel than to modernise the military.

According to one school of thought, a mere increase of almost 2 percent from last year’s estimate (excluding pensions) is not enough for the sustenance and modernisation of armed forces of India, therefore, modifications in the defence equipment production sector backed by human resource reforms are necessary to achieve a stronger and financially sustainable military.

Modernisation of defence equipment

With the advent of new technology, warfare has also become an intensive technological exercise. India, in the current industrial stage with the nascent defence production sector, is unable to produce technologically advanced equipment. This forces the military to import defence equipment from outside which is state-of-the-art, but at the same time very expensive. Therefore, due to the budget constraint (and other reasons), our armed forces continue to use age old technology, for instance the use of ‘vintage’ Soviet-era MiG-21 in the Balakot strike. This modernisation is vital, especially considering the large scale modernisation that the Chinese Army has been carrying out. Moreover, the gap between the Pakistani Air Force and the Indian Air Force in terms of technology used is constantly shrinking.

Steps in this direction has been taken in the past, but could not yield the desired results due to budget constraint, lack of political will, and bureaucratic inertia. A defence deal takes years to be fruitful, and sometimes in that period the government changes. In the recent years though, India's defence ties with big military powers of the world are going uphill. India is tactfully balancing the relations with both Russia and USA, purchasing S-400 Air defence systems from Russia even though the USA is objecting to the deal, and Chinook Helicopters from the USA.

Indian army has signed some big ticket deals in the process of modernisation of the force to tackle the enemies at the two fronts, but the current budget's capital outlay falls short of their expectations. The army is already procuring high-end artillery systems such as the M777 ultra-light Howitzers, the K-9 Vajra self-propelled gun, and the indigenously developed Dhanush for the frontiers with China and Pakistan.

For India to modernise its forces, it needs to acquire weapons which are compatible with modern day warfare, but the capital allocation in this year's budget will not even gratify the committed liabilities.

Revenue vs. Capital Outlay

The modernisation of armed forces pertains to capital outlay. Capital expenditure is the expenditure that is incurred on procuring assets. In absolute terms, the capital outlay is increased by 10,340 crore, which amounts to an increase of 10 percent from the last fiscal. In the broader sense of things though, estimated capital spend amounts to 24 percent of total spend – a mere increase of 1% from last year.

Revenue expenditure is the expenditure incurred on the day-to-day operations of our troops. Apart from the salary that is paid to every officer, other requirements like food, ammunition, clothing, and other miscellaneous things also amount to a lump-sum percentage of the budget. The revenue outlay is increased by 3.67 percent from the last fiscal. When comparing the part of total outlay allotted to revenue expenditure, there is a decline of more than 2 percent from the last fiscal.

The C&AG report that was tabled in the Parliament suggests the shortcoming of basic equipment for military forces serving in high altitude areas. The report highlighted a delay in procurement of special clothing, and mountaineering gear shortage by four years, leading to an acute shortage in items essential for the soldier’s survival in the cold harsh weather. There was a critical shortage of snow goggles and out troops even had to reuse old multi-purpose boats after the forces didn’t receive new ones from November 2015 to September 2016. The lack of R&D in the Army also translated into inferior and old jackets, sleeping bags, and face masks. 

Thus, we can effectively derive that in status quo the Indian armed forces face a critical shortage of funds in respect to both revenue and capital expenditure. This not only disables the technological growth of the military, but also affects the nourishment of the large military manpower India currently has.

Allocation among the three forces

Comparing the allocation of capital resources to the three wings of armed forces from last fiscal to this fiscal, one can see that there is an absolute increase. The amount allocated to the Navy has been increased by 15 percent, while that of Army, and Air Force have seen an increase of 10 percent respectively. Despite the largest increase in allocation towards Navy, it still holds the lowest part of the total capital outlay at 23.4 percent, Air Force has the most part at 38 percent, and Army at 28.4 percent.

In the time when China is investing heavily in the Indian Ocean region , this meagre allocation will affect Navy the most which is already going through a severe financial crunch. Due to the low budget, the navy has had to rework its plan of having 200 warships by 2027. 

The strengthening of our naval forces is the need of the hour and that's why, the Navy has been pushing to get its share of the defence budget back to 18 percent as it was 2012-13 from 15 percent in the current financial year.

The Indian Air Force (IAF) got 38 percent of the ₹ 1.13 lakh crore capital component which comes to ₹43,281 crore, but in real terms, the capital allocation for the IAF has gone down from the revised estimates of 2019-20 which was ₹44,869 crore. In comparison, last year, the IAF had committed liabilities, payments for deals already signed for, of over ₹ 47,000 crore which was more than its entire capital allocation even then. The IAF has signed several major deals including 36 Rafale jets from France, S-400 air defence systems from Russia, Apache attack helicopters and Chinook heavy lift helicopters from the US among others.

The resource constraint is likely to delay several multi-billion dollar deals for fighter jets, submarines, and helicopters being processed through the Strategic Partnership model.

The case of pensions

Indian military is facing a human resource crisis. The forces are spending more on paying active soldiers and veterans than anything else. The increase in the defence budget over the years can also be translated to the increase in the pension budget. The pension budget for last year was 1.18 lakh crore, the current budget has 13.5 percent change in the pension budget standing at 1.34 lakh crore.

Way Forward

While every soldier who is serving or has served in the armed forces deserves monetary justice in the form of salaries and pensions, some measures can be taken to reform the work force of the military. The Government will have to find the right balance between modernisation of military and paying compensations to its soldiers. Even if there was not an economic crunch, just putting more money in the defence sector will only provide short term solutions.

Following the example of our immediate neighbour China, India can introduce reforms by cutting down numbers of personnel in the land-based Army, and rather investing more in Air Force and Navy. The ever evolving modern warfare puts a greater emphasis on superiority in areas such as the air, water, space, and cyberspace.

Giving boost to R&D in the domestic defence production sector will pave the way for more indigenous supply of defence equipment. Engaging more domestic private players in the defence production can go a long way to decrease expensive exports, and will give a relief to the Government. There was just a minimal increase in R&D expenditure in the capital outlay. It increased at an unimpressive rate of 0.47 percent from 10,484 crore in FY20 to 10,533 crore in FY21.