Platitudes over the Indian government’s budget for the 2018-19 fiscal year are coming in thick and fast from the usual suspects. It is being described by some as reformist, a master stroke, agriculture-friendly, health-care-friendly, hailing Finance Minister Arun Jaitley as the key protagonist.
There is also criticism, however, including talk of indexation in capital gains indicating inadequate preparation for the budget.
The allotment of only 20 billion rupees (US$312 million) for health care against an estimated requirement of 300 billion rupees ($4.7 billion) is, at best, an election gimmick that will help private hospitals rake in millions. The much-touted allocation for the bamboo sector is a misnomer. Nothing is being done to address Chinese products that killed the bamboo industry in the first place.
But as far as allocation for modernization of the military goes, there is definitely cheer for India’s adversaries, if none for its Armed Forces.
The defense budget for 2018-19 stands at 2.9 trillion rupees, which is 1.58% of gross domestic product. The increase in the allocation is projected as 5.91% but the defense allocation for fiscal 2017-18, portrayed as a 6% increase over the previous year, was actually “negative” growth in actual terms.
Since 1992 there has been a steep fall in the defense allocations, and the defense budget for 2018-19 is the lowest since 1962. Only after the 1962 debacle in the Sino-Indian border war did the share of defense in GDP increase from 1.5% to 2.31% in 1963.
Apparently, India continues to miss the balance between economy and security:
- On May 4, 2017, General Bipin Rawat, Chief of Army Staff, speaking at a think-tank in New Delhi, said India needed to spend much more on military modernization to ensure that economic growth continued unhindered. Lamenting the “general thinking” that defense expenditure is a “burden,” he pointed out that the Armed Forces were not getting their due share and that India needed to “draw a lesson from China” in this regard.
- The report by the Standing Committee on Defense tabled in Parliament on December 19, 2017, rapped the government for inadequate defense allocations and under-utilization of funds, and stressed the need to take issues seriously lest the a persistent trend of decreased allocation of funds had a cascading effect on operational preparedness.
Pensions for civilians, not soldiers
The 2018-19 defense budget excludes pensions. This was also the case in the previous fiscal year’s defense allocation. There is a sharp increase in the defense pension bill, but 36% of this money goes to pensions of civilian defense employees. The defense pension bill for 2015-16 included an outlay for about 400,000 defense civilians, and some on account of allowances and the establishment of Ministry of Defense (MoD) (Finance).
So why should the MoD spend 10 billion rupees annually on pensions of Finance Ministry personnel who were “attached” to the MoD before? The per capita annual expenditure on 2.5 million military veterans is lower for as compared with the outlay for civilian defense pensioners. The civilians also serve longer, reach the highest grades in pay scales, are eligible for One Rank, One Pension (OROP) and are entitled to Non-Functional Upgradation (NFU). On an average, a defense civilian pensioner costs five times as much as a military pensioner. Can the defense minister and the finance minister justify this?
Jaitley did make a departure from his earlier budget speeches: For a change, he did talk about defense (precisely 183 words), compared with little or nil in his previous budget presentations. But the focus was on irrelevant issues.
He praised the Armed Forces for dealing with border challenges and managing internal security. He emphasized that the government of Prime Minister Narendra Modi since 2014 had been modernizing and enhancing operational capability of the military. He listed a number of initiatives to ensure self-reliance in defense. And finally, he assured that ensuring adequate budgetary support remained a priority.
He also announced that the government had opened up private investment in defense production and liberalized foreign direct investment.
The finance minister underscored the intent to develop two “defense industrial production corridors” and initiate an industry-friendly Defense Production Policy (DPP) to promote domestic production by the public and private sectors and MSMEs (micro, small and medium enterprises).
He also stated that developing connectivity infrastructure in border areas – Rohtang tunnel completed, Zozila tunnel progressing and a proposal to tunnel under Sela Pass – would remain a priority.
A make-believe budget
But Jaitley seems to have painted a make-believe picture. Even though he has held the Defense portfolio twice in the tenure of this government, he will struggle to answer a few relevant questions.
Can the enhanced military modernization and increased operational capability since 2014 be quantified? Clearly, it has gone down with critical shortages multiplying and more equipment and weapons systems becoming obsolete – for example, India will be without a minesweeper by end-2018 while China has 100 of them.
Despite the mounting dual China-Pakistan threat, India’s defense expenditure as a ratio of the total central government expenditure (TGE) stands at 12.10% for fiscal 2018-19, which is the lowest in the world. In Pakistan, it is 25-30% of the TGE.
Of the 2.9 trillion rupees for fiscal 2018-19, 995 billion rupees is for capital and 1.95 billion rupees for revenue expenditure. With a manpower-intensive army, its capital-to-revenue-expenditure ratio is as low as 17:83. Consistently low capital budgets ensure there are no replacements for obsolete weapons and equipment, degrading combat efficiency.
Of the capital expenditure, almost 80% is always meant for past procurements, payments for which are guaranteed and must be made. Thus only about 200 billion rupees is available for new procurements during the new financial year. In percentage terms, only 3.6% of the defense budget is available for modernization.
Some argue that the MoD surrenders massive amounts of the budget every year and therefore does not justify a substantial increase. But these funds are not utilized in time because of a moribund bureaucracy. So files are shuttled endlessly and the government continues to make knee-jerk reactions. Where is the Rafale deal that was announced by Modi a few years ago? And why did the government cancel the anti-tank guided missile (ATGM) deal and then reinstate it after the recent visit by Israeli Prime Minister Benjamin Netanyahu?
Some wonder why, if the defense allocation is inadequate, the main opposition party, the Indian National Congress, is not protesting. The Congress is equally guilty of ignoring the military’s modernization. The two principal political parties continue to play in tandem, as was exhibited when the government tried to amend the law for the second time to protect the two parties against paying a penalty for illegal foreign donations.
Some feel that the government must have considered the threat matrix for this budget. But has it? After the high-decibel Doklam standoff, India remained mute to the Chinese military building a brigade-strength force in Doklam after the BRICS (Brazil, Russia, India, China and South Africa) Summit. If some think that China will stop at that, then Indians are in for a rude shock.
On balance, the Modi government’s defense budget has failed even to address the critical military shortages to some extent, leave aside any modernization. The budget may appease voters despite the fact that some of the announcements may have limited follow-through, but the finance minister has failed the soldier yet again. The nation may have to pay a price for this.