The defence budget

By V. R. Raghavan

THE RS. 58,587-crore Indian defence budget has evoked a wide ranging response. It is the largest annual increase in defence allocation in many years. Mr. Mulayam Singh Yadav, former Defence Minister, was an exception who remained unsatisfied and preferred a Rs. 82,000-crore defence budget! There is, however, an unmistakable sentiment of concern that defence should cost so much. Pakistan has wondered about the size of the budget and

the intentions behind it. The United States is reportedly dissatisfied about the size of the outlay and anxious about its impact on existing tensions in the sub-continent. There is also justifiable disappointment that allocations to social sectors have been frugal if not criminally deficient. The question of what is being defended at such high costs is a natural outcome of this budget.

It is useful to go over Mr. Yashwant Sinha's elaboration on the budget. In his address at the national seminar organised by FICCI the day after the budget, the Minister explained the relationship which exists between defence and the fiscal deficit. He argued that the proposed fiscal deficit of 5.1 per cent was dictated amongst others by security considerations. He added that if he had kept the defence budget at last year's level, he would have brought down the fiscal deficit by 0.6 per cent. He went on to say that this would not have been in the national interest. In a live webcast the Minister averred that the Kargil expenditure would take up the entire amount he is mopping up. The increase in the defence budget is limited to 0.4 per cent. The 2.7 per cent of GDP allocation for defence is one of the lowest in the world.

Reducing the defence expenditure is a long standing demand. The arguments of guns vs butter, of swords vs ploughshares are not new. Adam Smith said that civilised nations would rely on a militia for defence at their peril. Nations need armies. Since armies are expensive, a national effort is needed to find the large amounts involved. Defence, according to him, was a common good. Smith also added a caveat that to afford defence, the nation must be an opulent one. Ricardo took the position that Governments should be restrained from embarking on costly wars at public expense. Neither Smith nor Ricardo imagined that countries with huge fiscal deficits, and which keep social peace through unaffordable subsidies, would also keep large armies and wage wars. The economist asks what additional security can be had for every extra rupee. The defence forces rightly question, how much security is good enough?

The answer to the latter question rests with the political leadership. It has not preferred to answer it, since India became independent. Flawed economic, social and foreign policies have created a wide range of internal and external threats to India's security. The police and paramilitary forces cannot, however, manage internal security and require the military to do the job. The military's size and costs go up, if it is manage both internal and external threats. The Navy and the Air Force also require huge capital outlays.

Militaries in most countries are downsizing by taking recourse to technology. In India, they continue to be manpower dependent. No wonder that the bulk of the budget goes to salaries. The inefficiencies of the bloated and ever-increasing paramilitary forces are also being borne through a large military manpower. It is important that the need for a large defence apparatus is brought down, if the budget is to be reduced. That can only happen if the outlook on what constitutes security is changed.

Security lies, to use Adam Smith's phrase, in the nation being opulent. It is apparent that there can be no national defence without national wealth. The route to national opulence, growth and development lies in sound fiscal and monetary policies. Reducing defence expenditure can only be of marginal use. The value of reductions in defence expenditure can be reasonably correctly assessed. If defence expenditure is reduced by half, it would release about 1.5 per cent of the GDP in the financial mainstream. In the proposed budget, this would amount to Rs. 30,000 crores. This is not a particularly large amount. It is unlikely to make such a difference either to the fiscal deficit or to other allocations. An average defence person would argue that the numerous financial scams may have amounted to more! However, the amount can make a qualitative difference, wholly out of proportion to the sums involved, in improving defence preparedness. On the other hand, PSU disinvestment alone is capable of reducing the total fiscal deficit by half.

India's security environment in the foreseeable future is unlikely to improve. Internal political strife and armed, if not military, external threats are likely to get enhanced. The other and more important dimensions of national security, eg; energy, food, human resource security in terms of education, employment, health, the security of individual citizen, are all about to come up front as priority areas. Defence needs are also unlikely to come down without major political initiatives in the region. Defence costs will, therefore, continue and may even rise.

Therefore, if defence allocation as a percentage of GDP must rise, national GDP should also go up. The choice is clear enough. It is to accelerate economic growth by not allowing policies to be held hostage by vested interests. The choice is between national and vested interests and not between defence and development. The choice is also between issues of national and political economy. Allocation of funds is only part of the challenge of meeting the nation's defence needs. The ability to effectively use the funds is the more important need. The last ten or more years have seen defence budgets which have been almost static in real money value terms. The defence services have consistently complained of inadequate funds. Yet there is hardly a year in which they have been able to fully spend the amount allotted to them. The Chief of the Army Staff recently lamented that complex and tedious procedures make it difficult for the services to first get the allotted moneys released, and then to have them spent. Money not spent in one year does not get carried over and is lost to the defence forces. The big budget now presented involves much larger sums. There is no knowing how much of it will remain unreleased and unused. These built in inefficiencies need to be speedily done away with. Defence investments have to be based on long term planning.

An annual defence budget is the worst possible way to plan for national defence. The defence forces, even more than other Ministries and departments, need to broadly know what funds will come their way at least for five years to come. They can then economise on force restructuring, system acquisition, training, logistic repositioning, war inventories and personnel policies. The current system of annual budgets leaves the defence forces gasping for fiscal breath every financial year. They can neither anticipate the gains nor plan for the losses. Other Ministries can cope with such uncertainties because they are providing good or bad service. The defence forces fight war, where they either win or the nation is defeated.

India's defence management badly requires restructuring of higher defence organisation. The Subrahmanyam Committee, set to look into the Kargil episode, has recommended it. Before that, the Arun Singh Committee had made a comprehensive, and eminently sensible set of recommendations, to improve the defence management process. The Defence Minister had promised that he would bring about the much-needed integration of the defence services with the Ministry of Defence. This would greatly improve efficiency and bring about economy, but none of it is in sight.

Effective security cannot be had by merely presenting a bigger defence budget. It requires effective defence finance procedures which in turn needs integrated defence planning organisations. It is now up to the Government to introduce the structural changes needed by the circumstances.

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