A file picture of defence display during a Republic Day parade.

NEW DELHI: Now that the borders with Pakistan have been peaceful for two years, will the increasing defence outlay see a plateau in the coming budget?

Having remained on the periphery of the Centre's priorities in the 1990s, the defence sector came into the limelight after the 1999 Kargil conflict. Moreover, nearly two years of full mobilisation on the border showed that the armed forces were underprepared for a modern war. The U.S.-led military operations after 9/11 also contributed to increasing expenditure on military platforms and surveillance mechanisms.

Despite the tranquil borders and a relatively stable situation in Jammu and Kashmir, Union Finance Minister P. Chidambaram will be under pressure to continue with substantial allocations for the defence sector. The revenue expenditure is likely to be around Rs. 50,000 crore because the Army will be averse to downsizing until the security situation stabilises to its satisfaction.

On the capital expenditure side, the armed forces have made out a case for increasing the outlay from the current year's Rs. 34,375 crore. This is to meet the commitments for orders placed by the present and previous governments and sign contracts for more equipment, primarily for the Army and the Navy.

The Defence Ministry is committed to making payments of thousands of crores in the next financial year each for an aircraft carrier and its complement of aircraft from Russia, submarines from France and advance jet trainers from Britain.

Mr. Chidambaram would also have to earmark substantial amounts for purchasing more military hardware. The Defence Ministry is in the process of purchasing a complement of surveillance planes for the Navy and a large number of tanks from Russia to replace its ageing armoured corps assets, besides air defence equipment. The Navy is also planning to repeat an order for three warships from Russia. It is keen on strengthening its nuclear force levels.

Talks with Russia are highly confidential, but according to information, India is discussing the acquisition of long-range bomber planes and nuclear submarines. However, there is no time frame for completing the negotiations in view of the complexity of such deals and Mr. Chidambaram might not be required to make allowance for these capital-intensive nuclear delivery systems.

While India continues with high-end military purchases, industry is hoping to benefit from the spin-offs. The Government has announced that foreign companies supplying equipment worth over Rs. 300 crore would have to source one-third of the value of the contract from the country. The Defence Ministry is on the verge of finalising this offset policy. However, a question mark hangs over the policy because of pressure by foreign companies to modify some clauses to their advantage.

While big military purchases and the huge expenditure on salaries and pensions for the armed forces are the two major components of the defence budget, the Army hopes for a little more generosity from the Finance Minister to adequately compensate soldiers who died in action. The Defence Ministry has sent a proposal for higher compensation to its martyrs and the ball is now in the Finance Ministry's court.

As a former Finance Minister, Pranab Mukherjee realises the constraints imposed by social sector commitments on the exchequer. This is why he has refrained from capitalising on the Prime Minister's statement, assuring three per cent of the gross domestic product to the defence sector if the economy continues to grow at a healthy rate. Even if this long nurtured expectation of the armed forces, supported by strategic analysts, does not materialise, the defence sector will get special attention from Mr. Chidambaram towards its fashioning as a modern military.

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