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Defence budget priorities for new challenges

4 mins read

Lt Gen S L Narasimhan

It is that budget time of the year again. The economic survey, followed by the budget, and the ayes and nays on it, is a ritual that goes on every year. This column is on the defence aspects of the Budget 2023–24. There will no doubt be an increase in the defence outlay, but it has to meet the needs of the services in view of growing national security challenges and upgrading to latest technologies. The budget will also take into account the indigenisation process under Atmanirbhar Bharat.

In the overall defence budget, the allocations need to be understood in two ways. One, allocation to the three services, defence salaries, pension and allotments to DRDO, Coast Guard, etc. Two, among these allocations, how much is allotted for capital and revenue expenditure. In simple terms, capital expenditure implies expenditure to be incurred on acquiring weapon systems, equipment, etc., that contributes towards the modernisation of the armed forces. Revenue expenditure implies expenditure to be incurred for the sustenance of the armed forces.

The allocation for the defence budget has always fallen short of the projections by the Ministry of Defence. But the government has maintained that the requirements of the armed forces will always be met irrespective of the budget allocation and it seems to have come through on that promise whenever any emergent need arose in the past. Moreover, the 15th Finance Commission has recommended the constitution of a dedicated non-lapsable Modernisation Fund for Defence and Internal Security (MFDIS) to bridge the gap between projected budgetary requirements and allocation for defence and internal security for the period 2021–26. The Commission has also recommended that of the total amount of ₹2.4 lakh crore, the MoD would be entitled to ₹1.88 lakh crore or 79% of the MFDIS.

Before one sets out to look into the aspirations for the defence budget in 2023–24, it will be prudent to analyse some of the past defence budgets. If the defence budget for the last three years is analysed, six factors stand out. One, the defence budget has shown an increase varying from 2.1% to 9% but as a percentage of GDP varied from 2.3% to 2.04%. Two, the defence pensions have been reduced in the last two years. Three, the capital expenditure is increasing, and within that, the percentage reserved for indigenous procurement has also been increasing.

These, combined with the negative lists of 1,238 subsystems and the positive indigenisation list of 310 big weapon systems (announced by the Ministry of Defence only to be procured indigenously), will result in getting more value for money. Four, there has been an effort to reduce revenue expenditure. However, the same has yet to succeed due to additional deployments necessitated by the events in Eastern Ladakh in 2020. Five, the Indian Air Force seems to have been allocated maximum funds, followed by the Indian Navy and the Indian Army, in that order. Air Force and Navy being expensive-platforms-centric, have been allocated more funds. Lastly, 25% of the funds for R&D will be meant for civil enterprises.

Some analysts have opined that the Agnipath scheme announced last year was a cost-cutting measure. But the financial effects of that scheme will only be clear after the present lot of armed forces personnel get discharged from service and the Agniveers recruited since last year go over at least two or three turnovers of four years each. On January 2, 2023, media reports mentioned that the Indian Army is pruning its non-operational personnel and legacy units to improve its teeth-to-tail ratio. The effort to reduce the revenue expenditure is clearly visible.

Now, coming to this year’s budget. On a conservative estimate, we can expect an increase of anything between 7–12% in the defence budget. The bracket has been purposely kept large as the economy is still coming out of the effects of Covid-19. If the inflation projected by the Reserve Bank of India as 6.7% during the year is considered, this will give a real increase of approximately 1–5%. Even though the Standing Committee on Defence (2018) had recommended that the Ministry of Defence should be allocated a fixed budget of about 3% of GDP, it would be fair to assume that it is unlikely. The allocation for capital expenditure will likely grow, and so will the allocation from it for indigenous acquisition. This progressive increase will help in improving indigenisation and further progress in Atmanirbhar Bharat.

All three services will aspire for more funds to improve their capabilities. The ongoing Russia-Ukraine conflict has brought forward a couple of issues. One, however much the asymmetric capabilities develop, they cannot win wars by themselves. Hard power of the Army, Navy and Air Force is the basic requirement that cannot be wished away. Two, armed forces have to be prepared to fight long wars. Therefore, adequate funding for building their ability to fight protracted wars needs serious consideration. This is also accentuated by the fact that we have active borders on two fronts. Therefore, all the services and the Strategic Forces Command need to be funded adequately.

While that requirement should be met as much as possible, the focus should be on developing asymmetric capabilities in space, cyber, artificial intelligence, quantum technologies and blockchain. These are likely to be the battle-winning technologies of the future, and to get technology transfer for them will be difficult. Developing these technologies is time-consuming and needs a lot of research.

Therefore, the upcoming budget may increase the funding for research and development with accountability attached to it. Civil-military integration is an important aspect for which some allocation may be made in the defence budget. Many countries have benefited from leveraging civil and military capabilities to modernise and upgrade their defence potential. Recently, the cabinet approved the revision of pension for veterans of the armed forces as per the ‘One Rank One Pension’ formula. Approximately ₹23,638 crore needs to be paid as arrears from July 2019 till June 2022. The estimated additional annual expenditure for implementation of the revision is expected to be approximately ₹8,450 crore at 31% Dearness Relief. This has to be catered for in this year’s defence budget.

Balancing the budget amongst multifarious requirements is difficult. One sincerely hopes this year’s budget will meet the expectations for the defence budget.

Lt Gen S L Narasimhan PVSM, AVSM*, VSM, PhD (Retd)

Member, National Security Advisory Board

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