Budget 2016: Balancing resources for equipment modernisation in defence will be tricky

By Deba R Mohanty

The budget for defence seldom gets the scrutiny or attention that other budget areas receive, although together with the budget for homeland security and other categories (like atomic energy and space, which have security dimensions), it accounts for a quarter of Central government expenditure.

Four fundamental questions pop up when it comes to budgeting for defence:

Budget 2016: Balancing resources for equipment modernisation in defence will be tricky

Representational image. Reuters

a) How much in terms of resources needs to be devoted toward national defence?
b) How much should go toward military equipment and services (capital expenditure)?
c) How much should be spent on the revenue side (salaries, pensions, welfare for the armed forces etc)?
d) How much should be devoted toward military research and development?

The complexities of national military dynamics suggest that definitive amounts cannot be assigned to each category. However, reasonable assessments can always be arrived at.

Let’s begin with capital expenditure (other areas will be discussed in separate articles). This essentially consists of military procurement contracts already signed in the previous year/s and factored into the budget. These are called ‘committed liabilities’, which as indicative trends suggest for the past decade, hover between 80 and 90 percent of capital expenditure. This leaves between 10 and 20 percent (depending on the spending pattern) for fresh military equipment acquisitions. At times, the Ministry of Defence has to return the money already budgeted for, because of its inability to spend the allocated money in the same year, primarily because of the non-fruition of contracts.

Called ‘unspent syndrome’, this used to be rampant in the past.

Indicative trends again suggest a curious curve in the last decade — while there are years when ‘actual’ capital expenditure met targets, there were bouts of ‘unspent syndrome’ creeping in as well. For example, the year 2015-16 (budget estimates, announced in FY 2015) may witness ‘unspent syndrome’ of the previous year to the tune of almost 40 percent, as reported recently. Latest expenditure data, as claimed by a prominent newspaper, shows that over Rs 37,000 crore of the defence ministry's modernisation budget remained unutilised as of December-end, with the Army struggling the most — having spent only 45 percent of its capital allocation.

According to the same report, the MoD could not spend 22 percent of the initially allocated Rs 80,545-crore capital budget for the three armed forces. It is assumed that the 'unspent syndrome' could get worse and the ministry could fall short of its target of signing deals worth over Rs 1 lakh crore this year.

Unspent money normally goes back to the Centre or some of it is adjusted in revenue expenditure. If one looks at acquisition approvals announced by the current government, we are looking at more than Rs 3,20,000-crore worth of acquisitions — that need to be budgeted from this year onwards — although none of the projects have been factored in thus far. With another set of approvals, as mentioned by Defence Minister Arun Jaitley a month ago, worth about Rs 80,000 crore, we could be looking at an amount greater than Rs 4,00,000 crore. Making matters worse, a bulk of these project approvals have been pending for years. If new acquisitions are to be planned, then the buying cost could further escalate.

A larger acquisition scenario for equipment modernisation from a long-term perspective (between 2015 and 2027, which marks the end of approved 15-Year Long Term Integrated Perspective Plan) would suggest at least 10 times that of what has been approved in the last 18 months. In sum, it will be a gigantic challenge for the government to deploy its financial resources for force modernisation. Even if revised capital expenditure falls short of budgeted expenditure for last year (Rs 95,000 crore), some money could be allocated this year along with an expected 15 percent increase in budget estimates for the coming year.

Even if we are looking at an assumed figure of Rs 1,10,000 crore or a little more, it may not be enough to meet expectations. It will be a Herculean task for the MoD to balance resources for ‘committed liabilities’, approved and new projects with an eye on long-term equipment modernisation.

Capital purchases thus need to be carefully planned in order to make a fine balance between available resources, which can not be stretched beyond a point, and necessities. The shopping list looks too big as all services require to not only replenish, but also enhance fighting capabilities through advanced systems. From fighters, land-based systems to warships and submarines — you name it, we require dozens of them. It will really be a task for the planners to manage aspirations by committing resources. The forthcoming defence budget could provide us some clues to how the Indian military power will look in future.

The author is a New Delhi-based defence analyst and head of a defence research firm

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Updated Date: Feb 24, 2016 11:57:53 IST

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