Capital outlays at the core of defence capabilities

THIS calendar year has seen the tabling of two Budgets — the interim one on February 1 and the full one for 2024-25 on July 23. The allocations for the defence sector have not seen any major variation, belying hopes that Modi 3.0 would focus more on capability enhancement of the armed forces. The defence expenditure as a share of the total expenditure has declined from 17.8 per cent in 2016-17 to 13.9 per cent in 2023-24 (revised estimates) and 12.9 per cent for the current fiscal. Overall spending for FY 2024-25 has increased only by 4.8 per cent over FY 2023-24. Adherence to fiscal strictness in government expenditure may partially explain why the Modi government has kept the increase in defence expenditure minimal.
The Ministry of Defence (MoD) has a total allocation of Rs 6,21,941 crore. Within this kitty, 27.7 per cent is for planned capital acquisitions, aimed at equipping the armed forces with advanced technology and weaponry, 14.8 per cent for revenue expenditure, 53.3 per cent for salaries and pensions, and 4.2 per cent for civil organisations under the MoD. To boost indigenous defence production, Rs 1,05,518 crore has been allocated for domestic capital procurement out of the total capital head.
The continuing inimical activities by our northern and western neighbours, the need to ensure maritime security, and having the ability to deter the enemy on land, in the sea and the air, are inescapable realities that narrow down our options. A robust financial outlay for defence is thus imperative for any FM. However, a cursory look at the outlays indicates a largely status quoist approach. Factoring in inflation makes percentage increases largely cosmetic and just about adequate to meet immediate needs. Any attempted dexterity in spending is hemmed in by committed liabilities consuming the larger part of capital outlays.
Though the defence expenditure is the largest component of the Union Budget, one sees little result-oriented discussion and informed debates on it. Even the well-thought-out recommendations of the Standing Committee for Defence remain bereft of action. A long-standing recommendation, which had also been projected by the 15th Finance Commission, was the creation of a non-lapsable modernisation fund for defence and internal security. However, this has not matured into a working mechanism. The security situation in the neighbourhood as well as globally remains unpredictable. We, however, have been mostly reactive in dealing with any crisis to the extent that even funding is met in an emergency mode.
Building capacities and developing capabilities need time, while intentions can change rapidly. Cost-intensive infusion of high-end technology in military systems and equipment, which in the present day also includes cyberspace, space and unmanned platforms, has to be ongoing. While planning for our defence, we need to clearly understand that capital outlays are the foundation of capabilities.
The ‘capital good, revenue bad’ analysis is a regular part of discussions on the defence budget. This is more of a slogan than a cogent analysis. The revenue head includes expenditures on sustenance, operational preparedness, continuing procurement and maintenance of in-service equipment. The situation we face in J&K and on the borders with China and Pakistan makes a manpower-intensive posture imperative and inevitable. Salaries and pensions are a function of the size of the forces needed to be maintained, based not only on operational needs but also on the methods of application in such a scenario. The cost of the human resource required for this is as necessary as any weapon platform. The ‘capital versus revenue’ argument is not of much consequence outside of account books. It also needs no reiteration that defence pensions are a sovereign promise to the soldier and his family for his service to the nation.
As much as 75 per cent of the outlay for modernisation will be spent on sourcing from the domestic industry, in line with the focus on Aatmanirbharta, and Rs 43,000 crore will be spent on imports dedicated to capital acquisitions. The lead times necessary to develop, produce and deploy critical technologies and weapon systems are considerable. Boosting indigenous production of defence equipment has to be an important pillar of our defence policy, but this will be a long, ongoing process and cannot meet current requirements in an optimal manner. Then again, our indigenisation efforts must be freed from stifling procedures. There has to be a concerted effort for encouraging startups and private players in defence production by an underwritten assurance of confirmed orders for viable products within a clear timeline, failing which the project could be foreclosed.
Unlike in the past, the current defence budget does not spell out distribution of capital expenditure among the three services, on the grounds of fostering jointness. This obstructs the estimation of service-wise share. This also leads to an issue of concern from the past — the lapsing of the capital budget of the Army. While the Navy and the Air Force are platform-centric in their capital inventory, with big budget systems, the Army has a huge inventory of small and medium-level weapons and equipment. The fault lies primarily in procedural delays, overshooting trial timelines and contractual issues, most of which are beyond the control of the Army HQ directorates dealing with procurement. The acquisition vertical of the MoD should be fully accountable for this and reasons need to be ascertained for missing the expenditure targets.
The defence budget must be capability-driven and not intention-driven. A firm step in this direction would be to make the capital budget ‘non-lapsable’ and ‘roll-on’ in nature, with a five-year time span. A non-lapsable military modernisation fund must be created and a Defence Commission constituted to ensure that this is utilised optimally by being the bridge between Service HQs and the Cabinet Committee on Security. A draft Cabinet note for such a fund has been under consideration by the government for quite some time now and needs to be approved expeditiously.
Any nation keen to raise the quality of life of its citizens requires serious efforts and substantial resources. India, too, is engaged in this journey towards development. We must never forget, however, that the sine qua non of Viksit Bharat is Surakshit Bharat.