India’s 2023 INR5.94 trillion (USD73.8 billion) defence budget makes it the third largest globally behind the United States and China. However, over half of this, some 53%, is spent on personnel and pensions, limiting the scope for defence procurement and modernisation.
To compound the challenge, with Russia mired in the Ukraine war, India’s armed forces face added problems maintaining their Russian-origin defence equipment. Meanwhile, India is facing an assertive China and tensions with Pakistan. In addition, Delhi aims to modernise its military, cut its reliance on Russia, widen its international supplier base, and prioritise domestic arms production and research and development (R&D) via the ‘Make in India’ initiative.
Defence as a public-spending priority Since 2013, India’s defence budget has more than doubled (see table). However, closer inspection shows the internal pressures on domestic defence spending. Over the same period, it is possible to see a marked decline when examining the defence budget as a share of India’s GDP or as a share of total central-government expenditure.
Using the proportion of GDP alone as a metric, however, can be misleading, given fluctuations in economic growth, most recently in 2020 when it contracted by 6.6% as a result of the COVID-19 pandemic. A more indicative measure, arguably, is to view defence spending’s share of central-government expenditure to more directly indicate government priorities. Between 2013 and 2023, central-government expenditure grew by 170%, but since the Narendra Modi government’s first full-year union budget in 2015, defence spending’s share has fallen by 4.2 percentage points (see table).
Pensions burden vs capital spending In 2023, funding for military pensions came to INR1.4tr (USD17.2bn), accounting for 23.3% of total defence spending. This pension burden has grown significantly since 2008, when it represented 12.6% of the total budget, and it has consistently been above 20% since 2016. Furthermore, India consistently spends 30% of the defence budget on military pay and allowances. In 2023, this area of funding came to an estimated INR1.8tr (USD21.9bn), accounting for 29.6% and bringing the sum of the two to over half the entire defence budget.
Therefore, the notable increase in the top-level defence budget disguises the impact on procurement and R&D expenditure. The relative decline in defence funding against GDP and central-government expenditure and the pressures personnel and pensions costs place on investment spending within the defence budget – combined with bureaucracy and slow procurement processes – acts as a brake on modernisation efforts.
Indian decision-makers are aware of the need to recapitalise the country’s armed forces, and between 2008 and 2012 spending on capital expenditure averaged 32.4% of the total for defence in proposed budgets. However, this decreased to an estimated 27.0% average between 2013 and 2017 and again to 23.4% between 2018 and 2022. Similarly, R&D fell from an average of 5.1% to 4.5% to 4.3% of total spending across the same periods. In the 2023–24 budget, capital and R&D expenditure accounts for 29.1% of the total budget. Of this, funding for new arms and equipment acquisition for modernisation and the replacement of obsolete weapons amounted to USD16.2bn or 21.9% of the budget.
Personnel reform Due to the high personnel costs, the army continues to dominate the budget for the three services. Including pension costs, the 2023 defence budget allocated to the army USD42.2bn or 57.1% of the overall budget, of which only USD3.7bn was earmarked for modernisation. In contrast, the navy was allocated USD11.4bn or 15.5% of the budget, with USD5.9bn for modernisation; and the air force allocated USD14.1bn or 19.1% of the budget, with USD6.6bn for modernisation.
India is experimenting with different forms of recruitment and retention, which may help reduce the pension burden in the long run. In June 2022 it unveiled the Agnipath (‘fire path’) programme which officially seeks to reduce the average army age. Such a move will have considerable budgetary implications as Agnipath aims to recruit younger soldiers (from 17.5 to 21) where, after a four-year contract, a quarter of intakes will be eligible to join the armed forces as a career. It replaces the previous minimum tenure of 17 years with four years as an ‘Agniveer’ plus 15 years’ service for those successful in enrolment as regular soldiers. The three-quarters of Agniveers who do not make selection will receive a tax-free severance package, but will be not eligible for pensions or health benefits.
Personnel reform, of which Agnipath is a part, and the proposed creation of a Defence Modernisation Fund (DMF) to supplement annual budgetary allocations, are potentially important first steps to shift the balance of defence spending to better support modernisation goals. But this will also require greater procurement and R&D expenditure, dependent on the country’s broader economic performance.
Note: Budget figures throughout this article are taken from the Government of India Union Budget for various years.
No comments:
Post a Comment