http://www.idsa.in/idsacomments/DefenceBudget2015%20-16_vkaushal_020315.html
Vinay Kaushal, March 02, 2015
The Indian Air Force used to have a very competent, business like and unflappable Deputy Chief who, whenever one went to him for a debrief, would say, “Give me the bad news first, the worse next and anybody can handle the good news”.
Financial IndicatorsThe Bad news
The bad news in this year’s defence budget is that it does not recognise that things are not going in the right direction but only the beaten track. The ratio of defence expenditure to GDP has continued to decline over the last 30 years, as is evident in the graph below.
While it is true that GDP does not reflect the resources available to the Government and may not be the best indicator to measure defence expenditure against, Non-Plan expenditure does reflect the resources being spent by the Government. The size of the defence budget is, in principle, a measure of the resources provided for defence by the political executive. The size of the defence budget also serves to identify the relative importance of the Defence Services in comparison to other organs of the state. As acknowledged by the Finance Minister in the budget speech, Interest, Subsidies and Defence Expenditure together constitute nearly 75 per cent of the Non-Plan expenditure, but even in this regard the share of defence expenditure has been gradually falling (see graph below).
Defence expenditure has two major components, Capital and Revenue. An optimal mix of the two is needed, given that capabilities have to be continuously improved through the modernisation of weapon platforms and infrastructure even as what has been acquired is operated and maintained. An old adage made popular by General Patton, “The more you sweat in peace, the less you bleed in war”, still holds good. We do not appear to have figured out the optimal ratio between the two. The result has been a skewed ratio over the years as reflected in the relationship of both these components with GDP and Non-Plan expenditure (see the successive graphs below).
The Worse News
While adequacy of resources is an issue, the track record of being able to utilise the resources allocated for ‘Modernisation’ at the Budget Estimate (BE) stage during the financial year is far from impressive. Only in four of the last 20 years did the Ministry of Defence (MoD) get additional funds at the Revised Estimate (RE) stage; and only in one year did it fully utilise the allocated BE. In the remaining 15 years, the MoD failed to fully utilise the funds meant for ‘Modernisation’ in the capital budget allocated at the beginning of the year (see Table below).