Nation and National Security
In the present global geopolitical disorder defined by strategic security instabilities, strength flows from economic might but economic might warrants stability and stability comes only when a nation is strong enough that it does not have to sacrifice its national interest to avoid war and is able to if challenged to preserve it by war.
The euphoriant motto “India First, Citizen First” is indeed as inspirational as also “Today’s era must not be of war”, yet devoid of the geopolitical context and realities of the threats to the nation. To keep both India and its citizens first, the nation will have to secure them from the burgeoning threats across the turbulent borders that continue to cast its shadow on the nation. India will need a more credible deterrence with redefined capabilities, structures and doctrines which remains challenged with chinks exposed as in the recent past. To deter, deny and defeat threats requires a long-term vision with the adequacy of resources for desired capabilities and matching budgetary reforms. The fiscal resources would never suffice in a single budget; thus it requires prioritization based on value, vulnerabilities and risks in the temporal term.
Ironically, an institutionalized vision to identify and tackle threats to national security remains a glaring void and the national effort is in disarray in the absence of a National Security Strategy. The bureaucracy and politicians dealing with matters of defence are certainly sharp, intelligent and seasoned, but hardly educated in matters of national defence. The populistic factor in the budget especially in the shadow of incoming elections also weighs in its qualitative focus. Thus there exists a mismatch in policy formulation, resource allocation and desired execution. The means do not empower the ways to achieve the ends.
Defence capability building takes time while the intentions of adversaries can change quickly over time. India’s global rise will thus be a complementary factor of India’s economic and military resilience which remain insurance for its global voice alias diplomacy and global stature alias development.
Pre-Budget Economic Survey 2023 – Sunnyside Up
Indeed India has most creditably navigated through the troubled waters of the pandemic and Russia-Ukraine conflict threatening global financial recession. India is the fastest-growing economy and has overtaken the United Kingdom as the fifth-largest economy and is likely to be the fourth-largest economy by 2027 and third-largest by 2029 at the current growth rate. This is a matter of pride for the nation and the credit must go to the policymakers. Yet a resilient economy needs matching military strength to provide the secure environment needed for its sustained growth.
Ironically its quantitative and qualitative economic growth is also tied to its adversary. Together with China, it accounts for 50% of global growth. While China’s economic return to normalcy will boost the global economy and is good for India’s inflation dynamics, China’s leverage in the warped balance of trade creates dents in India’s integrated deterrence. The qualitative content in terms of import from China impacts the infrastructure and electronic segment and thus weakens strategic autonomy, creating vulnerabilities to economic warfare.
No doubt the heart of the power of a state is its economy, technology and capital prowess, yet the economic might without military clout could result in embarrassment for a nation. China for certain would not like the rise of an economic giant in its neighbourhood and so will take both kinetic and non-kinetic actions to stymie India’s growth while keeping the coercion below the threshold of an all-out war.
The Economic Survey pegs the growth in the fiscal year as 6 to 6.8% which is most creditable. IMF forecast for 2023-24 being 6.15% with a rebound of 6.8% is indeed encouraging for a nation with a focus on the growth in infrastructure, agriculture and industry particularly the private sector. Yet the Industry to GDP ratio and GDP per capita income as financial metrics remain concerns to its growth calculus.
Further, while the inflation has been curtailed to less than 6%, the Debt to GDP ratio at 57% remains one of the highest, though hopes remain that the growth rate will shrink debt servicing. Thus while the survey has focused on achievements despite the challenges, it shies away from carrying out a pragmatic SWOT (Strengths, Weaknesses, Opportunities and Threats) analysis to derive mitigating strategies for future threats. It has also paid scant regard to the threats to national defence and present vulnerabilities which could adversely stall its growth trajectory and stature.
Thus the rising Indian economic landscape has lacked the political will of translating economic prowess into military power. Ironically as a nation, the absence of a strategic culture, the neglect of evolving an effective framework to counter future security threats, and the civil-military dissonance have stalled the all-important edifice of military hard power as a strategic deterrence.
The Sun Shines – Union Budget 2023 Growth Incentives
Budget 2023 does bring about smiles to the middle class with the much-awaited tax reforms and investment/saving incentives. The capex (capital expenditure)-to-GDP rising from 2.7% in 2022/23 to an estimated 3.3% in this budget(effective capex will be ₹ 13.7 lakh crore, forming 4.5% of GDP) is positive. It empowers the nation’s trajectory which is driven by economic growth, technology and capital inflow.
The budget brings hope for a continued economic recovery through the wide multiplier effect of public capex which can create more jobs, spur demand and lead businesses cum industry to spend more money on capital expenditure. Thus public capex can create long-term capacities for higher economic growth and boost indigenous technologies. Strategically it could also encourage startups and young entrepreneurs. India is also likely to continue to attract an increase in FDI inflow with its promising economic growth, largely middle class willing to spend and a youth bulge that will increase to ₹ 15 crores from 2022 to 2050.
Overall a positive Union Budget 2023 sees the sun rising in India. Yet with the clouds of threats to its national security getting dark, a storm from across the borders to destabilise the nation and its growth trajectory cannot be discounted. The wise hope for the best yet prepares for the worst. This is where the defence budget lacks foresight and pragmatism.
The Clouds Overcast the Sunshine – Defence Budget Remains the Weak Link
Defence and Development are two sides of the same coin and a trajectory in the growth of a nation. Both these are capital heavy investments with competing demands and thus require a fine balance.
The Defence Budget will thus never be adequate but must never be insufficient, especially wherein it impacts the defence of a nation and its national security interests. The sweet spot has to be found by policymakers which have been missed in the present budget.
The Union Budget for the Financial Year 2023-24 envisages a total outlay of ₹ 45 lakh Crores. Of this, the Ministry of Defence has been allocated a total Budget of ₹ 5.94 lakh Crores. Even as a percentage of central government spending the present defence budget is 13.30% as compared to 13.74% last budget, which is a year-on-year decline despite the escalating threat matrix. The overall defence budget works out to 2.04% of GDP (compared to 2.15% last year) and more pragmatically near 1.7% of GDP with fewer defence pensions which is subpar.
Incidentally, the defence budget was 1.64 % of GDP in 1962 when the nation woke up to a rude shock. The average global estimate is approximately 2.4% in terms of GDP. To meet its commitments the military’s requirement is a minimum of 2.5% (fewer defence pensions).
The present fiscal large gap thus restricts defence capability building severely. More importantly out of every ₹1 spent by the Government only 8 paisa goes to defence which includes salaries and pensions too. Can this slim capex availability be adequate for a nation facing turbulent borders, terrorist threats and escalating threats across the border?
The Capital Allocations for modernisation and infrastructure development of the Defence Services has been increased to ₹ 1,62,600 crore representing a rise of ₹ 10,230 crores (6.7%) over FY2022-23. The capital component has a non-modernisation component and a modernisation component which has a committed liability sub-component and new schemes sub-component. Much of the capital expenditure allocated to the defence ministry will thus go towards fulfilling India’s contractual obligations as committed liabilities leaving limited scope for new schemes. The 15th Finance Commission had made a recommendation to establish a “dedicated, non-lapsable fund called the Modernization Fund for Defense and Internal Security (MFDIS)” to address the issue of optimal utilization peculiar to defence procurement. Such a statute would not only result in fund utilization but also provide a boost to indigenization within the defence sector. Alas, the macro reforms in the budget go begging.
Further, it must be understood that it is not the spending power of the services that are lacking but the processing lethargy in the system and delays for big-ticket approval beyond the services at CCS and MoF level which upset the applecart, albeit sometimes with a populistic diversionary intent.
According to 2023-24 defence budget documents, an allocation of ₹ 2,70,120 crore has been made for revenue expenditure that includes expenses on payment of salaries and maintenance of establishments.
The budgetary allocation of revenue expenditure in 2022-23 was ₹ 2,39,000 crore. A paltry increase of 8.8 % which essentially covers inflation (average 6.8% in FY 2022). Thus force and equipment sustenance will continue to pose challenges.
The revenue to capital ratio of the Defence Budget 2023-24 stands at 68:32. The budgetary outlay for the Ministry of Defence (Civil) has been pegged at ₹ 8,774 crore and an amount of ₹ 1,38,205 crore has been allocated for defence pensions. The increase of defence pensions from ₹ 1.19 Lakh Crore to ₹1.38 Lakh Crore essentially covers inflation. The challenge to control pension bills is to review the retirement age, enhance lateral induction and remove the pension component from the defence budget to give the real picture of defence budgetary support.
Also Read: The pathetic track record of defence manufacturing
In the inter-service allocation, Airforce tops the CapEx allocation with ₹ 57,137 Cr (up from ₹ 53,749Cr. ⬆6.3%), followed by the Navy at ₹ 52,804 Cr (up from ₹ 47,737Cr. ⬆10.64%) and the Army at ₹ 37,241Cr (up from ₹ 32,597 Cr. ⬆14.25% ). Percentage-wise the biggest jump is for the Army which is also the largest force for sustenance and modernisation. Besides, while the sea and aerospace will be the future once turbulent land borders are pacified, the present land-centric threats cannot be ignored or responses diluted. The Indian Air Force has the highest share of capital expenditure and the Indian Army has the lowest.
This is a default situation due to the big-ticket purchases and ensuing committed liabilities of the air force and navy. Yet the inter-service allocation needs to transit to a joint force allocation under budgeting to HQ IDS which remains dwarfed. Joint force capability building remains unfortunately silent in the Defence Budget 2023. Cyber, Space, IW, AI and areas of disruptive technology require a commitment for an exclusive focus yet for an inclusive integrated tri-service capability.
Yes, there are some positives too. The Capital Budget of Border Roads Organization (BRO) has increased by 43% to ₹ 5,000 crores in FY 2023-24 as against ₹ 3,500 crores in FY 2022-23 which is a positive commitment to continued infrastructure strengthening in the Border Areas, particularly the Northern Borders. To further foster innovation, encourage technology development and strengthen the Defence Industrial eco-system in the country, iDEX and DTIS have been allocated ₹ 116 crores and ₹ 45 crores respectively representing an enhancement of 93% for iDEX and 95% for DTIS.
To strengthen Research and Development in Defence, the allocation to DRDO has been enhanced by 9%, with a total allocation of ₹ 23,264 crore in BE 2023-24. Yet both in resource allocation for R&D and output, India remains weak.
The Union Budget 2023-24 has also announced the revamped Credit Guarantee scheme for MSMEs which will take effect from 1st April 2023 through the infusion of ₹. 9,000 Crore in the corpus. This will enable additional collateral-free guaranteed credit of ₹s 2 lakh crore.
Further, the cost of the credit has also been reduced by about 1 per cent. This scheme will give a further fillip to the MSMEs associated with the Defence Sector and contribute to the Atmanirbharta focus.
Further, the Union Budget 2023-24 has provided Exempt-ExemptExempt (EEE) status to the Agniveer Corpus Fund; a concept that remains challenged in the manifestation of its operational intent. The payment received from the Agniveer Corpus Fund by the Agniveers enrolled in Agnipath Scheme, 2022 is proposed to be exempt from taxes. It remains debatable between a professional or a populistic measure for a top-down driven government initiative scheme.
Time to Introspect
Procurement has both a science and art component like warfare. The art component weighs heavier. Army continues to be procedure-oriented than outcome-oriented. It languishes with little accountability, focus, continuity or education in matters of fiscal management in smart outcome-oriented procurement. Smart procurement requires creativity to beat the barriers of both processes and bureaucracy with outcome orientation.
This also requires continuity, specialization and better civil-military fusion. Airforce and Navy are much smarter in this sphere. Primarily, both IAF and IN are big-ticket platform-centric services and have mastered the art of bypassing the DPP (now DAP) essentially through inter-governmental routes or IN through the Indian Naval Shipyard. Thus, they can spend their allotted budget, and generate higher committed liabilities forcing an increased allocation. The Army has limited examples of inter-government routes yet those few have been success stories. The Army continues to fight through DAP and DPM snakes and ladders for its big tickets which have only led to time and outcome penalties.
Also Read: Indian defence production- towards self-reliance
The budget has once again highlighted the void of a national security strategy that can give clarity to an integrated approach to national security. Besides the void of an Indian Defence University has impacted the imperative of specialisation and professional military education. A lot more strategic thought needs to be invested in matters of national security in general and defence in particular.
Conclusion
The story of defence budgetary deficient is ironically a tale of mismatch the world over. The Indian scenario is no different except that there is a lack of apathy to empower the brave warfighter to prevail in today’s conflict and be prepared for the future. Thus the challenge lies in either an ‘Army sized to Budget’ or a ‘Budget sized to the Army’. Given the need to balance growth with security in an adverse security environment, a pragmatic approach would be a means of both. Thus there has to be fresh thinking on the need to find innovative solutions for meeting the modernisation objectives for retaining combat overmatch within a realistic budgetary forecast for countering future escalating threats. Internally the defence forces need to plan their modernisation by establishing priorities in the near, mid and far -term, based on the principle of Value, Vulnerabilities & Risk, undertake restructuring to “Right size, Rebalance and Reorient” the military as a joint fighting force for budgetary optimisation and synergistically match “End, Ways and Means”. Finally, the buck counts for the bang.
