The Ministry of Defence must adopt capital budgeting practices to ensure that India’s defence does not become hostage to fiscal contingencies. The broader issue is of evolving principles of allocation of national resources for defence — the current practice of incremental changes around 2 percent of GDP is arbitrary and not based on transparent economic reasoning. Military modernisation cannot be effectively undertaken without first modernising the resource allocation and management processes at the MoD level.
On February 6, Indian defence minister AK Antony spoke of pushing the Rafale MMRCA fighter aircraft acquisition deal to the next financial year, stating that 92 percent of the capital allocation for defence forces had already been used up. This is not the first delay to the contract signing that was supposed to happen two years ago around March 2012.
The MMRCA deal is essential as the current strength of the Indian Air Force is down to 29 squadrons, which includes obsolete MiG-21s and MiG-23s. The deal is necessary to maintain the competitiveness of the Indian Air Force, whose existing aircraft have been diminishing in strength thanks to obsolescence, attrition and retirement of old aircraft. Other army modernisation deals like M777 howitzers and 197 new helicopters have also been shelved. With many of these acquisitions having been in the pipeline for long, the costs associated should have been foreseen and planned into the budgetary allocation for capital expenses of the defence ministry.
India’s defence modernisation budget is under threat from multiple sources: revenue expenses are routinely underestimated and eat into the capital budget. And thanks to delays, cost overruns and deferrals in payments for existing acquisition deals, the budgetary space for new acquisitions is severely under threat. As Ajai Shukla highlighted earlier this month, only 4 percent of the 2013-14 capital budget is allocated for new acquisitions, down from 38 percent in 2010-11. While the fiscal deficit and faltering economic growth are easy to blame, the two macroeconomic factors ought to trigger a reassessment of the strength and structure of India’s armed forces. It cannot be an excuse to shelve modernisation of an increasingly obsolete set of defence forces.