by Aayush

The relationship between defence expenditure and national economy is complex. The 2019 military expenditure database of the Stockholm International Peace Research Institute (SIPRI), released in April 2020, ranks India third, behind the United States (US) and China, and ahead of Russia, France, and the United Kingdom (UK) among other major defence spenders.

While India’s GDP growth rate has been fluctuating in the last few years. Moreover, the pre COVID GDP figures of consecutive quarters have seen a downtrend which reaffirms that India's economic deceleration continues unabated. India's GDP growth rate has fallen for third quarter in a row to its lowest level in seven years. Analysts were expecting the Indian economy to turn around following uptick in rural demand, government expenditure and private consumption. But it seems India will have to wait longer for some good news on the economic front but in the shadow of lockdown and complete halt in the economic activities these hopes have now faded.

This dents India's ambitions to become a $5 trillion economy by 2024. According to estimates by NITI Aayog, India needs to grow at 11.5 per cent annually in nominal terms, or 7.5 per cent in real terms over the next 10 years to realise this dream.

If analysed on the basis of ratio of military expenditure and GDP, Indian expenses has been between 2.5 – 2.8% between 2008-2018.

Defence Expenditure In The Post Covid Economy

The pandemic has hit the world’s economy really hard and India is no exception. The country has seen months of absolute economic inactivity. Experts, have different opinion on the number but they all are unanimous that the GDP would contract in this financial year.

Contraction of GDP would result in plummeted figures of the government’s revenue receipts (both tax and non-tax) and a boosted revenue expenditure. The last year’s economic survey and budget estimated that the out of every Rs.1/- spent by the government only Rs. 0.74 /- is financed by revenue receipts and the rest are supported by capital receipts (Borrowings and Disinvestments).

In last few years total debt (both external and internal) on India has increased, and the government has not been able to act completely in accordance with the FRBM act of 2003.

Now in the light of curtailed revenue and high expenses the fate of India’s boosted defence budget is uncertain.

Defence expenditure in India has three components viz. the expenditure incurred by the three defence services and the 40 ordnance factories, (70%), defence pension to nearly 3.1 million pensioners (24%), and defence civilians (0.4 million) (6%). This year’s total estimated defence expenditure will be around Rs.4.71 lakh crore.

Excluding the pensions, out of Rs. 3,37,553 crores allocated for the financial year 2020-21, Rs.2,18,998 crore is for revenue (Net) expenditure and only a sum of Rs. 1,18,555 Crore is left for capital expenditure for the defence services.

Defence Expenditure And The Chinese Factor

In the last few months, the unprovoked and deliberate incursions made by the PLA on Indian territory has rang alarm bells in Delhi. While talks on different levels are underway but this confrontation has made one thing very clear that the firepower of Indian armed forces has to be bolstered.

In accordance with the current years budgetary allocations (Capital Expenditure) for the armed forces a sum of Rs.43,281 crores which is only 38% has been promised to the air force but the IAFs commitments are diverse and to augment the fighting capability of the force apart from fighter aircrafts, force multipliers such as AEWCS aircrafts, Mid air refuelers and more transport aircrafts are indented.

To face an adversary like China modernisation of the assets of almost every arm of the Indian army is also required. Taking the example of armoured forces – The soviet era T-72 tanks need replacement and taking the present situation into consideration a light tank for high altitude warfare is also required as satellite imagery shows that China has deployed its Type 15 tanks in eastern Ladakh.

Air Defence equipment for point and area defence such as L70, Zu23, Kvadrat, Osa Ak have became obsolete and need replacement.

The same is true for the Navy even after considerable indigenisation attempts the navy seriously lacks in the underwater fighting equipment mainly submarines and above water fighting elements such as the mine sweepers.

A defence budget which was already stretched and now the contraction of GDP in the post COVID world raises serious questions about the military budget for the coming years.

Defence Cess

It has been recently reported that Defence Ministry has recommended to Finance Commission to levy to a special cess to meet capital expenditure. The Defence Ministry’s recommendations come after it has told the government that even though the nation is not currently engaged in conflict, the nature of threats faced require more preparedness. The ministry has said that current provisions made in the annual budgets are not adequate to fund the large capital outlay needed to procure new weapon systems.

Aayush Sinha, is a former defence technology reporter for Indian Military Review. Views expressed are his own