Budgeting for defence

No agenda for defence reform and modernisation is complete without first grounding defence expenditure in sound economic reasoning.

Admiral D K Joshi’s resignation earlier this month taking moral responsibility for a series of mishaps involving the navy’s ships triggered off yet another round of public criticism directed against a defence minister who has largely been impervious to it. A K Antony presided over a precipitous decline in the political stewardship of the civilian and military parts of the defence ministry, with multiple shameful episodes tarnishing the image of professionalism that the armed forces used to enjoy. His own reputation for personal incorruptibility failed to prevent defence procurement from being mired in scandals.


These are already serious failings. But Mr Antony’s most serious failing was his inability to use his long innings — he became India’s longest serving defence minister — to provide a sound basis for India’s defence strategy. It is not inaccurate to say that at the level of the top political leadership, there is no defence strategy at all: almost all political decisions related to defence tend to be ad hoc, reactive and disconnected. The momentum for defence reforms triggered by the Kargil Review Committee’s report and the Arun Singh committee’s recommendations under the NDA government came to a halt under the UPA government, notwithstanding the appointment of another committee under Naresh Chandra a couple of years ago to dust off the earlier reports and make new recommendations.

Newspaper headlines inform us that India is the world’s largest arms importer. They also inform us that in the latest interim budget, defence allocations were raised by 10 percent to Rs 2.2 trillion, putting defence expenditure at around 2 percent of GDP. Some complain that this is too little and others contend that this is way too much. There is no way of determining the answer to this argument because there is no logic — other than a combination of arbitrariness and incrementalism — that determines how much is allocated and on what. In other words, there is no evidence of any economic reasoning in India’s defence spending. This is not a responsible way for a democracy to spend 2 percent of its GDP.

It would be improper to attribute this poor way of spending money entirely to Mr A K Antony, for it precedes him. But he was the only defence minister since V K Krishna Menon five decades ago to have enjoyed a tenure long enough to think beyond the short-term.

No agenda for defence reform and modernisation is complete without first grounding defence expenditure in sound economic reasoning. The big questions are simple: what proportion of India’s national resources should be allocated for national security? Of these, what proportion should be allocated for defence, and for what type of capabilities? How should these capabilities be organised? Should we continue structuring them into separate services called the army, navy and the air force under their individual command structures, or should we reorganise them under joint service commands? How much should we spend on capital equipment and how much on human resources?

If we do not know how much we should spend we will be unable to say if we are spending enough.

There are three broad approaches to answering how much should a state spend on its defence. The first is to spend for maximising deterrence — to build up armed forces to such an extent, to swing the military balance so heavily in one’s favour that potential adversaries will deterred from attacking. This approach, however, not only prioritises defence over everything else but also risks triggering off a debilitating arms race if potential adversaries decide to, and are are capable of, following suit.

The second approach, and one diametrically opposite to the first, is to put defence last. In other words, defence gets what remains after the government has allocated the necessary resources for development. The drawback of this approach, of course, is that the allocations might be too meagre to defend the country against extant and emerging threats.

Between these two extremes lies the third approach, where the marginal benefit is equal to marginal increase in spending. While this calibrated method of allocating resources is conceptually neat, it is hard in practice to measure the additional improvement in defence given an increase in defence spending.

Each of the three approaches has advantages and drawbacks — at India’s stage of development and given the threat environment, it is hard to justify a maximalist approach of spending to maximise deterrence. For the same reasons, it would not be prudent to demote national security the lowest priority. A middle-path that attains the optimum level of defence spending in a calibrated manner appears to be the best suited for India.

This call, though, is for the elected government to make. It could be any variation of the three broad approaches outlined above, but it must be a conscious decision. Only when the Cabinet decides on the principles of allocating resources for national security will we be in any position to say whether any year’s defence budget falls short or exceeds the optimum.

It remains for Mr Antony’s successor to attempt where he failed. It is tempting to appear strong on national security by raising defence allocations by a higher proportion than has been the case in recent years. That may well be what is called for — but it should be the result of a fundamental review informed by defence economics, not just a bigger rabbit that is pulled out of the hat.

Photo: J K