Controlled sanction

Poor state of the financial affairs of the country has ensured that the defence budget will not be a game changer in the coming financial year. The Indian armed forces are already feeling handicapped because of inordinate delay in finalizing cabinet sanctioned  major defence acquisition plans and the reduced actual provisions for the three services will bother Indian strategic observers in the coming year.

The interim defence budget for the year 2014-15 has shown a ten percent rise but in actual terms, in foreign exchange, the total outlay has declined and what has concerned Indian defence observers is the actual decline in the purchasing power of the meager enhancement in the capital outlay.

The interim budget, which can be enhanced in the final budget to be presented by the new government in June this year, has caused concerns in strategic circles. In the 2013-14 financial year the MoD was not able to finalize any major defence deal, though CCS approvals for many deals are lying on the table of the Defence Minister.

Reduced financial outlays would not be of that concern, if the MoD bureaucrats give top priority to conclude the sanctioned defence deals well on time. But the year 2013-14 has lapsed without any significant addition to the fire power of the armed forces, which will add to the acquisition cost of the weapon system and hence will reduce the amount for other projects.

Small increase

The interim budget for the year 2014-15 has provided an impressive sum of Rs 2,24,000 crores, which is an enhancement of ten percent from previous year’s, Rs 2,03,672 crores. In US Dollar terms this year’s defence budget would be US$ 36 billion whereas with lesser provision in Indian currency last year’s defence budget was US$ 37.5 billion. Further the real worth of the capital outlay under the 2014-15 budget has also gone down, under which the MoD acquires weapon systems.

The capital outlay provision of 89,587 crores is only an addition of Rs 2,847 crores from the previous year. In US Dollars this has actually gone down to US$ 14.50 billion, whereas last year’s provision was US$ 16 Billion. In rupee terms the budget shows a meager increase of 3.2 percent but in dollar terms it has declined.  

Thus it is very clear that large share of the major planned acquisitions has been deferred to next financial year which includes the 126 medium range multi role fighters worth US$ 15-20 billion.

Since more than 70 percent of India’s defence needs are imported, in dollar terms the reduction in the provision will cast a spell on defence modernization of India. The acquisition files are piling up and the MoD will find it difficult next year to clear all pending projects which includes besides the MMRCA, the attack and heavy lift choppers, multi role helicopters for the navy, howitzer guns, submarines etc.

Since the pay and pension bills would go up substantially in the coming financial year because of heavy outgo due to  enhanced pay and DA payments to forces, the revenue expenditures has been pegged at Rs 1,34,412 crores.

In the last financial year the provision for revenue expenditure could not meet the demands of salaries and allowances, the MoD had to sacrifice around Rs 7,000 crores from the capital outlay. The government has given no indication that this amount will be adjusted next year in the provision for the capital outlay.

In terms of ratio to GDP the defence expenditure has further declined and has come down to a historic low of 1.74 % which in fact is even lower than the last year’s provision for the three armed forces. This is said to be lowest provision since 1962 and presents an alarming situation for the Indian armed forces which faces multipronged threat from immediate neighbors.

The responsibility of the armed forces are limited not only to counter China and Pakistan but India’s burgeoning trade demands a protection for Indian Navy, which needs large number of warships, submarines and surveillance systems to keep a check on all the maritime activities of the state and non-state actors in the Indian Ocean and beyond.

Limited budget

However, as far as combat preparation against China is concerned the government has at least taken care of fast tracking the creation of the Mountain Corps to be deployed at the China border. The capital budget of the army has been raised double fold, which will meet the cost of recruiting additional 80,000 soldiers over a period of eight years.

The army’s capital budget will rise from Rs 10,749 crores to Rs 20,661 crores in 2014-15 budget. This is meant to buy new equipments like rifles, machine guns , artillery guns and communications equipment. The Defence Acquisition Council of the Defence ministry headed by the Defence minister has cleared recently the acquisition of 44,000 light machine guns worth Rs 1328 crores. Last year the Cabinet had sanctioned Rs. 64,000 crores for this plan.

On the other hand the Air Force will suffer with lesser provisions of Rs.31, 818 crores which is Rs 4199 crores less than the last year’s provision. Though the IAF has many cleared  acquisition proposals in its kitty, the lack of finances will most probably delay further the acquisition of heavy lift and attack helicopters, though there will be huge military and diplomatic pressure on the new government to sign the contract for the 126 MMRCA.

From the sanctioned capital budget for the Air Force, the heavy installment outgo for the C-17s and the Hercules aircrafts and other previously acquired platforms and systems will leave very little money for new acquisitions.

The new government in June will have to struggle hard to find money for the urgent requirements of the IAF, which has also been sanctioned the 12 CH-47F Chinook multi mission heavy lift and 22 AH-64 Apache attack helicopters. Both these helicopters will cost around Rs 12,000 crores. The IAF’s Deep Penetration Strike Jaguar aircraft engine is also slated to be replaced with Honeywell engines which should cost around Rs 15,000 crores.

The Navy has been waiting long for the RFP to be released for the six additional submarines. The submarine strength of the Indian navy has suffered badly with the fire and explosion incident in the INS Sindhughosh and Sindhuratna. The Navy which received Rs 19,600 crores last year has got a hike of 15% to 22,592 crores. But in terms of actual US Dollars the acquisition value will be lower.

The reduction in budgetary provisions has come at a time when the country has moved on several ambitious projects for modernizing its three services besides the Strategic Forces Command which requires urgent inductions for deterring the adversary nuclear challenge. The top most priority for the army is to acquire the three categories of Howitzer guns but things have not moved since last two and half decades.

The Indian Ordnace Factory Board has reportedly come out with the Indian version of the Howitzer Guns, for the success of which Army is waiting impatiently. The Defence Acquisition Council has also deferred the decision to acquire the M-777 Ultra Light Howitzer guns for the next government. Similarly the Army is also waiting to acquire the American Javelin missiles.

It is very obvious that the next government will have to accommodate most of the demands in balanced manner so that India’s security preparations are not compromised. But with the exchequer already suffering from heavy strain, the next government will be constrained to give sanctions for massive upgradation of the forces. The armed forces can expect substantial commitment only in the 2015-16 financial year, if the country is able to see an upsurge in economy.