The practice of converting defence plans into publicly known defence budget is essentially a practice of democratic governments. One reason for public disclosure of defence spending could be that tax payers expect to know directly or through their representative how much is being spent on national defence and on other sectors of economy which affects their security and welfare. Disclosing the defence budget even to the domestic audience was rarely done in the past. In fact, even today, some major powers do not disclose their defence spending to the world. The immediate relevant questions then are: Does the annual defence budget serve as a tool of national security? Does it have strategic value to overall national security? A careful analysis of this practice of disclosing proposed defence spending with major break-ups on various branches and components of the armed forces shows that a country does convey an appropriate implicit message. To this extent, one can assert that the defence budget does have a strategic value.
What then are the essential ingredients or attributes of a defence budget for it to effectively serve as a strategic tool of national security? To be so, the defence budget must have, inter alia, the following attributes:
Its total size should be substantial enough to inspire the confidence of the nation, deter potential adversaries and impress friends and allies by conveying an appropriate diplomatic image.
Its structure and format must be revealing enough.
It should have an inbuilt system with flexibility to incorporate the changing perceptions of national threats and interests.
A look at India’s defence budget in the above context indicates certain satisfying features as well as some specific areas of concern. At the outset, the total size of India’s defence budget could never have been a matter of serious concern to those who considered themselves as potential adversaries of India. Total defence spending have been hovering between 1.69 per cent of Gross Domestic Product (GDP) in 1961-1962 to the highest ever of 3.84 per cent of GDP in 1963-64, constituting 25.45 per cent of total Central Government expenditure in that year.1 But there are two other trends that have been consistently going in almost the opposite direction over the years. While the percentage of defence expenditure vis a vis the GDP has been fluctuating between the above two extremes, the actual quantum of expenditure had been significantly increasing over the years, from Rs.289.54 crore in 1961-62 to Rs.105,600 crore in 2008-09. On the contrary, the percentage of defence expenditure against total central government expenditure has been gradually declining over the years, from 25 per cent to around 14 per cent. This declining percentage per se does not mean a reduction in defence allocation. The actual quantum as indicated above has been increasing over the years and this does provide a reasonable sense of confidence to the nation. On the other hand, the trend also gives the message that the country can afford to spend more on defence than what had been spent over the years. This definitely sends out a clear message of India’s peaceful intentions, in that it is only interested in spending on its primary minimum defence needs and that it does have certain other priorities of nation building.
Equally important are the various components of the budget. Mere size may not convey much and does not necessarily mean enhanced military capability. Looking at defence spending over the years in this context conveys certain definite messages in terms of changing perceptions of threats and national interests. In the past, most of the capital expenditure used to be concentrated on arms and equipment for the Army. This has undergone substantial changes in recent years. The trend moved towards higher spending on the Navy and is now tilting heavily towards the Air Force. In the 1970’s, capital allocations among the three Services was broadly in the average ratio of 41 per cent for the Army, 42 per cent for the Navy and 17 per cent for the Air Force. After 2000-01, there has been a significant shift in the respective shares of the Services. The Army’s share went down to an average of about 31 per cent over a period of five years and the Navy’s share to about 28 per cent, whereas in the same period the average share of the Air Force increased to over 40 per cent. This changing profile has been further continued in the 2008-09 defence budget as well.
India’s defence budget for 2008-09 stands at Rs.105, 600 crore, with the following break up of capital component.
Capital Budget (2008-09)
Branches
Army
Navy
Air Force
Ordnance
R&D
Inspection
Total
Amount (in crore)
13312.48
12079.18
19269.42
175.94
3089.76
49.32
47976.10
% of Total Capital
27.74
25.17
40.16
0.36
6.44
0.10
99.97
% of Defence Budget
12.60
11.43
18.24
0.16
2.92
0.046
45.396
Source: Defence Services Estimates 2008-09.
This changing allocation in profile to different Services/Departments implies, amongst others, that contrary to the earlier focus on defending territorial borders, India’s defence policy is gradually looking beyond and is aiming to protect its vital interests of strategic nature. This could be achieved only with the increasing capability of the Navy and the Air Force.
In order to be an effective strategic tool, the defence budget needs to be revealing enough to both potential adversaries and friends so that they can correctly judge its strengths and weaknesses (miscalculation is most dangerous in security matters). In this context, India’s defence budget can be considered one of the most publicly revealed documents in the world. The entire ‘Defence Services Estimates’ are broadly divided into ‘Revenue’ and “Capital’ heads for each of the three Services and other allied establishments, some of which may, in fact, have only remote connection to defence capability building. These two major heads have similar corresponding minor heads, sub-heads and detailed heads.2 With the publication of Defence Services Estimates Volume-II since 2002-03, further detailed information is placed in the public domain. What really ails the document are on other accounts. There are items which perhaps should not form part of the defence services estimates and yet others which should not be clubbed together under the same demand or budget head. These include expenditure on accounts of civilians in various branches of the armed forces and other civilian organisations under the Ministry of Defence. Similarly, expenditure on accounts of certain organisations/departments such as the National Cadet Corps, Directorates of Quality Assurances, Military Farms, etc. may qualify to be treated separately under different ‘Demand’ within the overall defence budget structure. The hard core capabilities of the armed forces being arms and equipment and the quality of the men behind the machines, a new arrangement of the various items under different demands would greatly enhance the real and strategic value of the defence budget. In this context, the major items in the US defence budget for 2007, for example, are illustrative.
Operation and maintenance $ 152 .2 billion
Military personnel $ 110.8 billion
Procurement $84.2 billion
Research and development $ 73.2 billion
Military construction $ 12.6 billion
Family housing $ 4.1 billion
As regards the issue whether the defence budget is based on a well defined in-built system with the required flexibility, it is imperative to note that the defence budget is part of the larger budgetary system of the Union Government. The structure and formats are constitutionally mandated. As such the defence budget like the budgets of all other ministries needs to be in the formal structure of ‘Revenue’ and ‘Capital’, followed by other heads ‘minor’ ‘sub-head’ ‘details heads’ under the respective major heads. The rule also provides as to under what conditions and under whose authority funds can be transferred from one head to another called ‘Re-appropriation’.3 In addition to this formal structural requirement, the defence budget cannot escape the essential features of ‘Expenditure budget’ wherein the detailed proposals have to be fitted into the format.
While these structural impediments do prove stability to the system as a whole, it also suffers from lack of desired flexibility. Flexibility has come from the budgeting process itself, in the form of the preparation of the Budget Estimates, followed by Revised Estimates and the Final Budget – a practice that gives immense flexibility to the budgetary process. The process is further smoothened by the fact that these activities cover a period of three financial years.4 The process is so dynamic yet the format and the activities associated with it so inflexible that it renders the entire system rather less effective. The process, amongst others, conveniently can cover up excess spending under certain heads and surrenders under other crucial heads. This does not serve the budget well as a strategic tool of national security. A glaring example is the repeated surrender of substantial funds particularly under the ‘capital’ head over the years, the average of which has been over Rs. 4300 crore per year since 2002-03.5
In this connection it is imperative to recognise the fact that the issue of surrender of funds is not a problem within the budgetary framework itself. It essentially relates to those complex activities which need to be thoroughly done before they are converted into financial figures and brought on to the budgetary process. These would include the issue of defence planning with reference to threat perceptions, changing perceptions of vital national interests, the selection of the appropriate strategy to meet these challenges, the state of the defence industry within the country or the availability of the required technology and equipment from suitable sources, and the structure and processes involved in the acquisition and procurement of equipment and weapons. Only when these interconnected areas are set right can optimal spending of defence allocation be achieved to make it a more effective tool of national security strategy.
The budgeting framework and processes, however, can be considerably improved once these activities are set right and incorporated into the defence budget. The right size of defence budget, therefore, with appropriate components for different branches of the armed forces consistent with changes in the security situation and an effective working process would provide overall confidence to the nation and serve as an effective strategic tool of national security. The task is indeed difficult and complex, yet the challenges are quiet obvious.
N. Neihsial is on deputation from the Indian Defence Accounts Service to the Institute for Defence Studies and Analyses, New Delhi.
2. In the detailed heads, for example, under Minor heads, even the budgetary allocations for porters and ponies, anti-malaria and anti-fly measures, ration and salt for animals, etc. are separately indicated.
3. Appendix ‘C’ to the Defence Services Estimates: The cardinal principle of re-appropriation is that an authority can re-appropriate only in respect of savings arising out of the allotments placed at his disposal. The broad guidelines are: (i) Minor to Minor head under the same Major head: GOI, (ii) Sub-head to Sub-heads within the Minor heads under each demand: MOD (iii) Sub-head to sub-head under the same minor head: Services Headquarters, etc.
4. A.K. Ghosh, India’s Defence Budget and Expenditure Management (Lancer Publishers, New Delhi, 1996), p. 34. The format of budget preparation contains or requires the following items/activities: (i) Actual of previous year (ii) Sanctioned Estimate of the current year (iii) Revised Estimate of the current year (iv) Budget Estimate for next year (v) Actual of the current year at the time of preparation of Budget Estimate for the next year.
5. Defence Services Estimates. The average has been worked out by dividing the total amount of surrender by the number of years of the relevant period
1. Air commodore Jasjit Singh, India’s Defence Spending: Assessing future needs (Knowledge World, New Delhi, January 2000), p. 23.
2. In the detailed heads, for example, under Minor heads, even the budgetary allocations for porters and ponies, anti-malaria and anti-fly measures, ration and salt for animals, etc. are separately indicated.
3. Appendix ‘C’ to the Defence Services Estimates: The cardinal principle of re-appropriation is that an authority can re-appropriate only in respect of savings arising out of the allotments placed at his disposal. The broad guidelines are: (i) Minor to Minor head under the same Major head: GOI, (ii) Sub-head to Sub-heads within the Minor heads under each demand: MOD (iii) Sub-head to sub-head under the same minor head: Services Headquarters, etc.
4. A.K. Ghosh, India’s Defence Budget and Expenditure Management (Lancer Publishers, New Delhi, 1996), p. 34. The format of budget preparation contains or requires the following items/activities: (i) Actual of previous year (ii) Sanctioned Estimate of the current year (iii) Revised Estimate of the current year (iv) Budget Estimate for next year (v) Actual of the current year at the time of preparation of Budget Estimate for the next year.
5. Defence Services Estimates. The average has been worked out by dividing the total amount of surrender by the number of years of the relevant period.
Defence Budget as a Strategic Tool of National Security
More from the author
The practice of converting defence plans into publicly known defence budget is essentially a practice of democratic governments. One reason for public disclosure of defence spending could be that tax payers expect to know directly or through their representative how much is being spent on national defence and on other sectors of economy which affects their security and welfare. Disclosing the defence budget even to the domestic audience was rarely done in the past. In fact, even today, some major powers do not disclose their defence spending to the world. The immediate relevant questions then are: Does the annual defence budget serve as a tool of national security? Does it have strategic value to overall national security? A careful analysis of this practice of disclosing proposed defence spending with major break-ups on various branches and components of the armed forces shows that a country does convey an appropriate implicit message. To this extent, one can assert that the defence budget does have a strategic value.
What then are the essential ingredients or attributes of a defence budget for it to effectively serve as a strategic tool of national security? To be so, the defence budget must have, inter alia, the following attributes:
A look at India’s defence budget in the above context indicates certain satisfying features as well as some specific areas of concern. At the outset, the total size of India’s defence budget could never have been a matter of serious concern to those who considered themselves as potential adversaries of India. Total defence spending have been hovering between 1.69 per cent of Gross Domestic Product (GDP) in 1961-1962 to the highest ever of 3.84 per cent of GDP in 1963-64, constituting 25.45 per cent of total Central Government expenditure in that year.1 But there are two other trends that have been consistently going in almost the opposite direction over the years. While the percentage of defence expenditure vis a vis the GDP has been fluctuating between the above two extremes, the actual quantum of expenditure had been significantly increasing over the years, from Rs.289.54 crore in 1961-62 to Rs.105,600 crore in 2008-09. On the contrary, the percentage of defence expenditure against total central government expenditure has been gradually declining over the years, from 25 per cent to around 14 per cent. This declining percentage per se does not mean a reduction in defence allocation. The actual quantum as indicated above has been increasing over the years and this does provide a reasonable sense of confidence to the nation. On the other hand, the trend also gives the message that the country can afford to spend more on defence than what had been spent over the years. This definitely sends out a clear message of India’s peaceful intentions, in that it is only interested in spending on its primary minimum defence needs and that it does have certain other priorities of nation building.
Equally important are the various components of the budget. Mere size may not convey much and does not necessarily mean enhanced military capability. Looking at defence spending over the years in this context conveys certain definite messages in terms of changing perceptions of threats and national interests. In the past, most of the capital expenditure used to be concentrated on arms and equipment for the Army. This has undergone substantial changes in recent years. The trend moved towards higher spending on the Navy and is now tilting heavily towards the Air Force. In the 1970’s, capital allocations among the three Services was broadly in the average ratio of 41 per cent for the Army, 42 per cent for the Navy and 17 per cent for the Air Force. After 2000-01, there has been a significant shift in the respective shares of the Services. The Army’s share went down to an average of about 31 per cent over a period of five years and the Navy’s share to about 28 per cent, whereas in the same period the average share of the Air Force increased to over 40 per cent. This changing profile has been further continued in the 2008-09 defence budget as well.
India’s defence budget for 2008-09 stands at Rs.105, 600 crore, with the following break up of capital component.
Source: Defence Services Estimates 2008-09.
This changing allocation in profile to different Services/Departments implies, amongst others, that contrary to the earlier focus on defending territorial borders, India’s defence policy is gradually looking beyond and is aiming to protect its vital interests of strategic nature. This could be achieved only with the increasing capability of the Navy and the Air Force.
In order to be an effective strategic tool, the defence budget needs to be revealing enough to both potential adversaries and friends so that they can correctly judge its strengths and weaknesses (miscalculation is most dangerous in security matters). In this context, India’s defence budget can be considered one of the most publicly revealed documents in the world. The entire ‘Defence Services Estimates’ are broadly divided into ‘Revenue’ and “Capital’ heads for each of the three Services and other allied establishments, some of which may, in fact, have only remote connection to defence capability building. These two major heads have similar corresponding minor heads, sub-heads and detailed heads.2 With the publication of Defence Services Estimates Volume-II since 2002-03, further detailed information is placed in the public domain. What really ails the document are on other accounts. There are items which perhaps should not form part of the defence services estimates and yet others which should not be clubbed together under the same demand or budget head. These include expenditure on accounts of civilians in various branches of the armed forces and other civilian organisations under the Ministry of Defence. Similarly, expenditure on accounts of certain organisations/departments such as the National Cadet Corps, Directorates of Quality Assurances, Military Farms, etc. may qualify to be treated separately under different ‘Demand’ within the overall defence budget structure. The hard core capabilities of the armed forces being arms and equipment and the quality of the men behind the machines, a new arrangement of the various items under different demands would greatly enhance the real and strategic value of the defence budget. In this context, the major items in the US defence budget for 2007, for example, are illustrative.
As regards the issue whether the defence budget is based on a well defined in-built system with the required flexibility, it is imperative to note that the defence budget is part of the larger budgetary system of the Union Government. The structure and formats are constitutionally mandated. As such the defence budget like the budgets of all other ministries needs to be in the formal structure of ‘Revenue’ and ‘Capital’, followed by other heads ‘minor’ ‘sub-head’ ‘details heads’ under the respective major heads. The rule also provides as to under what conditions and under whose authority funds can be transferred from one head to another called ‘Re-appropriation’.3 In addition to this formal structural requirement, the defence budget cannot escape the essential features of ‘Expenditure budget’ wherein the detailed proposals have to be fitted into the format.
While these structural impediments do prove stability to the system as a whole, it also suffers from lack of desired flexibility. Flexibility has come from the budgeting process itself, in the form of the preparation of the Budget Estimates, followed by Revised Estimates and the Final Budget – a practice that gives immense flexibility to the budgetary process. The process is further smoothened by the fact that these activities cover a period of three financial years.4 The process is so dynamic yet the format and the activities associated with it so inflexible that it renders the entire system rather less effective. The process, amongst others, conveniently can cover up excess spending under certain heads and surrenders under other crucial heads. This does not serve the budget well as a strategic tool of national security. A glaring example is the repeated surrender of substantial funds particularly under the ‘capital’ head over the years, the average of which has been over Rs. 4300 crore per year since 2002-03.5
In this connection it is imperative to recognise the fact that the issue of surrender of funds is not a problem within the budgetary framework itself. It essentially relates to those complex activities which need to be thoroughly done before they are converted into financial figures and brought on to the budgetary process. These would include the issue of defence planning with reference to threat perceptions, changing perceptions of vital national interests, the selection of the appropriate strategy to meet these challenges, the state of the defence industry within the country or the availability of the required technology and equipment from suitable sources, and the structure and processes involved in the acquisition and procurement of equipment and weapons. Only when these interconnected areas are set right can optimal spending of defence allocation be achieved to make it a more effective tool of national security strategy.
The budgeting framework and processes, however, can be considerably improved once these activities are set right and incorporated into the defence budget. The right size of defence budget, therefore, with appropriate components for different branches of the armed forces consistent with changes in the security situation and an effective working process would provide overall confidence to the nation and serve as an effective strategic tool of national security. The task is indeed difficult and complex, yet the challenges are quiet obvious.
N. Neihsial is on deputation from the Indian Defence Accounts Service to the Institute for Defence Studies and Analyses, New Delhi.
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