In the run-up to the Finance Minister’s budget speech on 1 February, a story in the media revealed that the defence services had recorded an unusually slow pace of expenditure of their capital allocations. According to the report, the Indian Army had spent just about 40% of its capital budget in the ongoing financial year, with the Indian Air Force managing a figure of around 70%. Only the Indian Navy has achieved 90% spending of its capital outlay.
The Army’s slippage in spending came as a surprise, because it has, for some time, been projecting a requirement for capital budgets much higher than its normal allocation. Last year’s defence budget had even allocated additional capital funds for the purchase of new arms and equipment. That, however, appears not to have helped.
In the shadow of the COVID-19 pandemic, the Army’s procurement plans seem to have suffered, with delays in the execution of contracts and interruptions in payments and delivery.
The Growing Support for 'Vocal for Local'
Not unexpectedly, the latest defence budget (2022-23) has reduced the capital allocation for the Army. While the overall defence budget has registered a healthy though less-than-impressive rise of 9.48% (from Rs 4.78 lakh crore last year to Rs 5.25 lakh crore in the next fiscal), the Army’s share of capital allocation is down by a significant 12% (more than Rs 4,000 crore). The Navy’s share of capital, on the other hand, has been raised by over Rs 3,000 crore, including a 43% rise in its modernisation funds. At Rs 47,590 crore, the Navy’s overall budget stands considerably higher than Rs 33,253 crore allotted in the previous financial year, evidence that the government is alive to the China challenge in the Indian Ocean, and the need for assertive presence operations in the littorals. Even the Coast Guard earned a hike of 39% over its allocation last year.
The main talking point of the budget, nevertheless, was the Finance Minister’s announcement that 68% of the modernisation budget would be reserved for domestic industry. The latest in a series of government decisions meant to promote indigenisation, the move seems intended also at reducing the military’s dependence on foreign procurements.
Starting with a ban on the import of 101 products in August 2020 to the release of a “positive indigenization list” of 108 items of defence equipment in May 2021, the Ministry of Defence has progressively narrowed the avenues for acquiring foreign-manufactured equipment.
The Finance Minister’s budget speech reiterated the need for the services to meet their warfighting needs from domestic sources. The Defence Minister, who has in the past backed moves to indigenise, including a new DRDO (Defence Research and Development Organisation) procurement manual to facilitate indigenisation, tweeted his support for “vocal for local”, as did many defence veterans and commentators.
Military Left Grappling With a Paradox
Yet, something about the government’s move suggests an attempt at ‘forcible indigenisation’. At a time when warfare is becoming increasingly sophisticated, the military is being pressed to accord preference to indigenously designed and manufactured equipment that may be less than fit-for-purpose. Indeed, on more than a few instances in the past, the military has had occasion to reject sub-par indigenous equipment. This is not to say that all domestic defence industry in India is incompetent. Larson & Toubro (L&T), which has played a key role in India’s submarine-building programme, is an example of a private enterprise that has done yeoman sernavyvice to the military. L&T, however, is an exception rather than the norm. On the whole, private industry in India has struggled to deliver, not least because it is yet to fully invest in research and development (R&D). While the lack of contracts from the military has certainly been an aggravating factor, process inefficiencies in India’s domestic private sector are a reality that must not be overlooked.
Forced spending on the domestic industry, though laudable for its intent, is unlikely to create the industrial ecosystem within which a defence sub-system can flourish.
The defence budget’s reservation of almost three-fourths of the defence capital budget for Atmanirbharta (self-reliance) may be justifiable from an indigenisation standpoint, but it leaves the military grappling with a paradox – India’s armed forces must find ways to preserve their operational edge using equipment that may not be best-in-class, or even necessarily reliable. With some foreign projects still in the pipeline, the Navy, in particular, will have to devise means to acquire proven equipment, made sparse through government diktat.
The Armed Forces Remain Suspended in a 'Chakravyuh'
In recognition of the modernisation deficit, the new defence budget sets aside 25% of the total R&D budget for private industry, startups and academia. That may seem significant in percentage terms, but isn’t really so in actual numbers. In reality, the allocation to private industry for defence R&D in FY-2022-2023 is a mere Rs 3,000 crore, with the overall R&D budget at a conservative Rs 11,981 crore (an increase of about Rs 500 crore over last year’s allocation of Rs 11,375 crore).
Yet, it is telling that the revised R&D budget for 2020-21 was reduced by over Rs 1,500 crore, as the money was perhaps not spent. Thereby hangs a tale about the real state of defence R&D in India.
One had expected the Finance Minister to announce a dedicated and non-lapsable Modernization Fund for Defence and Internal Security (MFDIS), as per the recommendations of the 15th Finance Commission. It would have been a step in the direction of addressing the issue of unpredictable spending of capital allocation. But the government isn’t still quite ready to allow unspent funds to be reallocated to the defence budget. This means the military will continue to surrender its funds under the current rules and remain in the budgetary ‘chakravyuh’ (labyrinth) that all armed forces are fated to live in.
[Abhijit Singh is Senior Fellow at Observer Research Foundation (ORF) and a former naval officer. This is an opinion article and the views expressed are the author's own. The Quint neither endorses nor is responsible for them.]