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Spending on security - Modernisation, not money is the key - The Times of India

Amiya Kumar Ghosh ()
July 13, 1998

Title: Spending on security - Modernisation, not money is the key
Author: Amiya Kumar Ghosh
Publication: The Times of India
Date: July 13, 1998

ndia spends a pitiful 2.5 per cent of GDP on defence, whereas
Pakistan spends eight per cent and China six." This has long been
the refrain of defence analysts in India in their criticism of
the country's budget makers for parsimony in a matter so vital as
the nation's security. The complaint has become louder in the
wake of Pokhran II. The step-up in defence outlay by Rs 5,100
crore (14 per cent) proposed in the 1998 Union budget over the
revised estimates for 1997-98, raising the total outlay for
defence to Rs 41,200 crore, is too little, given the volatility
of our geopolitical environment, says a special report in The
Economic Times (June 7) quoting senior defence officials and
experts. The Army alone, it goes on to say, requires something
like Rs 20,000 crore simply for replacement of equipment. ]be
case for enlarging the defence outlay in a big way was advanced
even before the country had decided to go nuclear on the
perception that defence was languishing for lack of funds. A TOI
report (May 6), for instance, drew a grim picture of the "war-
fighting capabilities" of the Indian Army because of certain
critical deficiencies resulting from inadequate allocation of
funds over the years.

Vital Question

Given the primacy of national security, there can be no two
opinions that a funds crunch should not come in the way of our
defence preparedness. But, given again that resources are not
unlimited, how does a country decide how much to spend on defence
or judge whether a given amount is adequate? The question, though
of vital importance for the nation, does not admit of a
straightforward answer. Defence is a multidimensional and dynamic
concept in which technology plays a key role. For an integrated
view on how much of defence spending can be regarded as adequate,
one needs, besides an idea of the capabilities of potential
enemies, adequate familiarity with military technology and
strategies of warfare. It is thus difficult for laymen including
finance officials and politicians to justify or contest what
experts in the field may put forward as the minimum needed for
the country's defence.

Ideally, the resource allocation process should proceed in three
phases. First, a planning phase that provides an integrated view
of overall defence priorities (not just Army or Air Force
priorities) to guide development of specific programmes. The
programmes themselves have to be mission oriented or objective
oriented. In the next phase, alternatives are required to be
evaluated to achieve the cost effective options in each mission
area. The budgeting phase, which is the third segment of the
process, should have a more precise costing frame to enable
allocation of resources for various programmes and should form
the first year of the approved programme on a rolling plan basis.
The programme proposals should be developed by the services. But
there should be basic guidelines for the development of the
programmes, as also fiscal guidelines in terms of multi-year
budget ceilings which may have to be revised by iteration. These
guidelines can emanate only from the defence minister. There
should also be an institutional mechanism in the ministry of
defence for evaluating the programmes, including identification
of budgetary problems, if any, faced in their implementation.

Contrasting with the 'programme approach', defence budgeting in
India is basically input-oriented. As far as one can make out,
our defence budget as drawn up now is an aggregation of the three
services' budgets without any integration in the real sense. The
requirement of resources is worked out not so much in terms of
activities but simply by adding up the cost of inputs like pay
and allowances, stores, works, travelling and capital outlay
Thus, the linkage between capability build-up and resource
allocation is at best tenuous.

Cost Effectiveness

In the absence of programme budgeting, it is difficult to assess
the efficiency with which resource allocation is done in defence
and what its capability is. Identifying deficiency in terms of
shortfall in resources from a target figure also does not make
much sense. In any case, one has to think of defence in its
totality, after taking into account the various capabilities that
have already been acquired in the Army, Air Force and Navy and
what is needed to strengthen them, in the light of changes in the
threat scenario as assessed professionally. The final judgment,
however, must be taken on the political plane.

Furthermore, allocation of resources should be guided by the
"marginal cost effectiveness principle" in order to optimise
their use. Otherwise, one particular type of capability, say,
armoured or tanks strength, may increase because of generous
allocation of funds but with diminishing returns as antitank
technology undermines their utility in war, while the other
capabilities, like C3I, which acquire urgency in the post-
Pokharan era, may languish because of lack of funds. The marginal
principle helps all the more when capabilities are related to
specific objectives. Programme budgeting facilitates applying
this principle in practice. If properly structured, it ensures
that, for example, important capabilities for properly conducting
low intensity warfare do not suffer for want of funds.

Reasoned Choice

Lastly, it is illogical to put forward a particular figure for
allocation to defence as optimum on the ground that it represents
a given percentage of GDP. It needs to be emphasised that for
allocation purposes there is no special sanctity for any
particular proportion of GDP. As Enthoven, the noted expert in
this field, put it: "There is no discernible optimum percentage
of GNP for defence spending. It always depends on the
circumstances and on national priorities. For the same reason one
cannot maintain that defence expenditure should grow at the same
rate as the GNP".

The keynote in defence preparedness must be modernisation, but it
should be recognised, as pointed out by the Chatfield Committee
several years ago, that with increased efficiency and mobility
afforded by modern technology it is possible to provide an equal
measure of security with a smaller number of troops. Hence
modernisation does not necessarily imply a larger outlay.

The point simply is that budgeting for defence should be a matter
of reasoned choice, keeping in view other priorities that also
have a vital role in building up the nation's strength, and not
based on the application of any mechanical formula.

(The author is affiliated to the National Institute of Public
Finance and Policy and is a former financial advisor to the
defence ministry)

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