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April 27, 2015

How much does India really spend on defence?


Zen practitioners routinely confront puzzling parables, or koans, as part of their practice to attain enlightenment. One koan goes: "There was a woman walking down the street. Was she the elder or the younger sister?" Thinking with our logical minds, the question seems absurd. How can we tell whether the woman is the elder or the younger sister merely based on the information in the koan? But the method of Zen is to abandon logical thought, for it gets in the way of true enlightenment.

But why is a Business Standard column getting into Zen on a Monday morning? Well, because our defence Budget is much like the aforementioned koan. Every year, the government announces a defence Budget (this year, it amounted to Rs 2.47 lakh crore or $40 billion) and people begin to debate whether it is low, high, adequate or inadequate.

Unfortunately, national defence in a liberal democracy cannot be managed through Zen methods: it needs thought, logic, reasoning and analysis in order to persuade the citizens that so much of their collective wealth and income ought to be allocated for their collective security.

Earlier this month, Prime Minister Narendra Modi was in France where he concluded a deal to purchase 36 readymade fighter aircraft, leading to more Zen: was it right to purchase them even when most people agree that we ought to make in India? This is not about procurement procedures, which are merely instruments. This is about the fundamental question: how should we allocate resources between "Buy" and "Make"?
 
 


Last week, while addressing the Annual Unified Commanders Conference of the military brass of the army, the navy and the air force, Defence Minister Manohar Parrikar made a very important point. He said that while the government is committed to military modernisation, "there is a need to exercise financial prudence and optimise all available resources". Now, although difficult, painful and rancorous, we know how to exercise financial prudence. However, the question of optimising "all available resources" is Zen, because the available resources are unknown.

It's not that "all available resources" for defence are unknown because they are secret. Some of them are, but in general, no one really knows what proportion of the nation's wealth and income are available for defence.

If you aren't shocked, you should be. The world's largest democracy with a free media and a vociferous civil society, with an annual gross domestic product (GDP) of almost $2 trillion (Rs 127 lakh crore), does not know how much it spends on defending itself. Oh, we do know the size of the defence Budget, but that is only a subset of the known spending. Known spending - known, that is, to some good people on Raisina Hill - includes some defence expenditure routed through other departments, for good reasons.

The unknown spending arises from that what economists call opportunity costs. The defence ministry and the armed forces possess assets whose value is not captured on any balance sheet or budget. These include holdings of land, spectrum and people. This is not to argue that such resources must be taken away from the defence ministry: rather, it is to point out that the government and citizens must know the full costs of national security. Making asset value explicit is not only a democratic imperative, it creates incentives for increasing the efficiency of land, spectrum and human resource utilisation.

The Kargil review committee had said that the nation can no longer accept an ad hoc manner of running its defence policy. That was almost 15 years ago and in a different context. Yet its warning is entirely relevant to defence budgeting.

How much to spend and on what is largely decided by incremental changes to the previous years' Budget, with some new additions. While it is appropriate that the nuclear arsenal is in civilian hands largely outside the control of the armed forces, what is not appropriate is the general absence of the nuclear dimension, and of each other, in the planning of the three armed forces.

Do we need new mountain divisions to manage the frontiers with China when we have a nuclear missile arsenal? Should we increase the strength of those divisions or the reach of the missiles? The Indian Air Force wants 40 squadrons of fighter aircraft to fight a two-front war. Against nuclear adversaries. Well. Meanwhile, we see the emergence of unmanned aerial vehicles for combat and the need for heavy-lift helicopters and fixed-wing aircraft for force mobility and humanitarian relief. What should India spend on? Since we do not have clearly defined threat analyses, the questions are restatements of the same Zen koan.

For almost five years, this column focused on the geopolitics of East Asia, arguing for India to commit itself to constructing the balance of power in the Indo-Pacific. New Delhi was lukewarm to the idea in 2010. Now, from the looks of it, the Narendra Modi-led government has embarked on foreign policy trajectory similar to what this column advocated. So it is time, dear reader, to move on to a different area where New Delhi is lukewarm: defence economics. In the months to come, this column will employ the methods of economic reasoning to seek enlightenment on India's strategy, security and defence challenges.


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