Finance Minister, P Chidambaram who provided Rs 60,000 Crore ($ 15 Billion) for writing off farm debts pegged the defence budget below 2 percent of the GDP for the first time in India’s recent history. Whether this was due to lack of funds because of profligacy elsewhere or simply the result of the Ministry of Defence failing to meet spending norms is not clear at present. The overall hike in defence budget is 10 percent of the budgeted amount for 2007-08 and 15 percent of the revised allocations. While hard core military analysts were unhappy over the low GDP allotment to defence, the problem with Indian defence is not budgeting but the acquisition cycle. It took 26 years for the country’s air force to acquire an advanced jet trainer, even as many pilots lost their lives, frequently blamed on lack of progressive training.

By all standards, India needs an increase in defence budget to maintain operational capability of the armed forces. Rs 106,600 Crore ($26.5 billion) slotted for defence, thus may not be adequate to provision for the large number of deficiencies in the capital needs of the military. Rs 48,007 Crore ($ 12 billion) identified for purchase of arms through the capital account should cater for some of the key items that the armed forces are looking for especially the fast track one such as Six C 130 J Hercules long range load lifters for the Army’s Special Forces. Most of this however may go as part payment of contracted equipment as ships, submarines and missiles. The aircraft carrier Gorshkov would also take up an additional amount of approximately, $ 500 to 600 million.

In the long shopping list of the armed forces there are many items such as light and heavy lift helicopters, light and medium guns and naval surveillance aircraft which are required urgently to maintain an edge over an ever expanding deterrence envelope with both China and Pakistan deploying more resources than India strictly on a GDP ratio basis. The Chinese in particular are becoming increasingly vocal of the need for higher investment in defence.

In what is seen as deliberate public lobbying by the People’s Liberation Army a recent article in the Liberation Army’s Daily quoted by Reuters has sought an increase in defence spending, warning of grave consequences in case of a shortfall. Perhaps, India’s Finance Minister did not hear the call which said, "Now the time has come when we must increase defence spending to make up for historic arrears. Our country's current rises in military spending are merely bringing that spending into step with economic growth ... but we are far from completing this compensation and closing the shortfall." By all accounts the Chinese defence budget will sustain a growth of 15-20 percent taking it above the $ 55 billion mark during the current year. Though the Chinese spin master’s claim, "We won't buy fighters, but will try to improve the benefits for soldiers and officers. There's not much money left for high-tech researches," said Zhao Qizheng, former head of the Information Office of the State Council.

Though a comparison is highly facetious and may lead to some wrong conclusions, GDP spends and peer group budgeting remains one of the standard parameters for assessing military expenditure the World over. While there is no detailed justification for demand by analysts of 3 percent plus GDP investment in defence by India, additional funds would surely facilitate fast track purchases of items which are required on priority. The deficiency in fighters is a case in point so is the need for light helicopters for the army which were about to be contracted last year till there was a last minute drop by the Ministry of Defence.

The real rub of India’s defence inefficiency however lies not with the Finance Ministry but with the country’s slow, archaic procedures for acquisition. More over the large number of court cases related to defence acquisition which stood at 38 at last count has made officials wary of signing acquisition contracts. Thus even with a Defence Minister who has a reputation of being squeaky clean, the process of arms acquisitions is caught in a permanent bind of suspicion.

Behind this misgiving are some archaic rules which do not permit agents in defence deals. This does not fit in well with the manufacturing and trading system the world over. Agents are a part of the overall process of doing business and despite best of intent, it is virtually impossible to avoid a middleman particularly when engaging companies across the globe.

More over the defence acquisition department till late was hopelessly under staffed and had poor skills to engage global defence industry thereby being virtually slave to information provided by companies or their front men. The Offsets clause in the Defence Procurement Procedure and its application is a case in point. No assessment of the capability of indigenous industry’s ability to absorb offsets has been carried out before laying down percentages. This is likely to lead to another cause for perpetual delays.

Professional procurement help is urgently required by the Defence Ministry to manage the process. Managers with international business experience and exposure with Indian background who can network with equal ease with the three services, DRDO, ordnance factories, global defence giants and emerging private sector tycoons with confidence and alacrity is the need of the hour. Given that no large scale overhaul in defence procurement staffing is likely to be carried out in the near term, one could assure the Finance Minister that the Defence Ministry would return at least Rs 5000 Crore ($1.25 Billion) in March 2009. The only consolation, induction of the Advanced Jet Trainer, so hopefully no lives will be lost due to lack of training aircraft with the Air Force.

March 24, 2008

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