An increase in defence outlay of Rs 10,000 Crore (Over US $ 2 billion) by India's Finance Minister Mr. P Chindabaram evoked cheery response from most defence watchers including the Defence Minister Mr. A K Anthony. The Finance Minister fell short of the Rs 100,000 Crore target ($ 23 billion) anticipated by many analysts by Rs 4000 Crore($ . 8 billion). The surrender of Rs 3000 Crore ($ .6 Billion) during the current financial perhaps prevented Mr. Chidambaram from meeting this landmark. But soon India's Defence Budget was to be overshadowed by China's which was almost double the size. 

The high point of the India's Defence Budget 2007-08 is a shift from revenue to capital budgeting which is the norm of defence outlays of developed countries. Thus the capital outlay at Rs 41,922 Crore is 43 percent of the total defence outlay of Rs 96,000 Crore. While the aim appears to be to move towards parity in capital and non capital defence spending, the approach has been incremental. This is understandable given the nature of security threats facing the country being in the conventional military as well as asymmetric non combat spheres of terrorism, maritime security and other irregular areas. While the impedimenta of modern warfare requires large capital outlay, success in militancy is determined by, 'boots on the ground', expenditure on retaining optimum manpower. The structure of the capital and the revenue budget of different services are also indicative of this approach to balance the roles of the Armed forces. Thus the budget of the Army with a larger role in manpower intensive operations has a greater revenue component while the Air Force more capital outlays.

The upside of 7.8 percent over BE 2006-07 and 11.6 percent over RE may also have been dictated by the need to enhance the capital outlay. However as approximately 10 to 12 percent of this is invariably returned unutilized to the Finance minister's kitty every year, the overall increase in capital budget is marginal. The focus of the capital budget for the next fiscal is largely directed towards procurement of combat aircraft for the Indian Air Force which has received over Rs 16,000Crore or 38 percent of the total outlay. A notable feature is that the revenue expenditure of the Air Force has been pegged at 10193.01 Crore. Thus the ratio of revenue and capital budget of the Air Force is a highly favorable 1: 1.56. This remarkable shift should indicate an accretion of large quantum of force multipliers which should see the IAF emerge as a key service in combat as well as non combat operations in the future. A similar ratio for the Army and the Navy would work out to be 4: 1 and 1.23: 1 respectively. The ratio in the case of the Army being manpower intensive is well understood however the Navy seems to have received less than its share of the finance ministry's largesse to capital account in defence.

The most alarming yet less obvious issue is lack of a long term strategic basis in the overall structure of India's defence budget. This would be indicated by the Finance Ministers reasoning for increase in budgetary provisions as a response to, 'normal rise in pay and allowances, maintenance expenditure and modernization'. The assurance that additional requirement for security of the country will be provided for may have been sweet music to the ears of the uniformed forces, however Mr. Chidambaram probably knows that given the extraordinary inefficiency in defence fiscal planning no demands are likely to come up in the coming year. A rapprochement with Pakistan, China's policy of peaceful rise and militancy in many parts of the country under reasonable control; India is unlikely to face major security challenges which may require additional defence allotments over the coming year. But given the holy cow approach towards defence and security issues in the country, the Finance Minister perhaps wanted to stay away from possible charge of under funding security.

A critical review of the security requirements however would have enabled balancing the defence budget with the overall environment both external and internal. A simple exercise on sum total of expenditure on hard core security by India would be revealing. Some of the facets which could be included in this would be Rs 3186 Crore on Defence Research and Development, Rs 19,000 Crore central budget on policing, part of the Rs 4500 Crore budget of the Department of Atomic Energy including special projects, almost Rs 4000 Crore for the Department of Space, the Ministry of External Affairs assistance to foreign governments to the tune of approximately 1750 Crores and various other heads which are not so evident. Given the expenditure on police forces by states, the overall security budget could well touch Rs 175,000 to Rs 200,000 Crore or $ 40 to $ 50 billion.

Standard comparative parameters for defence budgeting provide a link to either percentage of GDP or expenditure of the Central Government. As a parameter of GDP, India has had an extremely favorable ratio varying from 2 to 2.5 percent. In terms of percentage of government expenditure it is 14.11 percent which again is well under control. However capital outlay on defence at Rs 41,922 Crore is the largest non plan capital expenditure head of the government at 45 percent of a total Rs 91875 Crore. The nation is thus investing almost half its money on defence accretions or Rs 3, 16, 392 per soldier, sailor and airman this year apart from the revenue expenditure which is Rs 4, 08, 135/-. Is India getting bang for the defence buck? With national security issues shrouded either in secrecy or emotions, this question will continue to remain unanswered. On the other hand the surge in China's defence budget has raised considerable alarm the World over. We will review China's defence budget next week.