The biggest lesson that India can borrow is France’s integrated and centralised procurement structure, which has the dual responsibility of arms acquisition and defence industrial development.
It is rare that a foreign company makes a huge investment to produce major platforms in a third country with a view to make that country an export hub.
The Task Force has not extended the principle of Strategic Partnership to the whole gamut of big contracts in which the private sector is supposed to play a major role. And it visualises strategic partners as poor cousins of state-owned entities.
Introduction of the ‘Buy (Indian-IDDM)’ procurement category, the revamped ‘Make’ procedure, structural change in AAP, and higher and flexible indigenous content requirement in certain procurement categories are all likely to deepen the involvement of domestic industry in defence production.
Calculations reveal that the capital expenditure has been cut primarily to accommodate the rise in salary and pension bills arising out of the implementation of OROP scheme and the Seventh Central Pay Commission recommendations.
The Finance Minister, Arun Jaitley, threw a few surprises to the defence establishment while presenting the Union Budget 2016-17 on February 29. He skipped the convention of making a customary remark on national defence in the budget speech. He changed the long-established format for resource allocation among the army, navy, air force, and other organisations under the Ministry of Defence (MoD), forcing many defence analysists to spend the post-budget evening in scratching their heads in reconciling the new figures with the established format. The Institute for Defence Studies and Analyses has made detailed analysis of the latest defence allocation and put it on its website.
The biggest surprise in the Union Budget is that, of the Rs.3,40,922 crore set aside for the MoD, not a single additional rupee has gone to the defence capital expenditure, which has been curtailed by a whopping Rs. 8,248 crore. It is the capital expenditure spend on acquiring such items as the tanks, aircrafts, warships and missiles to name a few - that strengthens the teeth to tail ratio of the military and keeps it as an offensive fighting force.
So, where has all the additional money gone? The money has gone to meet the increases in salary and pension, arising primarily due to the implementation of One Rank One Pension (OROP) principle, and the recommendation of the Seventh Central Pay Commission (CPC). In absolute figures, the defence pension has increased by Rs. 27,833 crore (or 51%) to Rs. 82,333 crore and the salary of three armed forces by 14 per cent to Rs. 95,852 crore. In other words, pay and pension together has increased by a 29 per cent (Rs 39,938 crore), in comparison to a mere 10 per cent growth in the MoD's overall allocation.
Had this manpower cost-led increase in the defence allocation been a one-off affair, the matter would not have warranted a serious debate. It merits a debate because it has now become a pattern for many years now, particularly after the implementation of the sixth CPC. With the Seventh CPC further intensifying the skewed nature of defence allocation this would accelerate the steady erosion of capital expenditure, which is key to building future military capability. This disquieting development demands a serious review of the way India is handling its defence affairs in general and manpower policy in particular.
Any serious review of national defence affairs has to begin with an appreciation of all possible threats that the country perceives, and devising a national security strategy to counter all such threats. The military has to be part of the larger national security strategy and its components have to be carefully planned, given the vast amount of resources required for maintaining a well-equipped force. Such a holistic approach to defence planning is, however, absent in India. Threat perception and force structures, two vital components of defence planning, are left to be determined by the individual services, with the other stakeholders, including the higher political leadership, playing a cursory role
Given that India does not have a Joint Chief of Staff, the individual services are in constant competition for resources against each other. Their turf war has, in turn, resulted in vertical and horizontal expansion of each of the three armed forces, whose number added up to 1.39 million in January 2014. Few statistics would illustrate the intensity of this growth. Between 1967 (the year by which the major expansion of Indian armed forces was supposed to have taken place by taking into account the gaps felt in the 1962 and 1965 wars) and 2014, the total held strength of the Indian armed forces officers has increased by a huge 76 per cent. The India army, which presently accounts for around 85 per cent of the uniformed personnel, has contributed about 56 per cent to this growth.
One may justify army's continuous expansion by the need for more 'boots on the ground' and the 'unique' nature of India's problems both inside and outside the border. This logic however ignores the rapid technological advancement that has caused major global military powers, including China, to reduce their manpower. The logic is also untenable in view of large-scale increase in India's Central Armed Police Forces (CAPF), four of which are exclusively reserved for guarding the country's international border. It is worth mentioning that between the 2005 and 2015, the held manpower strength of the CAPF has increased by a quarter to almost a million, with maximum expansion occurring in the border guarding forces.
Expansion of forces has come at a huge cost. This is particularly true in respect to the armed forces, whose share of salary and pension bill in the MoD's total spending has ballooned from around 33 per cent in 2007-08 to over 50 per cent in 2016-17. It may be noted that unlike other government employees, most of the armed forces personnel not only retire early but are also entitled to a defined pension (other government employees have contributory pension in which an employ contributes a part to his/her income for pension). Any attempt to absorb the early retirees in other security forces (so as to reduce the future pensionary burden) has so far been successfully thwarted, without considering the costs. Hiding the cost of pension in the civil expenditure of MoD has not contained the problem. Rather, rising pensions, together with ballooning salary increases, now spiralling out of control, have begun to adversely impact overall defence preparedness by forcing cuts on the capital expenditure. It is time to conduct an earnest review of the military force structures and manpower policy, mindful of India's security needs and budgetary constraints. India can least afford to have a defence budget which is all about pay and perks.
This article was originally published in 'The Economic Times'.
The two heads of expenditure which have witnessed significant growth in the defence budget 2016-17 are the salary component of the armed forces and the defence pensions.
The article assesses the impact of defence offset policy on the Indian defence industry, by taking into account two key parameters—foreign direct investment (FDI) inflows and exports. It observes that the offset policy has a mixed impact. On the positive side, the offset policy seems to have an impact on certain types of exports. On the negative side, the policy has not been a catalyst in bringing in foreign investment and technology inflows into the Indian defence industry, nor has it been successful in promoting its high-end manufacturing.
While making a host of recommendations, the Dhirendra Singh Committee has been cautious in assessing their impact on the domestic industry.
One area where the 2015-16 defence budget is likely to hurt the most is in capital acquisition, which has already been under acute pressure in recent years due to the overwhelming share of the ‘committed liabilities’ arising out of contracts already signed
