Economic Burden of Defense

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ECONOMIC BURDEN OF DEFENSE The question of "how much is enough" when addressed to estimating the optimal defense expenditure of nations yields no easy answers. Peace and disarmament lobbies argue that outlays on defense and social welfare by the state embody zero sum games; increases therefore in defense expenditure must inevitably lead to reductions in social welfare, and vice versa. This is a maximalist position, since the maintenance of armed forces and paramilitary units is essentially intended to ensure national security. Modern defense forces should be able to deter inimical nations from eroding a state's territorial integrity or abridging its national sovereignty. A new dimension to the need for greater defense expenditure to protect India from disruption is added by the increasing dangers arising from the menace of international terrorism.

India's Defense Budget in Context

Allocations for the defense budget in India are made in terms of "current rupees," which is the usual practice followed across the world. For comparative purposes and for long-term planning, defense expenditure can be designated in terms of "constant rupees," which has the advantage of discounting the inflationary factor. Assessing defense expenditure in "real terms" allows other deflators to be applied, like currency fluctuations that would allow the actual value of the defense rupee to be informed. For making comparisons between the economic burdens on defense accepted by different nations, some generally accepted means of comparison are possible, notably by denoting defense expenditure as a percentage of either the gross domestic product (GDP) or the central government expenditure (CGE). The Indian Constitution envisages the legislative, administrative, and financial control over the armed forces in India vesting in the central government; thus, including therein expenditures by the state governments for comparison purposes is inappropriate, although some analysts in India have found this useful. There are other parameters that can be used to express the defense burden, like its per capita amount or the size of the armed forces in relation to the population of the country, but they are not helpful for making comparative studies.

Characteristics of the Indian defense budget

The Indian government deprecates its need to incur expenditure on defense by rather self-consciously suggesting that it is only providing the minimum irreducible outlays required. The official explanations are: "The endeavour of defence planners is to balance the minimum maintenance requirements of defence forces and the need to modernize them, without unduly straining the economy" (Ministry of Defence, Annual Report, 1997–1998, p. 12); and "Given India's size and security concerns, the outlay on Defence, assessed either as a percentage of the total Central Government expenditure or of the Gross Domestic Product, continues to be one of the lowest among neighbouring countries" (Ministry of Defence, Annual Report, 1999, p. 16).

India's defense expenditure since the 1960s does not reveal any pattern of incremental growth, but rather suggests that periodic increases have been reactive to external conflicts and internal dynamics. The most important external factors were the wars that India fought with China and Pakistan: the Sino-Indian border conflict (October 1962); the Second Indo-Pak War (September 1965, preceded by the Kutch operations in April 1965), the Third Indo-Pak War (December 1971), leading to the creation of Bangladesh; and the Kargil conflict (May–July 1999). The yearlong Kashmir Line of Control buildup and border confrontation between India and Pakistan (December 2001–October 2002) also led to dramatic accretions in the defense budget. These periodic additions to India's defense budget occurred in the years following these conflicts, and relected high costs to replace lost equipment, make up for perceived deficiencies in weapon systems, and heighten defense preparedness. The major internal factors bringing dramatic increases in defense allocations were required to implement the awards of the Pay Commissions of 1974, 1986, and 1996.

Personnel and personnel-related military costs have radically increased over the years due to the generosity of successive Indian Pay Commissions. Recruiting suitable young persons for the armed forces in India has become progressively more difficult for various reasons, primarily the availability of attractive job opportunities in civil avocations and the disincentives of hard living conditions and inherent risks in the military profession. At the same time, the high value and complexity of modern weapon systems makes it imperative for the armed forces to recruit a fair share of the available talent by offering larger compensations and more attractive perquisites; these have added to manpower costs that approximated over 40 percent of the defense budget in India. Military pensions have also increased exponentially over the years due to the cumulative effects of the Pay Commission awards and the rapidly growing longevity of pensioners due to improved health conditions in India. Since 1984–1985, military pensions have been debited to civil estimates, but they now amount to around 20 percent of defense expenditure.

India's major weapon systems were long of Soviet origin, available at "political prices," and still comprise some 70 percent of the weapons in the armed forces. Over the years, the spares and ancillaries needed to keep these systems operational have progressively become more difficult to procure, and also much more expensive, as they are now only available at market prices. India is now diversifying its sources for procuring military supplies by turning to Western countries, and increasingly to Israel. These procurements, available only at commercial and market prices, add considerably to defense costs and spending.

Factors Influencing Defense Allocations

Defense expenditure in India is predicated on the threat perceptions of its strategic elite, who influence the decision-making process. These special interest groups include the three Services Headquarters (Ministry of Defence, Ministry of Finance, Finance Division of the Ministry of Defence), the Standing Committee of the Parliament on Defence, and the political parties. Other, but less significant, groups are the voters, foreign arms suppliers, and domestic contractors supplying defense requirements. There are, moreover, a steadily growing number of retired civil and military officials, media personalities, and academics who are active in the seminar circuit, and in print or electronic media. The official articulation of India's national security threats emphasizes its external dimensions and the dangers emanating from its strategic location in the northern Indian Ocean littoral, as well as its proximity to the volatile Gulf, Central Asian, and Southeast Asian regions. But the primary military threat is seen to arise from Pakistan, with its support of Islamic militancy and terrorism in Kashmir, and from China.

A cross-border security threat is increasingly perceived, especially by the nongovernmental components of India's strategic elite, as emanating from nonmilitary sources of insecurity, including international terrorism, arms and drug smuggling, organized crime, and money laundering, apart from forced migration and environmental decay. These threats require regional and global solutions. Furthermore, major threats to Indian security arise from internal factors, including ethno-nationalist upsurges, communal and caste conflicts, and the growing menace of indigenous extremist movements that have spread across several parts of the country.

Cumulatively, these threat perceptions guide the defense planning process. Its basic determinants have been identified to be the need for a two-front defense to secure the borders with Pakistan and China; the need to acquire an independent deterrent capability, since it runs counter to India's foreign policy to join any military alliance or strategic grouping; the inevitability of large-scale involvement by the armed forces in internal security functions; and India's strategic interests in the northern Indian Ocean, its Exclusive Economic Zone, and defending its island territories, highlighting its need for a blue-water navy.

Categorization of Indian defense budget

Expenditure estimates in the defense budget are classified under five major demands; four are on the revenue account (for the army, navy, air force, and ordnance factories), and the fifth on capital account. Military expenditures can be divided into six broad categories: pay and allowances of the personnel of the armed forces; payments to industrial establishments employed by stores, depots, and factories; transportation and miscellaneous expenditure; stores purchases; works expenditure; and capital outlays such as capital works, purchase of vessels, plants, and machinery.

The distinction made between revenue and capital expenditure in the Indian defense budget is an inherited British practice, which is not very satisfactory. In theory, revenue expenditure must not result in creating any permanent assets. Capital outlays are expended on acquiring lands, buildings, and machinery. This distinction is artificial, as expenditures on small and temporary buildings were classified under the revenue head. But it also included outlays on aircraft, aero-engines, and the naval fleet, which were anomalous. After 1987–1988, these latter outlays were classified under the capital head, which also includes expenditure on heavy and medium vehicles, equipment, and buildings that have a value of more than 200,000 rupees and a life of more than seven years.

Yet another manner of classifying the defense budget is to differentiate between outlays on personnel and personnel-related costs, maintenance costs, and modernization costs. This classification disaggregates the defense expenditure in terms of its major functions, allowing its utilization for comparative purposes and more purposeful orientation. The empirical experience regarding the utilization of the Indian budget reveals that any reduction therein or any unforeseen expenditure requiring accommodation in the defense budget results in a negative effect on the modernization effort. (Personnel costs are sacrosanct and remain unaffected.) This leads to a diminution in the operational capabilities of the Indian armed forces, due to weapons systems becoming obsolete, the unavailability of essential equipment due to the shortages of spares and ancillaries, and inadequate training of the forces.

Can economy and efficiency be achieved in the defense budget?

The answer to the above question must be unequivocally affirmative. The major reasons given for increasing India's defense budget include such arguments as: no real increase in defense outlays has occurred if inflationary factors over the years are discounted; allocations made to the army might have increased, but those for the navy and air force have remained almost static; capital outlays of around 30 percent of the budget are inadequate to cater to even high-priority modernization programs; and the financial implications of the Pay Commission reports are not being configured into the defense budgets. Moreover, a recurring complaint is that the defense plan is never finalized in time because of interminable bureaucratic delays, which disrupt the reequipment plans of the three services, adding to the cost of these acquisitions and ultimately to the defense burden.

There are large areas, however, where economies can easily be effected in defense expenditure that could, paradoxically, also improve efficiency in the armed forces. These include: the scaling down of authorized unit holdings of tanks, heavy vehicles, and other equipment; reducing the consumption of fuel, oil, and lubricants by imposing quantitative restrictions on their issue; renovating the ordnance depots and achieving better inventory management in stores holdings; and effecting greater capacity utilization in the ordnance factories and defense public sector undertakings. More radical steps could also be taken to reduce defense expenditure, such as reviewing the manpower holdings of the armed forces and locating areas of wasteful use. This could also be achieved by integrating similar administrative functions that are being separately performed by the three services headquarters, such as the procurement of stores. The possibility of using civilians in place of uniformed personnel could also be accelerated for tasks like the manning of general and logistics establishments. Civilian personnel may be employed at less than half the cost of uniformed personnel in terms of compensation and perquisites. A more professional system for the procurement of indigenous stores or acquiring weapon systems from abroad could also ensure economies. Large economies can thus be effected in defense expenditure without jeopardizing the operational efficiency of the armed forces.

Effect of nuclearization

The nuclearization of India has not led to any reduction in defense expenditure, though India's bomb protagonists had earlier argued that this would lead to a reduction in outlays on conventional weaponry. This reduction has not happened; instead, India's defense expenditure has almost doubled since the nuclear tests in May 1998. India's commitment in its Nuclear Doctrine to deploying the strategic triad of land-based missiles, long-range bombers, and submarine-launched missiles, apart from establishing the requisite command and control arrangements, and early warning systems to achieve assured second-strike capability, will add considerably to the defense budget. The prevailing thesis is that outlays on conventional forces will simultaneously have to be increased to "raise the nuclear threshold," so that conditions are not created that predicate the early use of nuclear weapons in any conflict.

Interservice rivalries also increase expenditures, since each service chief would like to be remembered for the perquisites he wrested for his own service and the weapon systems acquired during his tenure. Establishing the strategic triad has much to do, therefore, with satisfying the aspirations of the army, air force, and navy to acquire their individual nuclear forces. For this reason it seems inevitable that expenditure on nuclear weapons and their delivery systems will grow over time, as will the outlays on conventional forces. Therefore, no economies will be possible in the allocations made for defense.

Does defense expenditure strain the Indian economy? As a percentage of the GDP, the defense budget hovers between 2 and 3 percent, and between 13 and 16 percent of the CGE. This is by no means an insupportable economic burden for India. Nonetheless, it must be remembered that between a third and a fourth of India's population (approximately 300 million) live below the poverty line and are deprived of the most basic needs for food, housing, education, and public health. Viewed from this perspective, defense expenditure, which has been steadily rising, preempts funds required for meeting the basic needs of India's poor, representing significant lost opportunity costs.

P. R. Chari

See alsoArmed Forces ; Wars, Modern


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Kargil Committee Report, published as From Surprise to Reckoning. New Delhi: SAGE Publications, 2000.

Ministry of Defence. Annual Report, 19992000. New Delhi: Government of India, 2000.

Ministry of Defence. Annual Report, 20022003. New Delhi: Government of India, 2003.


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Economic Burden of Defense

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