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The Rediff Special/ Admiral J G Nadkarni (retd)

How can one modernise the Indian Army on Rs 2,000 crore?

India will spend a whopping Rs 45,700 crore on its defence during the next year. Apart from subsidies and loan repayment, it will be the largest expenditure undertaken by the central government. It is symptomatic of our times that the finance minister gave exactly two lines to this massive appropriation, more as an afterthought, in his Budget speech. If the past is any indication, this allocation will be passed by the Parliament without even a debate. Embroiled in scoring points over the Bhagwat sacking, no member of the august body has expressed any opinion on the defence allocation. There is also a total lack of public debate or awareness of how much we spend, whether the amount is too little or two much or whether we spend the money wisely.

Total allocation for 1999-2000 has been pegged at Rs 45,694 crore which is an increase of 11 per cent over the previous Budget. With inflation running at nearly 9 percent and the rupee exchange rate sliding by more than 10 per cent, the new figure is actually an exercise in the status quo. As much as 12,000 crore, more than 25 per cent, will be eaten up by pay and allowances of the armed forces. Another fifty per cent will go towards maintenance costs leaving just about 25 per cent, about Rs 11,000 crore for modernising the forces.

Defence commentators generally applaud the annual increase in defence expenditure lamenting at the same time the fact that the total allocation is still not sufficient. Little effort is made to comment on the anomalies of the defence budget. India's defence expenditure next year will constitute about 2.4 per cent of the GDP. Yet no one appears to be happy with the defence budget.

The defence establishment, which includes the armed forces, complains that the expenditure is too little comparing it to the 7 per cent of GDP of Pakistan and nearly 6 per cent of China. The Parliamentary Standing Committee on Defence has urged an allocation of 4 per cent while the services themselves would like a minimum of 3 per cent of GDP during the Ninth Plan.

Yet there is a large segment of India's elite establishment who believe that we are spending far too much on defence and India's economic development is suffering as a consequence. However, there is no evidence that the reduction of defence expenditure from a peak of 3.7 per cent in the eighties to the present day 2.5 per cent has helped development. It should be a matter of concern that there is a growing imbalance between what we spend on the essentially non-development defence budget and on other developmental items in the national budget. For example, the entire central expenditure on health, education and welfare is only one tenth of the defence budget.

The entire budgetary process of India's defence services is highly flawed and out of date. The defence budget is neither planned nor objective oriented. Except for a few people at the top, no one in the services is involved in the budgeting process. There is little interaction between the services while formulating their individual budgets. Despite having a Defence Planning Staff for over ten years the concept of PPB (planning, programming and budgeting) has still to be implemented.

Rather than embark on a fruitless debate on whether the defence forces should get more of the GDP cake, it will be worthwhile to explore whether the allocations are properly utilised and whether the taxpayer is getting his money's worth.

It is difficult to carry out this assessment for the simple reason that India's defence financiers have failed to come up with a modern system of accounting during the past fifty years. Practically every advanced country in the world has reformed and reorganised its defence accounting system continuously for the past thirty five years while the Indian defence establishment has stood still.

Robert McNamara introduced the revolutionary Planning, Programming and Budgeting System (PPBS) in the United States armed forces in 1961. Today, it is the standard system in the US, not only in the armed forces but in much of industry. In some form or another it has become the system of budgeting and accounting in most of the developed world. Many half-hearted attempts to introduce it in India's armed forces have fallen by the wayside thanks to our in-built inertia and lack of will. Thus, we continue with our age old methods of producing service-wise budgets, more or less the same way as they were produced in 1920 and 1930.

Not only have we not introduced the PPBS, we do not even have an effective cost accounting system. Cost effectiveness of any equipment or system is the key criterion before incurring expenditure. Not having a proper cost accounting system makes it impossible to take cost effectiveness decisions.

Our defence accountants today will be able to tell you how much the Army spends on pay and allowances or how much the Navy spends on spares. But our systems fail to tell us how much it costs to maintain a battalion or how much a refit of a ship will cost. It is well nigh impossible in these circumstances to take a decision, for instance whether it will be more cost effective to give the ship a refit prolonging her life or whether to scrap her. It is a matter of grave concern that India's armed forces do not possess even this rudimentary management capability. Unless India's armed forces introduced some form of objective oriented programmed budget it will always be a subjective matter whether the services should get more of the national resources.

Another handicap in India's defence budget is the lack of planning. The so-called five-year defence plans have become a joke The Seventh Plan (1987-92) was finally approved after four years had gone by. The Eighth did even better. It was not even finalised until the plan period was over. Even when a plan is approved and finalised there is nothing sacrosanct about it. It can be ignored or brushed aside at the drop of a hat. How can any defence apparatus plan ahead in these circumstances?

In the absence of any long-term planning the Budget appears an ad hoc contraption from year to year. Without any apparent reason such as war or emergency it hiccups from time to time. For example while no naval orders for new ships on Indian shipyards have been placed for nearly ten years, a sudden order worth Rs 4,500 crore was placed on Russian shipyards.

While lack of planning, programming or cost accounting are the major flaws in the defence budget there is also the problem of imbalance. To be effective and a true instrument for implementing a nation's defence policy a budget must be well balanced. There is a lack of balance in our defence budget, between the services and with each service.

The present distribution of the defence cake between the services is more a matter of tradition than any well thought out plan. The British created a huge Indian Army, which reached 2.5 million during the Second World War. On the other hand, the maritime defence of India was underwritten by the Royal Navy. Hence at the time of Independence, the Indian Navy was a small coastal force commanding only 3 per cent of the defence budget. That disparity between the services has more or less continued to this day. Although the Arun Singh committee recommended an increase in the share of the Air Force and the Navy, its recommendations made in 1992 are still to be implemented.

The imbalance is even greater when the distribution is examined within each service. More than 85 per cent of the army's budget goes into maintenance, leaving a paltry amount for modernisation. How can one modernise the massive Indian Army on Rs 2,000 crore when just the induction of one weapon system alone can cost Rs 5, 000 to Rs 6,000 crore?

Given proper planning and commitment India's defence budget can be a major instrument for revitalising and modernising India's armed forces. Inertia and lack of vision is sure to doom the armed forces to continue muddling their way becoming both outdated and ineffective day by day. India's armed forces deserve better.

Admiral J G Nadkarni (retd), former chief of the naval staff, is a frequent contributor to these pages.

Admiral J G Nadkarni

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