Our Army Is The Second Largest In The World, So Why Are We Skimping On Their Expenses?

Posted by Ambar Sharma in Politics
December 12, 2017

“To criticize one’s country is to do it a service…. Criticism, in short, is more than a right; it is an act of patriotism-a higher form of patriotism, I believe, than the familiar rituals and national adulation.”

– J. William Fulbright

Our army needs modernisation. That is an often-repeated stance by people proclaiming to be ‘revolutionary’ in their knowledge of the defence systems. Unfortunately, no matter the government, the army has remained on the steady path of stagnation. In the last Union Budget (2017-18), our military expenditure as part of the GDP, was 1.62% of the projected GDP.

This is alarming given that this budget had an increase of 6% over the last year from ₹2.58 lakh to ₹2.74 lakh crores for defence. Plus, as reported by defence experts, this does not take into account inflation, the depreciation of the rupee or the customs duty that defence imports attract. To put things in perspective, between 1963 to 1981, the defence budget averaged 3.1% of the GDP.

Declining Money for Modernisation

Diving deeper, a study by the Institute for Defence Studies & Analysis showed that defence expenditure on modernisation dropped from 55% in 2007-08 to 40% in 2016-17. The ballooning pay and allowances component has eaten into that share.

This is because with the rising cost of pensions to ex-servicemen due to the implementation of OROP (One Rank One Pension) and the increasing size of our armed forces which is now about 15 lakh active personnel (second largest in the world), pay and allowances have ensured that our defence budget’s main priority is revenue expenditure, rather than capital expenditure.

In this Union budget, the percentage of capital expenditure as part of the defence budget, has gone down 38.73% in 2013-14 to 31.56%.  Simultaneously, the revenue expenditure increased to 68% from 61%.

The money that we do have for modernisation of the armed forces and their equipment is managed inefficiently. This is evidenced by the under-utilisation under the capital expenditure account of the defence budget by ₹20,000 crores for the last two financial years of 2015-16 and 2016-17. Inside the armed forces, the army is guilty of having the most underutilised funds with only 45-50% of capital funds being spent. For every ₹100 that the Government gave to the army for its modernisation, the army did not spend half that amount.

Either we have the world’s most technologically advanced army, or the money needs to be spent and spent better. The sad part is that these are lapsable. This means the amount which is not spent, gets returned to the Centre or adjusted in the revenue expenditure. What inability restricts the Ministry of Defence not to be able to spend this fund, which is not a lot in itself, properly?

It seems that the Defence Secretary of the Government of India has the answer. This is what they said during a hearing by the Standing Committee on Defence’s 27th report:

……the Defence Secretary very candidly submitted before the Committee that the money allocated for Capital acquisition was not in accordance with the requirements of the Services. The Services get whatever is allocated by the Ministry of Finance. The often repeated explanation of the Ministry in regard to the allocations not being commensurate with the projections is centred on the overall resource constraints of Government of India.”

The government, it seems, can spend on traditional advertising, cow meat detection kits for our police and cow urine studies, but remain cash-strapped, for funding the modernisation of our armed forces. The security and integrity of the nation is compromised when the army remains grossly under-funded.

Another gem from the Committee:

“The Committee find it very surprising that instead of increasing the allocation, the Ministry has reduced the budget for Capital acquisitions for the Forces. As can be seen, all the three Services have witnessed a drop in allocation not only at the RE of 2015-16 but also in the BE 2016-17 allocations. The back to back decline in allocation comes at a time when all the three Services have several mega procurement contracts (including the one for procuring Rafale fighters) to be finalized.”

How are we supposed to get everything from bullet-proof jackets to efficient subsystems if the money to get it, is just not there?

Arms Importation

We are the world’s largest arms importer. In the face of hostile neighbours, we are heavily dependent on other countries for our weapons. Russia accounts for the largest, with 68% of all arms coming from them in the last five years.

This points to a lack of development in our domestic defence sector. No private company is big enough to be the next Lockheed Martin or BAE Systems in India. Even though India and Russia have been historically tight-knit allies, the hegemony of Russia as a supplier means our own defence companies shall suffer and be unable to produce competent weapons.

Indigenous weapons (or domestically-made weapons) need to be the centrepiece of any defence policy and the roll-out of the Defence Procurement Procedure (DPP), which is the regulatory policy for all defence transactions on or after April 1, 2016, was welcomed.

With the recent Rafale fighter jet deal being in the limelight, without getting into the actual deal, what it has exposed, is the faulty pricing methodology of the policy. There is a lack of costing mechanisms within the DPP itself, and that starts with the absence of a price database. The standards of pricing are also absent and must be clearly defined, which form the basis of the initial deal. The presence of this benchmark might have cleared up the Rafale deal regarding why one political party accused another that their contract was higher priced than the one before it.

Defence deals take several years, from the principle agreement to the final agreement, the expenditure keeps changing due to inflation and other factors, which is why a pricing database must be kept under the DPP policy, that too, based on other successful contracts from developed countries.

Our importation needs to be curbed, and the DPP policy must be tweaked to ensure the aggressive domestic growth of our defence sector.

Inadequate Reserves

War-wastage reserve (WWR) are the reserves of ammunition for fighting a sudden intense war. For the Indian army, this is 40 days also known as the 40-I level. The CAG pointed out very recently that the army has still not improved on this front. Out of a total of 152 types of ammunition, the stock of 121 types of ammunition (80%) was below the authorization level of 40 days of WWR. There were even several reports that the Army had put ‘restrictions’ on training due to lack of ammunition. Further, 55 % of different types of ammunition were below the MARL (Minimum Acceptable Risk Level). About 40% of different types of ammunition had stock of fewer than 10 days.

The inadequacy of our Ordnance Factories Board is also to be blamed here for their less than perfect supply. Again, done so by our federal auditor, the CAG. Some believe that changing the definition of the WWR to be 20 or even 10 days might be better as conflicts will be shorter and more intense in the future. Plus, the size of the army hinders the maintenance of such a high level of stock.


All in all, these are just the tip of the iceberg. Our politicians need to move beyond the rhetoric of the army and provide reforms into the wide-ranging defence area. Some extra ones, not mentioned, include:

1. Cut the army size: An unpopular opinion, however, size does not equate to strength. Ask any military expert and they would prefer a lean engine much better than a brute one that is woefully unprepared. Even though we are the second largest army in the world, we still face shortages and our sanctioned strength is considerably greater than our actual strength. Perhaps one way to deal with two issues – payment of the salaries/pensions of soldiers and maintaining an inventory of so many soldiers could be addressed through this. The cost of personnel must be contained so as not to burden the taxpayer.

2. Restructure the DGR (Directorate General Re-settlement): The DGR provides for employment opportunities for ex-servicemen. Our veterans were prepared to lay down their lives for this country, a basic expectation, of helping them settle back into society must be correctly done. In another Defence Standing Committee report, the committee saw that no one in the field of banking, insurance, management and marketing consultancy in DGR, Rashtriya Sainik Boards and Zilla Sainik Boards were employed. That needs to change. Private companies also need to be attracted to give employment to our veterans as reservation in public companies will not suffice. Therefore, the necessary changes should be examined.

3. Representation in the Central Pay Commission: The Committee also found that there was absolutely no representation of the Armed Forces in the Central Pay Commission. Given that expenditure on the army is important, no representation on a body which decides the pay for all things related to the Government, needs to be amended so that the problems of the army’s pay can be addressed by someone knowledgeable on the issue.

4. Encourage private participation in the defence sector: Our MSMEs and SMEs can contribute greatly here. Not just big companies, but even in India’s small businesses in the defence sector, it has been seen that they possess the know-how, the resourcefulness and general capability. Reportedly, they supplied around 10,000 products to the defence sector, however, a clear policy stops them from capturing a significant market share. Like I mentioned, revising the DPP is one step, however, the sense of the DPP must also be changed from ‘who is the cheapest supplier?’ to ‘who has the best quality?’ Research & Development must be emphasised during negotiations and tenders.

Not just domestically, however, even for international partnerships between foreign countries/companies and our SMEs, there must be a single window for exports. Finally, our SMEs should also learn the best practices, which is why, transfer of technology during government-to-government contracts or joint-ventures are essential.

5. Improve the fund managers of the defence account: As seen with the non-utilisation of funds, the managers of the defence account need to be much more efficient with their investments. Their aim is to balance the minimum requirements of the Armed Forces, modernize them, without straining the national economy. What also must be balanced is that all services, including the Air Force and the Navy, get their fair share.

On this Armed Forces Day, the focus must not be on grand-standing and empty rhetoric, but, to move toward a system of fiscal prudence in managing the pay and allowances of the Armed Forces, aggressive modernisation of their equipment and promotion of private businesses, especially small ones, in the defence sector. In a neighbourhood rife with hostility, our forces must take precedence over political promises.