India’s Finance Minister Pranab Mukherjee stated in para 121 under the head of security, in the budget for 2012-13, that a provision of 1,93,407 crore (about $39 billion) has been made for defence services which include 79,579 crore for capital expenditure. As always, this allocation is based on present needs and any further requirement would be met.” Except for the figures, the statement is generally the same year after year with emphasis that “any further requirement would be met.”

A very laudable commitment but there has been no year in the recent past when additional requirement has been asked for. In fact funds have been normally surrendered including for the current year in which four per cent amounting to 3,055 crore of the capital budget. These details can be examined later but first let us look at some facts. Last year the allocation was 1,64,415 crore ($36 billion), thus this year, the allocation is up by 17.6 per cent but it still remains less than two per cent of the GDP at 1.9 per cent but up from last year when it was 1.83 per cent. From the revised estimates of 2011-12, it is an increase of 13.14 per cent. The capital expenditure for the same period has been raised to 79,579 crore ($17.5 billion) from 69,199 crore a year ago. But as compared to the revised estimates of 66,143.81 crore in 2011-12, it is an increase of about 14 per cent.

Revenue account

See Table.

Capital Account

The capital budget is pegged at 79,578.63 crore which is 41 per cent of the total defence outlay. The detailed allocation is as follows:

Army: Army has got the lowest at 18,828 crore as compared to last year when it had received 19,163.07 crore. Army’s modernisation involves three key areas of which first one is the Artillery in which 155 calibre guns towed, lightweight and self-propelled are required since long, but the contract has not fructified due to some reason or the other. Army’s urgent wish list is acquiring 145 M-777 ultra-light howitzers from US for about $647 million. The other area which has become obsolete across the board is Army Air Defence where all its systems from guns to missiles are obsolete and need instant replacement. The third key area is Army Aviation which needs to replace its 300 helicopters on priority. Trials have been held about a year back and some deft management is required to take the deal to its logical conclusion. There is an urgent requirement to import 197 light utility helicopters for about $750 million. On the operational side, the raising of divisions on the eastern Chinese border appears to be on hold due to lack of funds.

Indian Air Force (IAF): The IAF has got the highest allocation of 29,853 crore as compared to 30,223.83 crore last year. The most prominent contract which has made international headlines is the Rafale multi-role fighter aircraft which is a $20 billion deal. The other urgent requirement of the Air Force is 75 Swiss Pilatus PC-7 trainer aircraft which is about 3,000 crore (about $0.6 billion).

Defence Research and Development Organisation (DRDO): The DRDO has been allocated 4,640 crore as compared to last year’s 4,628.3 crore which is a marginal increase.

Navy: The Navy has got 23,865 crore as compared to last year’s 14,657.83 crore which includes the shipyards. Allocation of shipyards has almost doubled from 508 crore last year to 1,039 this year, probably keeping the Hindustan Shipyard in mind. Modernisation of the Navy is progressing well. At present there are about 49 ships under various stages of construction at the defence shipyards, 45 out of which are being built in Indian shipyards. Major schemes like Scorpene submarine, indigenous aircraft carrier project, Project 17 stealth frigates and nuclear powered submarine, are all under construction. Payments where applicable will go from this year’s capital allocation. Boeing’s multi-mission maritime aircraft P-8I is progressing well. The construction of three follow-on Talwar class frigates from Russia is under way with delivery of first ship in 2012 and the other two within the next 12 months. The leased nuclear powered submarine is likely to reach India by the first week of April this year. INS Vikramaditya (ex Admiral Gorshkov) is also likely to steam onto the Indian shores by the end of this year in spite of unprecedented cost escalation and time delay. Other likely contacts are for the multi-role maritime helicopter which will be a dollar billion plus deal and additional unmanned aerial vehicles (UAVs) as well.

Procurement Blues

The first aspect is the quantum of allocation linked with the GDP. Considering the other pressures, the magic figure of three per cent may not be achievable, but around two per cent plus would be adequate to tide over the immediate and long-term requirement, provided all the allotted funds are well spent. The other impediment is the slow pace of modernisation compared to other countries in the region. The decision-makers both from the defence forces and the bureaucrats have to find a method to accelerate the process with transparency and efficiency. Defence PSUs also need to modernise and get more competitive in order to avoid delay and waste. Also there is an urgent need to place public-private partnership on an even keel along with increasing foreign direct investment (FDI). The Department of Industrial Policy and Promotion had circulated a discussion paper suggesting raising the cap in the defence manufacturing sector to 74 per cent or more from the existing 26 per cent, however there has been no outcome.