Budget 2018 impact: Navy, Air Force also feel pinch of personnel costs

The defence budget, which the Union government presented on Thursday, underlines serious issues around the structure of the Army, Navy and Air Force and the growing imbalance between equipment and manpower costs. 

Overall, the Army emerges as a manpower intensive force, with a burgeoning salary and pension Bill that account for three-quarters of its allocation, leaving only scraps for modernising a vast inventory of equipment that is racing towards obsolescence.

But the Navy and Air Force, albeit to a lesser extent, have also begun feeling the pinch of increased personnel costs, which is constraining their ability to resource new weaponry. While the Army makes the case that numbers are essential for manning a sprawling mountain border with China and Pakistan, the Navy and Air Force admit that an expensive technological edge is essential for their functioning.

Given the importance of equipment modernisation, the overall defence budget should rise at least at the same pace as salaries and pensions, so that equipment modernisation is not hit. That has not happened, with rising personnel constituting a growing proportion of the Army, Navy and Air Force budgets.

A detailed, year-on-year analysis by Business Standard of defence spending since 2014-15 reveals that the Navy’s personnel costs, inclusive of pensions, has risen from 21 per cent that year to 30 per cent in the coming year’s Budget.

That has proportionally impacted the Navy’s capital budget, which has fallen from 58 per cent of its allocations in 2014-15 to just 46 per cent this year and the next.

In real terms, that has reduced the Navy’s capital budget from Rs 222.69 billion in 2014-15 to just Rs 19,3.48 billion in the current year. The earlier level will not be regained even next year, for which the Navy has been allocated Rs 208.48 billion in its capital budget. 

Given that most categories of military equipment have an  annual inflation rate of 5-10 per cent, this translates into a substantial decline in buying power each year.

This decline will directly impact the progress of procurements the Navy regards as essential for safeguarding India’s 7,500-km coastline, its island archipelagos and the stretch of ocean from the Strait of Hormuz in West Asia to the Malacca Strait at the entrance of Southeast Asia. 

These include the planned purchase of frigates from Russia, minesweepers from South Korea, a line of six submarines to be built in India, a second indigenous aircraft carrier, naval fighters to operate off that carrier, and multirole helicopters to boost warships’ anti-submarine capability.

The Air Force faces a similar situation, with personnel costs having grown from 24 per cent of its budget in 2014-15 to over 35 per cent in the coming year. During this period, the Air Force’s capital allocations have proportionally dipped from 58 per cent to 49 per cent this year.

In absolute terms, the Air Force’s capital budget has remained almost static from Rs 327.96 billion in 2014-15 to Rs 357.56 billion in the coming year. Already burdened by a large number of committed liabilities like the Rs 50-billion to Rs 70-billion annual instalments for the Rafale fighter, the Air Force has little left for planned purchases like the single-engine fighter and a range of force multipliers like aerial refuellers that are in the pipeline. 

The increase in personnel costs across the 1.6 million-person military has stemmed from the implementation of the One Rank, One Pension formula, and across-the-board salary increases recommended by the 7th Central Pay Commission. 

The Parliament’s Standing Committee on defence has recommended the revamping of personnel policy, as have successive committees including the Naresh Chandra Task Force and the Shekatkar Committee. However, no substantive changes have been announced or implemented.