Budget Frontlines: A long shot from the 2% goalpost for defence funds

A deep dive into the defence budget allocations and strategic challenges, kicking off a three-part analysis

With capital procurement of defence equipment now scheduled to be conducted on a tri-service basis rather than by individual services, the Ministry of Defence has begun presenting the defence capital Budget in a new format.

Instead of grouping the three services — Army, Navy, and Indian Air Force (IAF) — for the same item, equipment will now be grouped item-by-item in the Budget, encouraging combined acquisitions for greater efficiency.

For example, in the purchase of Apache AH-64E attack helicopters, the IAF procured its requirement of 22 Apaches from Boeing separately. Meanwhile, the Army is negotiating separately with Boeing for six Apaches.

There are buyer advantages to be obtained in combining acquisitions.

For instance, all three services are acquiring MQ-9B Predator drones. Negotiating as a bloc with the manufacturer, General Atomics, would likely result in a lower price.

Consequently, Demand No. 21, which pertains to the ‘Capital Outlay on Defence Services’, no longer provides separate acquisition figures for individual services. Instead, the entire Predator requirement for the Army, Navy, and IAF will be addressed as an integrated whole.

This approach makes it difficult to calculate and compare the distribution of capital funding among the three services.

For 2023-24, it is evident that the Army was allocated 23 per cent of the defence capital budget, the Navy received 36 per cent, and the IAF was allocated 41 per cent.

However, it is important to note that the shares of the three services fluctuate substantially.

Over the past decade, the Army’s share has ranged between 19.5 per cent and 37 per cent; the Navy’s share has varied from 24.5 per cent to 37 per cent; and the IAF’s share has been between 33 per cent and 48 per cent.

Inexplicably, the capital requirements projected by the three services do not find mention in the Union Budget. As a result, shortfalls in defence capital expenditure (capex) allocations become apparent only through reports from the parliamentary committee on defence.

The 37th Report of the 17th Lok Sabha’s standing committee on defence reveals that in 2018-19, the Ministry of Finance allocated only 52 per cent of the services’ capex projections.

The degree of fulfilment of the military’s capex demands increased year by year to 59 per cent, 63 per cent, 61 per cent, and finally to 68 per cent. 

Unusually, the 2023-24 Budget saw a 100 per cent allocation of the services’ capex projections. The new standing committee has yet to issue a report for the current year.

ALSO READ PART II: Budget Frontlines: 'Agnipath' driving shift in spending patterns

Defence allocations

The priority given by the government to defence readiness is evident from the annual funds allocated to the military in the Union Budget each year.

Over the five years from 2018-19 to the present day, the annual defence allocation has risen by 54 per cent — barely sufficient to cover inflation and foreign exchange rate variations (FERV).

As a percentage of the annual expenditure of the government, defence spending has fallen appreciably from 17.43 per cent to 13 per cent.

ALSO READ PART III: Budget Frontlines: Over a million-strong CAPF, the Centre's invisible army

When evaluated as a percentage of gross domestic product (GDP), annual defence spending has fallen from 2.13 per cent of GDP five years ago to 1.9 per cent today.

For context, North Atlantic Treaty Organization member countries are required by terms of the treaty to spend more than 2 per cent of their GDP on national defence. 

A Business Standard analysis of defence capital allocations over the past decade reveals that capex has increased by only 5 per cent annually in real terms. This rise is further eroded when accounting for inflation and FERV. 

This 5 per cent increase in the military’s modernisation budget lags behind GDP growth, which has risen by 6-8 per cent annually during the same period.