Over the last week (February 29 - March 4), both India and China have announced their respective annual budgetary allocation towards defence spending and the contrast is striking. This contrast has structural implications for the South Asian strategic framework in the long term. On the face of it, India has announced a budgeted estimate (BE) for the financial year 2008-09 as Rs. 1,05,600 crores which is about US $ 26 billion. China has pegged its corresponding figure at US $ 57 billion which is more than twice that of India. The increase over the last year in the case of India is 10 percent while in the case of China it is 18 percent. However in relation to GDP, the Chinese defence spending is estimated to be less than 1.5 percent while for India it is under 2 percent.

Mild alarm bells have rung in different countries over the Chinese defence allocation and this stems from the opacity that surrounds Beijing's budgetary process, for the officially stated Chinese figure is perceived to be less than the actual spending on defence. It is instructive that the US Pentagon put out their estimate a day before the official Chinese statement and pegged the annual Chinese expenditure at between US $ 97 billion and $ 139 billion. This of course is dwarfed by the US defence projection for the next fiscal year beginning September which is pegged at US $ 515 billion.

Where does India stand in the co-relation between defence outlay and actual military outcome by way of translating fiscal resource into discrete military capability? The defence allocation for this financial year (FY) 2008-09 has been pegged at Rs. 1, 05,600 crores and this is to be seen against the actual expenditure of the last fiscal namely 2007-08 which has been announced as Rs. 92,500 crores. Prima facie this is an increase of 14 percent and may seem to be adequate - but this inference is misleading. The underlying reality is that while the Finance Minister is providing reasonable fiscal outlay annually, this is not translating into appropriate creation of military outcome. A brief review of previous allocations and expenditure is revealing.

Every year, the defence allocation is classified as the annual budgeted expenditure - or BE. This is a projection made in end February for the fiscal year that begins. Thus this year, the BE for 2008-09 is Rs. 1,05, 600 crores. The previous BE for 2007-08 was Rs. 96,000 crores. The actual expenditure for the year that is concluding end March is classified as the revised expenditure - or RE. It is instructive that for the year 2007-08, the RE was only Rs. 92,500 crores - meaning thereby that the Indian Defence Ministry had returned Rs. 3,500 crores as unspent. This is anomalous given the critical need for modernization of inventory for all the three armed forces.

Thus while the apparent increase is from Rs. 96,000 crores to Rs. 1,05,600 crores - which is a 10 percent increase, the focus ought to be on amounts that remain unspent. Barring one year, 2004-05, when the BE and the RE were equal at Rs. 77,000 crores - for the last nine years running, the Indian defence establishment has been returning money from the overall defence budget to the national exchequer - and while this may be a good sign for the fiscal health of the nation - it has very adverse consequences for the Indian military.

This is revealed in the following breakdown of allocations. The Defence Expenditure (DE) is usually sub-divided into the revenue and capital heads. Of this the former is the expenditure towards pay and allowances, training and annual establishment costs towards maintaining a standing military of under 12 lakh uniformed personnel. Of this the Indian army alone is a million plus, the air force is a lakh plus and the navy is 50,000 plus personnel. Given the manpower intensity of the total Indian military - the revenue expenditure is closer to 60 percent and the balance is spent towards capital costs and defence R&D. The capital component is the crucial indicator and gives an indication about what kind of modernization and new acquisitions are in the Indian military pipeline.

It is disappointing to note that annually, the capital component of the Indian defence expenditure remains unspent. And this when the three armed forces have been crying hoarse about serious operational voids - by way of new platforms - be they tanks/artillery, aircraft or ships. The real handicap is that the prevailing defence procurement procedures have become so sluggish and cumbersome that large capability gaps have been created. For example, successive Air Chiefs have drawn attention to the need for the Indian Air Force (IAF) to acquire a replacement fighter for the Russian MIG - and as of now India urgently needs 126 combat aircraft. However we are still in the stage of inviting tenders and trying to evaluate the bids.

The time-line involved is so large as to make military planners despair. This is revealed in the AJT (Advanced Jet Trainer) experience. First mooted by the IAF in 1983, the AJT is a critical requirement for the training of fighter pilots. Yet this aircraft - the British Hawk - was actually inducted in January this year. In other words it took almost 25 years to acquire a platform as basic as a trainer aircraft. This absurd process is a reminder of the Bofors-HDW shadow that has seriously impaired the procurement process in India. It may be recalled that during the Rajiv Gandhi years, (1984-89) the Indian government had acquired the Bofors artillery gun from Sweden - and this acquisition process was mired in political controversy about kickbacks and middlemen. Since that time, every major defence deal has generated one controversy or the other - the current turbulence being over the Barak deal with Israel during the NDA regime - wherein the former Defence Minister George Fernandes and Naval Chief Admiral Sushil Kumar are currently being questioned by the CBI.

But reverting to the budget, it is again relevant that the RE for 2007-08 shows that as regards the capital component, while Rs. 41, 922 crores were allocated - the actual expenditure was only Rs. 37, 705 crores - or that Rs 3, 217 crores were returned. This is not a happy augury and it is this lacuna that must be plugged at the earliest. This year - i.e. 2008-09, the capital outlay has been hiked to Rs. 48,007 crores. The challenge for the UPA government and the Defence Minister Mr. Antony in particular is to ensure that none of this amount is returned in February 2009 and that it spent judiciously to enhance military capability. Only then will the annual fiscal outlay be translated into meaningful national security outcome.

The contrast with China is striking. This year's allocation marks the 20th successive year when Beijing has increased its annual defence outlay by double digit percentages closer to 20 and has translated fiscal outlay into distinctive military outcome. The focus is on trans-border military capability relating to ordnance delivery (missiles, long range fighter aircraft and ships) and surveillance (satellites). China is relating its military capability in relation to the USA, Japan and Russia and this is a logical policy initiative for a nation that has a clear strategic vision of the next 50 years. India does not exude the same degree of determination and consequently the existential military advantage will inevitably grow in China's favour. This asymmetry will have abiding politico-diplomatic implications for the South Asian strategic grid and New Delhi should read the tea leaves of this week more astutely.

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