NEW DELHI, July 8: India announced a Rs770 billion defence budget on Thursday, a whopping 23 per cent increase from the previous year chiefly representing some Pakistan-specific acquisitions and proposed modernization.
"The government is determined to eliminate all delays in the modernization of the armed forces," Finance Minister P. Chidambaram said, unveiling the United Progressive Alliance's first budget, delayed by five months due to elections.
The massive defence funding was seen by analysts as ironical given India's commitment to pursue friendship with Pakistan and the government's desperate scrounging for scarce resources to shore up poverty alleviation measures.
"Having regard to the trend of defence capital expenditure in recent years, it has become necessary to make a higher allocation this year," Mr Chidambaram said. His proposal of Rs770 billion to beef up defence was described by some Indian analysts as wasteful although the armed forces are regarded by nearly all parties as something of a holy cow.
"Wasteful expenditure in the defence sector is huge," commented former defence secretary Ajit Kumar. "Archaic activities, such as canteen supplies, which tie up funds and personnel, need to end. Indigenous development of weapon systems runs parallel to imports; both show rising expenditure. One of these should decline surely."
Mr Chidambaram's allocation for defence contrasted sharply with the revised estimates of Rs630 billion for the financial year ending March 2004. The hike in the military allocation included increased capital expenditure, from Rs209.53 billion last year to Rs334.03 billion in the current fiscal year.
The government more than doubled the allocation for capital outlay to Rs334.82 billion from last year's revised estimates of Rs169.06 billion with Prime Minister Manmohan Singh saying that defence expenditure had been neglected over the past three to four years.
The defence component was part of a proposed total national expenditure of Rs4,778.29 billion of which Rs1455.90 billion is for Plan and Rs3322.39 billion for non-Plan expenditure.
Analysts said despite a hike, India's defence expenditure still forms only 2.5 per cent of the GDP, lower than China which spends 6 per cent and Pakistan 5.5 per cent of their GDP on defence.
An inflation rate of around six per cent, a decline in value of the Indian rupee and defence deals inherited from the previous government appeared to have influenced the defence increases.
Mr Chidambaram estimated total revenue receipts at Rs3093.22 billion and the revenue expenditure at Rs3854.93 billion. Consequently, the revenue deficit is estimated at Rs761.71 billion equivalent to 2.5 per cent of GDP, which is one percentage point below the corresponding estimate of 3.5 per cent of GDP in 2003-04, according to the provisional actuals.
The fiscal deficit was estimated at Rs1374.07 billion, which is 4.4 per cent of the estimated GDP, Mr Chidambaram said. Analysts said that with the doubling of capital outlay for defence, the government would go ahead with pending proposals to acquire French killer class Scorpene submarines, 125 multi-purpose fighters for the Air Force to replace ageing Mig-21s and with about Rs40 billion project to increase the firepower of the infantry.
The Indian air force has agreed to buy 126 Mirage jet from France - worth $30m each - as well as 66 Hawk trainer fighter jets from the UK. The navy has agreed to buy the Russian aircraft carrier, the Admiral Gorshkov, for a nominal fee.
But it requires a $670m refit and will eventually have between 18 to 20 Mig 29 fighters, which will cost in excess of one billion dollars. The navy has also agreed to buy six submarines from France at a cost of $700m.
The army faces an equally formidable set of bills as it seeks to standardize its artillery capability. It is currently at an advanced state of negotiations with South Africa, Israel and Sweden.
The entire process could involve the purchase of between 1,200 and 1,500 howitzers for which the final bill may amount to $3 billion. The pressure on India to spend on defence is only likely to increase with the huge costs in maintaining its nuclear weapons capability and because of an agreement made recently with Israel to buy an "Eye in the Sky" early warning system, the Phalcon, analysts said.
