India's Defence Economy

Planning, Budgeting, Industry and Procurement

Laxman Kumar Behera

• Publisher: Routledge India
• Year: 2020
• ISBN:
  9781000214673
• Edition: 1
• Topic: Política y relaciones internacionales
• Subtopic: Relaciones internacionales

As the fourth largest military spender in the world, India has a huge defence economy supported by a budget amounting to nearly $67 billion in 2020–21. This book examines how well India's defence economy is managed, through a detailed statistical exposition of five key themes – defence planning, expenditure, arms production, procurement and offsets.

This book is based on hard-core evidence collected from multiple government and other credible sources including the ministries of Defence, Finance, and Commerce and Industry, Comptroller and Auditor General of India and the Reserve Bank of India. It discusses key issues such as the evolution of India's defence plan; the feasibility of increasing defence spending; India's defence acquisition system; and the recent reform measures taken under the rubric of the 'Make in India' initiative.

Well supplemented with original tables and figures, India's Defence Economy will be indispensable to students and researchers of defence and security studies, politics and international relations, finance, development studies, economics, strategic studies, South Asian politics, foreign policy and peace studies. It will also be of interest to defence ministry officials, senior armed forces personnel, military attachés, defence training institutes and strategic think tanks.

1
Planning for India’s defence

Introduction

In a matter of ten years, India has jumped five positions to become the fourth largest military spender in the world.¹ With a military spending of $66.5 billion in 2018, it is outspent by the United States, China and Saudi Arabia.² Given the security threats and the fast pace of its economic growth, India’s military spending is likely to surpass that of an immediate higher spender in few years’ time. Spending a huge sum of money on defence has hardly been an issue in India. In fact, the clamour has always been to spend more. What has, however, been an issue is whether India is getting the bang for the buck. Recent reports suggest that India’s quality of defence spending has been constantly declining and, as a result, it is “falling behind China in an Asian Arms Race.”³ Besides, there are plenty of usual reports suggesting critical voids in military capability, slow modernisation process and poor state of domestic research and development (R&D) and manufacturing base. This, in turn, reflects poorly on the existing defence planning mechanism, which is supposed to take care of India’s security aspirations in a holistic manner.

This chapter examines India’s defence planning mechanism with a focus on key gaps. In so doing, it critically examines the evolution of India’s defence plan and the associated structures. It also examines two recent developments – the newly created Defence Planning Committee (DPC) set up under the chairmanship of the National Security Advisor and the appointment of Chief of Defence Staff (CDS) – and how these are going to address the gaps in India’s defence planning. This chapter, however, begins with a brief description on why planning is critical in defence.

Why planning in defence?

Planning in defence assumes critical importance due to several interrelated factors. The first and foremost is the gravity and uncertainty of threats that need to be factored in for organising a credible defence. India is one of the few countries in the world whose security challenges are defined by what is now termed as “Hybrid Warfare”⁴ – a form of warfare that employs conventional and irregular warfare in tandem with information, psychological, economic, political, diplomatic, cyber and space attacks. Factoring such a hybrid form of warfare for preparing a credible defence of a country needs constant assessment of all possible threats and a whole of the government approach to deal with. This is possible only through meticulous planning. It requires, among others, constant monitoring of changing military and technological capability of potential enemies, credible intelligence, inter-ministerial/departmental coordination, a large funding, doctrinal sophistication, balanced force structure, expeditious procurement of equipment and training – all of which need to work hand-in-hand. Advanced long-term planning and its constant iteration is a prerequisite for dealing with the kind of threats that India faces.

The second factor is the huge cost involved in maintaining a credible defence. Given the alternative uses of scarce resources, over-use of national resources for military purpose crowds out precious funds for developmental needs of the economy and may prove counterproductive in the long term. Considering the fact that investments in defence are significant in size and often long term in nature, commitments made in a particular year would have cost implications (in terms of maintenance and support expenses) for many years to come. Evaluating all expenditure with a view to balance costs and benefits of each investment is, therefore, critical for optimum use of scare resources.

The third factor, which is of particular interest for a country like India, is related to in-house development of new technologies. Since there is a considerable time lag from the design and development to production of new technologies, the planning process becomes more important to allow minimum necessary time frame for indigenisation and self-reliance.

Evolution of India’s defence five-year plan and associated structures

Soon after independence, the government set up the Planning Commission for socio-economic development of the country. Defence was outside the purview of the Planning Commission. The omission was largely due to the then leadership’s priority for economic development over national security, as the threat assessment was limited to Pakistan, which was not a major challenge given India’s overwhelming military superiority. The military debacle in 1962 war with China, which highlighted major gaps in the country’s defence preparedness, forced the government to recognise the need for assessment of defence requirement over a prolonged period of five or longer years. A Planning Cell (PC) was thus created within the Ministry of Defence (MoD) for threat assessment and the 1st Plan was prepared in 1964 for the period 1964–1969. Since then 12 more plans have been prepared. To support the preparation of these plans, numerous structures have been put in place at various points in time. Table 1.1 provides a snapshot of 13 plans prepared so far with details of plan projections (wherever available), budget allocations, actual expenditure and the status of each plan. As can be seen, each plan has suffered from one deficiency or the other, owing to a number of diverse factors including political leadership’s unwillingness to owning the plan, lack of resource assurance, change in plan’s timeframe, insufficient assessment of future requirement and gaps in the structural mechanism.

TABLE 1.1 India’s Defence Five-Year Plan: A Snapshot

Plan	Plan Projection (INR in Billion)	Budget Allocation (INR in Billion)	Actual Expenditure (INR in Billion)	Status
1st Plan (1964–1969)	50	46.36	46.01	The plan, prepared in the aftermath of Chinese aggression in 1962, was prepared under the aegis of Planning Committee set up in the MoD. The plan was ambitious and didn’t have assurance of resources to support it. It was also not based on long-term requirements.
2nd Plan (1969–1974)	NA	65.12	71.59	The plan didn’t run its full course as a new roll-on plan was introduced just one year into the plan period.
3rd Plan (1970–1975)	NA	73.17	81.70	The plan, based on roll-on concept, was abandoned in the wake of 1971 war and the financial constraints of early 1970s.
4th Plan (1974–1979)	NA	124.30	126.48	Plan was prepared under the aegis of the Planning Group set up under the chairmanship of the Planning Minister. Soon after the plan was launched, it was subjected to major modifications in view of large-scale arms acquisitions by Pakistan, West Asia War of October 1973 and major hike in international crude oil prices. The MoD briefly thought of replacing the plan with a roll-on plan 1976–1981.
5th Plan (1979–1984)	NA	219.21	235.92	Plan was prepared under the aegis of Committee on Defence Planning (CDP), which was headed by the Cabinet Secretary and included as members the Principal Secretary to the Prime Minister (PM), Defence Secretary and Finance Secretary, among others. To support the CDP, an in-house Defence Plan Coordination and Implementation Committee (DPC&IC) was created in the MoD under the chairmanship of the Defence Secretary. The plan was abandoned one year after it was announced due to the change in security environment, acquisition of modern weapons by India’s neighbours and in view of making defence plan co-terminus with the national plan.
6th Plan (1980–1985)	NA	256.71	268.97	It is the first plan to have received the approval of the Cabinet Committee on Political Affairs (CCPA), though the approval came nearly two years after the commencement of the Plan.
7th Plan (1985–1990)	719.38	549.26	581.90	During the Plan, the Directorate General of Defence Planning Staff (DPS) was set up to assist the Chiefs of Staff Committee (CoSC). The DPS didn’t make much headway. At one point of time, six DG were replaced in a matter of six years. Though the Plan received CCPA approval, it came in the fourth year of the plan. The MoF approval came in the last year of the plan.
8th Plan (1992–1997)	~1,400	1,129.78	1,190.33	Initially planned for 1990–1992, it wa...