It is an old debate being replayed in India. The Americans called it the ‘guns vs butter’ dilemma. Economists have long debated the ‘development vs defence’ trade-off. It is about prioritising public expenditure. How much does a government spend on defence, taking funds away from other developmental and welfare needs. India’s armed forces want more money. They look at what China and Pakistan have been spending and worry that they have not been able to spend as much.
The finance ministry has been saying for some time that it is fiscally constrained. In fiscal 2017-18, defence expenditure is expected to be no more than 1.6 per cent of national income (gross domestic product or GDP). This is perhaps the lowest ratio ever. A decade and a half ago, the National Security Advisory Board (NSAB), of which I was then a member, took the view that defence spending should be around three per cent of the GDP. But, in the past decade, it has been around and below two per cent.
Kautilya observed centuries ago, in the Artha Shastra, that it is from the ‘strength of the treasury that the army flows’. Weak treasuries have imposed limits on defence spending. Now that the finance minister is once again the defence minister, the armed forces leadership is hoping that the South Block (the New Delhi home of the defence ministry) should get a fair hearing across Raisina Marg in North Block (home of the finance ministry). As pressure mounts on government to invest in India’s defence capability and preparedness, the ‘development vs defence’ debate should be expected to play out once again, not just as ‘guns vs butter’ but as ‘guns vs bread’!
In the US the ‘guns vs butter’ issue played out differently. Defence spending was promoted as investment in industrialisation, technology development and employment generation. The US had, after all, an indigenous military-industrial complex and an R&D system funded out of defence budgets. The internet came out of defence R&D, as did so many other things which are now household goods. In India the technological, industrial and employment spin-offs from defence spending have been limited given that India remains heavily dependent on imported equipment for all three services. The Make in India programme and the opening up of the defence equipment production sector to private—including foreign—investment are aimed at creating a link between defence spending and development. Domestic manufacturing can create jobs. It is what economists call ‘import-substituting industrialisation’.
The Narendra Modi government has slowly, but surely, opened up defence manufacturing to private investment, but the progress on the ground has been slow. It is important that localisation of manufacturing of defence equipment and integration of defence-related and civilian R&D go hand-in-hand with increased allocations for defence. That way the additional 1.5 per cent of GDP that would be allocated to defence (to take the ratio up to the NSAB recommended three per cent) would also have positive externalities for development.
The problem with defence spending is not just about how much is spent but how it is spent. How much goes to salaries and other establishment costs and how much into equipment and training. The yanks call it the ‘bang to buck’ ratio. How much fire power from the money spent? There is also the other question that the services are debating—how much for the navy, the air force and the army. Presently, on an average, the army gets over 50 per cent of total defence spending, the air force gets around 25 per cent and the navy gets a mere 15 per cent. Most of the rest goes for R&D. Each service, especially the navy, wants a bigger share of the cake.
The policy problem is that there is no evolved institutional system in place to take an informed call on these questions. It is both about who takes the decision and how it is taken. India needs not just defence equipment modernisation but also modernisation of defence management and funding policy.