A lazy argument

Tying defence expenditure to GDP is no substitute for policy making.

India’s defence expenditure this year is pegged at less than 2 per cent of the GDP which is lower than India’s defence spending in 1962 — 2.1 per cent of the GDP. After the Chinese debacle, it jumped to 4.5 per cent in 1964. By 1994, it was slightly less than 5 per cent of GDP and it has been on a downward path since. In the mid 1980s, there was a demand to peg defence expenditure to a minimum of 5 per cent of the GDP.  For the last few years, the Parliamentary defence committee, Eleventh Finance Commission, retired military brass and strategic analysts have been active in the media asking for that figure to be pegged at 3 per cent of the GDP.

GDP is an important measure for determining how much India could afford to spend on defence, but it provides no insight into how much India should spend. Proponents of fixing a certain percentage of GDP as the minimum defence expenditure are status quoists, who use this argument as mere rhetoric, rather than as an articulation of defence policy. After the Mumbai terror attacks, it is politically taboo to disabuse this notion of a GDP-indexed minimum defence expenditure. Any analyst, politician or policymaker who dares to publicly question this argument risks being labelled unpatriotic, soft on terrorism, and anti-national.

India could spend a great deal more or great deal less on its military capability than it does today, but that does not mean it should choose either course due to a mathematical formula. When there are fewer threats, the defence spending would be less. When there are more threats, a nation spends more. As threats evolve, funding should evolve along with them. Defence expenditure should be determined according to threat-based analysis and there are many substantive reasons why a proposal to bind defence expenditure with a fixed percentage of GDP is totally misplaced.

1] Using GDP to compare current defence expenditure to figures in the 1980s is misleading because India’s GDP has increased substantially over the last two decades. India’s GDP today is five times the size of what it was in 1980 (in dollar terms). Arguing that defence expenditure today is at a historic low as a percentage of GDP, and should thus be increased, is like a landlord arguing that because the tenant received a well-deserved pay hike, their rent should also be increased.

2] In the current economic climate, GDP does not necessarily provide the reliability in defence budgeting that many cheerleaders hope for; especially if India was to enter a recession, like the US or Europe. If India’s GDP decreases tomorrow, would the Indian armed forces support a concomitant reduction in their budget. Perhaps not, especially if India was at war or facing a threat on its borders.

3] Tying defence expenditure to GDP would erode budgetary flexibility and might threaten the civilian control of the military. By rigidly fixing defence expenditure to GDP, the prerogative of the civilian masters in determining whether defence expenditure should be higher or lower is curtailed. Civilian control of the military, an inviolable principle of Indian democracy, is likely to be undermined.

4] Another justification put forth by the proponents of linking defence spending to GDP is the erosion of the Indian armed forces under Nehru in the years after independence. While inadequate defence expenditure did play its part, it had also to do with post-independence downsizing of the armed forces, Krishna Menon’s failure to successfully manage military morale and Nehru’s misplaced belief in Panchsheel, UN and peaceful diplomacy.

5] The defence ministry and the defence services have been unable to fully utilise the amount earmarked for them every year. Over the last four years, nearly 16,000 crore rupees have been returned unused by them. Tying defence spending to GDP throws more money at the problem but does not force the bureaucrats and the generals to find ways to streamline the acquisition procedures.

6] Pakistan spends 6 per cent of its GDP on defence while the corresponding figure for China is 4.5 per cent. Comparing the percentage of GDP spent on national defence by different countries represents a flawed analysis. The argument is that if India’s adversaries devote a higher percentage of their GDP to defence, it represents a threat to Indian security. It proves that India has to increase its defence spending to maintain a relative advantage over them. Leaving aside the fact that India is set to spend many times more on its defence than Pakistan (or many times less than China) in actual dollar terms, comparing India’s GDP to Pakistan’s or China’s GDP does not give an accurate sense of relative military capabilities.

7] The usual Guns versus Butter argument. Money spent on defence is money not spent on education, reducing fiscal deficit, infrastructure, public health and other important non-military priorities.

Defence planning is a matter of matching limited resources to achieve carefully scrutinised and prioritised objectives. Smart planning relies on requirements, tradeoffs and a thorough evaluation of threats, not GDP, to determine defence spending. Replacing sophisticated and rigorous analysis with rigid formulas severs India’s defence planning from the evolving threat environment and widens the chasm between policy, planning and execution. Retaining flexibility in defence expenditure should not be viewed as a weakness, but rather as being capable of adapting to the  rapidly changing security environment in this age of unprecedented, diverse and dangerous threats.

If the armed forces and defence ministry can make the case that the threats India faces justify larger defence budgets, then larger amounts should be allocated towards national security. Unfortunately, fixing defence spending at 3 per cent of the GDP is a lazy substitute for national vision, political will and coherent policy making at the national level. Such a step would, instead, shield the troika of inept politicians, inefficient bureaucrats and staid military brass from careful scrutiny and throttle a much needed debate on national security.

Cross-posted at the Indian Economy Blog

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20 Responses to A lazy argument

  1. Yash February 5, 2009 at 10:18 pm #

    use less argument

  2. TomBasil February 6, 2009 at 12:43 am #

    Sir,

    Thanks for a timely article, though I suspect this will just be a voice in the wilderness. Maybe Indians as a group will appreciate national security when they are stripped of all security down the line due to their own naivete and ineptness. All that is going to take is a more determined and cleverer adversary than Pakistan to make India crumble to pieces — Indians have been lucky to have stupid people (like the pakistanis) as their mortal enemies so far.

  3. Vijay February 6, 2009 at 4:54 am #

    I think you’ve outdone yourself this time, a very sophisticated argument. I just hope your ideas can be translated into policy.

  4. Eats Shoots and Leaves February 6, 2009 at 5:07 am #

    “staid military brass from careful scrutiny..”

    staid military brass Sir ?

    (some) snobs, pricks, survivors, sycophants_governors/ambassadors, supple, pliant maybe but laid back, stiff necked in today’s race to win at any cost ?

  5. TomBasil February 6, 2009 at 7:19 am #

    Just a thought:

    One of the problems with this formulation is that governments are known to go insane in defense spending by overdosing on their own paranoia, and creating assured destruction as a self-fulfilling prophecy and have extraordinary defense spending.

    A good example is the USA today which surpasses defense spending of all countries by many orders or magnitude (some of it is due to maintaining cold war capabilities

    So there needs to be an objective way of qualifying threats — this job is made more difficult by the fact that the sum of threats is greater than its constituent parts.

    Here are some ideas on how to quantify threats from a set of hostile states: The minimum cost that India must spend to defend itself from any one of those states is the cost of the capability required to reduce the threat posed by the enemy. So if China has missiles that reach India, then India needs to have the same in order to deter China from using its weapons against India. The key here may be to remain realistic in the threat evaluation and not go nuts like the Americans. Now, given a certain minimum level of capabIlity required to counter external threats, add to this the level of capability to counter internal challenges like insurgencies to get the minimum level of defence spending required to keep India secure.

    Granted, this is a bit like planning to attend a wedding ceremony next month in the finest attire while stand naked in the rain, but we can all dream of India actually having a coherent policy that actually protects us from Pakistanis and other creeps who create terror in India. In a country with better law and order exists, the army would not be involved in maintaining law and order internally, but unfortunately India is not that way.

  6. Inderjit Kashyap February 6, 2009 at 7:33 pm #

    @PE
    1. Amused at what purpose other than letting off a frustrated person’s steam do EL & S’s comment offer to the discussion on a subject of such a serious nature. Such comments only downgrade the stature of the blog, hence wonder as to why these are allowed to appear, not even an alphabet, forget a word, contributes hence these are irrelevant & deserve outright deletion.
    2. % of GDP for expenditure on Defence is an index used the world over, whether in a developed country or a developing one. There can be no 2 thoughts on the rationale expressed by you & some others but the start point has 2 b the national policy decided upon by the Political Govt in power. Also, this policy has to be based on the threat perception over 2 decades, matbe more, & then as to what is the quality & quantity of Defence the country needs. Thereafter, the Defence HQs give out the estimates & then the Planning Commission finetunes the allocations on a 5 yr Plan basis after factoring in what priorities the Govt has decided for the infrastructure & other developemental needs. Once this is done there will the calculation of the % of the GDP.
    3. Wrt the expenditure of the yearly allocated budget & suurender, it would be a much better methodology if this is reviewed at the end of the Plan period & not at the end of each yr as purcahse & acquisition of defence equipment is a lenghty process & many a contract gets finalised after prolonged negotiations. The trials of the equipment too are time consuming & before signing on the dotted line all these issues have to be ensured, with the time for supply of the equipment being additional. Thus, the finetuning is at the macro level & not at a micro level. Where imports are involved, which currently are for majority of the equipment, there are many unforeseen hiccups which add to the upsetting of the time frame anticipated. Despite, factoring in lessons learnt from the past deals there will always be new factors which delay the procurement process.
    4. There is no debate whatsoever that the Defence Services can claim the % of the GDP as a guarnteed chunk of funds, infact it is never done on this basis when projecting forecasts. There are detailed discussions with the Finance Officers at various levels before the budgetary needs are projected & thereafter too are vetted by the higher HQs/ MOD/MOF before being sent to Planning Commission for allocation. The FM makes the allocations public in the budget presentation in the Parliment. So to hold the Service HQs or the MOD as the villians in the total process is not only incorrect but also unfair.
    5. The budget allocated to the DRDO for the equipment being tried out by it is also a part of the Defence Budget but this share is not under the control of the Service HQs & how fast this organisation, totally staffed with scientists, has progressed the various projects, is a different issue & should not clubbed with the issue under discussion.
    6. Overall, whether the fund allocation is based on a % of the GDP or realsitically worked out, both methods will need basic inputs of:-
    (a) Policy on the level of Defence Forces required during the next 2
    decades & the major equipment needed for these.
    (b) The above will be dictated by the perceived threat perception
    over the same period.
    (c) Nation’s policy to tackle terrorism & internal security situations.
    (d) The nuclear needs, including missiles, these are indicated
    seperately, being super specialised equipment, for which a doctrine
    is yet to finally emerge from the Poitical Govt. The latest deals will
    a lot of bearing on this issue & more time will be needed to finalise it.
    7. We have amongst the best economists in the present Govt & am sure they would have found the best possible model that suits our country, which
    every organ including the Defence Ministry & Service HQs, will accept being in the best interest of the nation. To cast the MOD & the Service HQs as the villians is a totally mispalced impression. Suggestions if any to improve upon the model of the TRIO of economists, would be welcomed by them hence be sent accordingly to their offices. One is also more than sure that these respected specialists, who are respected the world over, would not allow any rigid views from any organ to distort their thinking & final decision making. The country is safe in their hands.

  7. Pragmatic February 6, 2009 at 8:09 pm #

    @IK:

    I am countering an argument which says that a fixed % off GDP should be earmarked as the minimum defence expenditure. I know that it is not the current practice but Parliamentary committee on defence, 11th Finance Commission, former service chiefs and many *cheerleaders* at quasi-military thinktanks have proposed this.

    I am left a bit confused at your response. Do you agree with what I am saying or not?

  8. Inderjit Kashyap February 7, 2009 at 10:35 pm #

    @PE
    1. Ur statement is correct but please appreciate that the stake holders, MOD/Service HQs/ think tanks, will want a higher quantum of funds because in their perception more equipment & funds are needed for the right level of preparedness. Its but natural for such a response, however, it the Planning Commission of which the PM is the boss, which decides as to what funds can be made available for the Services & that’s that. The buck stops at this & everyone does accept the decision gracefully.

  9. Saju George February 7, 2009 at 11:04 pm #

    Well written and abridged for a common man.It is high time India consolidate
    defence spending with respect to World Global scene.We must primarily concentrate on high education,better healthcare and infrastructure development.Indo-Pak war may not take place for a decade.Thinking of a war with China is a clumsy affair.China can wipe out half of India in a week.But majority of nations in the World are dead enemies China.When China raises
    one hand to slap India,there will be ten hands to crush China.China has over the past decade made everybody else with a strong animosity towards her.

  10. Global February 8, 2009 at 1:05 am #

    Indian armed forces are far removed from global reality in the era of internet, e commerce, mobiles,Satellite TV and google earth. By simple logic of pegging defense annual expenditure as a percentage of GDP they want to ensure that armed forces continue to get more and more because booming economy and rise in India’s GDP.

    It appears that the aim of the whole annual budget exercise to preserve the armed forces as an organism and prevent them from shrinking (in terms of manpower and financial outlays) due to changing global political economic and economic realities.

    In the present day world , war has become obsolete. There has not been a single war in the first world for last 65 years. Developing nations will take some time to reach , where the forst world has already reached, but India can provide a leadership for the lasting peace through taking a lead by unilateral dismantlement of its obsolete war doctrine, machines and war formations.

    Here are a few examples –

    (a) Today Pakistan is so much urbanized/ cultivated, it is an open secret tank division will not find open deserts to move they are designed for, in the unlikely event of a war between India and Pakistan. Tank formation are any way useless against China and Bangladesh because of topographic reasons.

    (b) When you have developed advanced missile technology, why you keep on purchasing war planes and continue to train manpower to fly them when their job can be better performed by missiles- without any human risks ( i am considering the worst scenario of a war- which is any way highly unlikely)

    (c) To deal with problem of terrorism , well trained civil police and an aware population will do a better job- as we have seen in mumbai terror attacks. Traditional formations like div and corps are of no use against terrorism- these can only fight with an enemy they can see and which is concentrated, which is not the case here.

    (d) war of today, as and when it happens has ceased to be confined to the border/ isolated pockets where armed forces are stationed. Today in any war non combatant deaths are much more than that of combatants. If this is the case, when why have so much standing army when war is obsolete today. We must have more Territorial Army units rather than regular army units, where people can attend military training during weekends and contribute to war effort in unlikely event of war.

    Therefore , there is a need to arrive at the optimum defense expenditure from a zero budget rather then pegging it to 3 or 5 % of GDP.

  11. prabhakar bedi February 8, 2009 at 5:25 am #

    defence budget flows from your threat assessments in all hues of conflict from conventional to nuclear with fouth geration overtones. The need to keep ahead of times warrants doctrines,policies and force structuring in tune with time.

    Based on the geopolitical assessments of the time and looking ahead our planners have to address the aspects of modernisation, reorientation and equipping. A simple necessity..thats not the problem..if you have a threat and wish to counter that, there will be a cost to pay.

    The problem is in implementation based on pragmatic inclusive efforts to prepare the defence forces for fighting all types of wars..that is myopic, unorganised and misplaced. The mechanism is flawed with a great bureaucratic bias rather than military pragmatism.

    Budget and any other formula will only contribute effectively if equipment lobbies are kept out of the need to dictate threat assessments and the modernisation plan and efficiency of fund management is seen across the full spectrum of application by professionals

    the current system rots

  12. depps February 8, 2009 at 10:26 am #

    Even if u give them 100 % of GDP also, still they would remain like this only.

    Coming back to Mumbai attack, many service HQs quickly claimed and still claim that NSG is drawn from Army.
    How much pathetic and shameless, such people can get.
    Are u aware that for all the 60 hrs, they were there – their local administration like food, water, etc was taken care of by local people…
    There are three Vice Admirals (i.e. only for the Navy), who roam around with pilot motorcycles in Mumbai, one major general, one AVM.
    But NSG came in BEST buses and went back in BEST buses.
    Though NSG did not organise press conf for themselves, but every Tom dick and harry was conducting press conf there.
    U can give them the best guns, aircrafts, ships that the money can buy, but if u neglect to give them a Bamboo at the right place – than this would be the result.
    We currently are having sand model army, navy and AF with an equally inept and negligent civil and political leadership.

  13. Beecee February 9, 2009 at 12:04 pm #

    @ PE,
    Fully with you on this line of argument and good to see a post where emotions haven’t got the better of rationale, barring one. Two reservations however; greater budget does in some way enhance the clout of the military but does not really turn to civil – military control issues as long as procedures are well established and oversight is ensured.
    Guns vs butter is also a rather simplistic(akin to, but opposite side of %ge of GDP) argument. Investing in defence very often is also investing in development. In the current global meltdown, countries have military businesses as recepients of stimulus packages. The trick is to invest in indigenous products without allowing gaps in defence.
    Another important issue is personnel costs, which are spiralling. This is an area where the Pay Commission could have done signal service. Not Shekar Gupta’s premise(implied) of low pay and sophisticated eqpt, but more rational personnel policies that retain trained people voluntarily and reduce pensions would have helped.

    @ IK
    That is educative and as supposed to be, but rather optimistic. We still haven’t risen above “Not having a stated defence policy is a policy by itself” stand of the MOD.

  14. Pragmatic February 9, 2009 at 1:51 pm #

    @BeeCee:

    Thanks. About C-M relations, I only said that it “might threaten the civilian control of the military.” I agree that Guns versus butter is simplistic, but where is the indigenousisation in Indian defence procurement. It might, instead, act as a stimulus for US/ Israel/ Russian defence industry.

    The personnel cost issue is a very pertinent point. It is not about poor pay, but lesser numbers. Somehow we are unable to think beyond the industrial age, cold-war era models of warfare, especially when it comes to the army. Would you like to pen something on the subject?

  15. Inderjit Kashyap February 16, 2009 at 4:53 pm #

    @Depps
    1. Ur conviction that Services”need a bamboo at the right place” is so biased that U couldn’t think of any other deptt of the Govt which is squandering national funds & also deserves this bamboo “At the right place” much more. Failure to do so only smacks of vendetta which must be condemned at all costs. Further, I am positive that if U couldn’t think of better words than those used, then Urs is a polluted mind. Amongst such mature & serious discussion such words only sully Ur own image, U may have thought of it being enhanced.
    @PE & BeeCee
    2. Sorry for the above digression but one has to take notice of such unwanted remarks & apprise the person of his deficiencies, which he has mistaken as is strengths.
    3. “Lesser Numbers”. these will percolate from the stated policy on Security/ Defence. The MHA in its efforts to control the Internal Security situation has been adding to the number of BSF & CRPF Battalions & if I am not wrong, at todays count, the total strength of 3 CPFs including Assam Rifles exceed that of the Army. Even then the Army is called in at regularity to assist in keeping a check on the internal security & in some areas, it is permanently under the Army’s control. Am not talking of J&K which has its own pecularities but other parts of the country.
    4. Then is the Pakistan specific threat, which even in a “no war scenario in the forseeable future” has demanded/is demanding & will continue to demand force levels of the Services, BSF apart, that implies tying down a major chunk of these in J&K. Today’s fragile Pakistan makes the scenario even more sensitive & our country has to takes measures for ensuring that all possible conceived threats can be thwarted. This is a critical decision for any Govt in power & from what one has experienced in the past, NO political alliance, that’s the form of future govts, will want to take a risk with Pakistan, which blows hot one moment & cold the other. In the world scenario of the terrorism one would not want to be in Zardari’s Govt’s shoes today.
    5. As I had said sometime earlier too, if our State Police Forces could be trained to a “Force unto themselves”, the Army in particular & Defence Services in general, would be very relieved & surely the numbers could be reduced. But the question posed to all in the blog, “Does it appear like becoming a reality given the “politican-criminal-police-IAS nexus, which is a STARK REALITY today ? Am positive all of U will answer in the negative, if so then where lies the answer to the riddle?
    6. Cost cutting on the Pay & Allowances front, it be rather left untouched, enough has been done by the SCPC, including for the pensioners despite many a Supreme Court Judgement which has ruled against the Govt’s decisions on the pensions.
    7. Therefore, the current situation is a “Catch 22″ one & the discussions on this blog alone won’t fetch the right answers, many many think tanks would be needed. Its the nations security that is at stake/ under debate & not any light hearted topic.

  16. General Dreedle February 16, 2009 at 6:48 pm #

    @inderjit kashyap

    Did you ask Colonel Moodus before deciding to shoot Major Danby ?
    Are these the usual words army brass uses when faced with a different opinion ?

    1. bamboo
    2. vendetta
    3. polluted
    4. sully
    5. but one has to take notice of such unwanted remarks & apprise
    the person of his deficiencies, which he has mistaken as is strengths.

    ain’t we happy that Herr General is not writing the ACRs of commenters on blog.

  17. depps February 17, 2009 at 6:49 am #

    @ Inderjit Kashyap
    Boss, no offence taken of ur remarks.
    Bamboo was for those – who could not air lift NSG frm Airport to Kunjali and instead let a situation go totally out of control.
    Here u are discussing nexus – about which u also agree – u can not do anything.
    But where the top brass could do some thing – they did not willfully do and for which they are paid to do.
    When civil admn had so called signed the form of responsibility and given to marcos and local army units to handle the situation – where was the doubt.
    Do u think just be appearing in TV interviews – battles can be won.
    If that would be the case – then Musharraf Bhai ranks besides Napoleon.

    Or it may be that u have pre concieved notion of which enemy to fight and how is he going to fight.
    The local units should have taken the initiative and they were bound to do so – but they did not. In fact none of them did.
    Do u really think “Kunjali ” is ” Dahej” given by Sasural to Navy. Shameless people were then holding press conferences and displaying photographs- when people were dying. Not only that – without verification – these guys even gave all clear to Taj also (Heights of criminal neglect). What is more embarassing and shameful that inspite of the entire WNC being just 3 kms from all the three scenes of action – local people took care of the administration and sent NSG back in BEST buses.
    Boss, all these issues are not known to common public – other wise, they would shower so many shoes on these people’s head – that next 7 generations would be born bald.
    Boss, I may have lots of deficiencies – but indifference is not one of them.

  18. Troll Singh April 7, 2009 at 2:23 am #

    To (re)state the obvious, defence expenditure cannot but be linked to the requirement to maintain a force level sufficient to counter/deter the perceived/anticipated threat level.

    Since GDP will vary with time and across countries, the DE/GDP ratio can at best be used for retrospective evaluation vis a vis other heads, or in lean times, to prioritise/limit Defence expenses.

    am afraid that the best the local units could have done would have been less comfortable than BEST buses, which at least have seats. though, i suppose, being in army livery, a stallion would have been more dignified (it’s baloney, but it’s our baloney !).

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