India must allow armed forces to raise own finances. Defence budget will never be enough

Ever since the confrontation with China in the mountains of Ladakh, and the threat of escalation to war, retired armed forces officers have been calling for an increase in capabilities of their respective Services, and advocating new strategies to ward off an aggressive enemy.

The Narendra Modi government reacted with the usual firefighting tactics by approving arms procurement worth $5.5 billion, including new aircraft from Russia, and fast-tracking decision-making to allow each Service to purchase systems it requires urgently. All these are welcome moves, at a critical time. But the point is this — China may or may not have encroached on Indian territory, however it has certainly succeeded in driving New Delhi to allocate scarce resources towards defence at a time when it needs every penny to bring a pandemic-hit economy back on track.

The truth is that India’s defence budget has never been able to keep up with actual expenditures. The game of catch up has got worse with domain experts pointing out that this gap between allocations and requirements has risen steadily to about 30 per cent in the last seven years. The coronavirus pushed the Centre to further impose cuts across ministries, with the defence ministry – which consumes just one-seventh of the budget — also asked to further limit expenditures; all this when the Report of the Standing Committee on Defence had warned in 2019 that ‘huge deficiencies and obsolescence of equipment’ did not augur well for a two-front war, or indeed, any war at all.

In this and the coming years, any sustained increase in spending on defence is not just unlikely, but also criminal given the other huge requirements needed to kickstart the Indian economy.

Given this reality, it may be time for the Indian armed forces to be allowed to raise their own finances, even while increasing their technical exposure and capabilities.

Bringing in own money

One way for the Services to raise their own monetary power is to alter the practise of reimbursement for Services in ‘aid to civil power’ – for instance, helicopters for ongoing floods in Assam or landslides and road clearing in Uttarakhand. As of now, the state governments reimburse the money to the Centre in the Consolidated Fund of India. For instance, the Indian Air Force billed the Kerala government Rs 113 crore for the 2018 flood rescue operations, with the Army having its own accounts. This could be repatriated back to the Service concerned to utilise for equipment purchase or refurbishing. However, that still remains a ‘book transfer’ within the government, and doesn’t go far enough.

So, ways have to be found to monetise Service capabilities in certain areas. For instance, the Border Roads Organisation and the Army Corps of Engineers could be contracted to build expressways and bridges in India on a profit basis. The latter has already done so by building an overbridge in Delhi in record time, which had collapsed days after a private firm hired by the Public Works Department (PWD) had finished it just before the start of the Commonwealth Games in 2010.

The Air Force could get into the maintenance and repair business of both small civil aircraft and military aircraft, with this clause built into new contracts as well. It could also lease out some of its less sensitive airfields for private airline operations, an industry that is rapidly gaining traction in the Covid era, as businessmen opt for this safer option. The versatile Force could also get involved in the technology intense logistics business (think Amazon) using those aircraft that are already flying almost constantly, to provide logistical support to certain vital industries.

The Navy has a ‘ready to use’ option, with its shipyards in Visakhapatnam, Karwar, Mumbai and Kochi capable of utilising idle capacity to repair or otherwise service foreign ships belonging to oil drilling companies out of Mumbai, or neighbours, or even commercial shipping, essentially taking the load off the Port Trust of India to deliver faster and more efficient turnaround time.

Defence innovation

Another moneymaker that could bring billions of rupees to the Service concerned is defence innovation. In the 1980s, a naval officer once suggested key innovation in the field of wireless communication technology, only to be laughed out of the Service. That technology (MIMO or ‘multiple input, multiple output’) went on to make billions outside India, with the former officer, Arogyaswami J. Paulraj, now in Stanford University. India belatedly offered him a Padma Bhushan, for an innovation that could have been marketed in India.

India has since signed on to expedite defence innovation with the US, but it is doubtful if anyone knows much about this initiative within the Services or the ‘how to’ of it. Much also depends on whether we can shed a Brahminical dislike of recognising talent when we see it.

Bureaucracy, for better or worse

There’s more, but before bureaucrats throw up their hands in horror, there is a catch to all this. The horror arises justifiably from the fear that India could go the Pakistan or China way, where the Services were more interested in their military businesses rather than national security. None of the above is to even remotely suggest that the Indian Army go the Pakistani way in creating malls and operating civil airlines, or the earlier Chinese practises, which created a culture of toxic and all-pervasive corruption.

Instead, each proposal has to be vetted to prove that the project will add significantly to modernising and adding tech capability to the Service concerned.

India also has something that is quite unique – and in some ways, unfortunate – which is a large defence bureaucracy who’s probing and questioning largely prevents corruption. Conversely, this model of monetising capability to build efficiency will only work if the multiple bureaucratic tiers are minimised and simple legislative measures brought in to override a spiders web of British-era laws.

The ‘Aid to Civil Power’, for instance, not only involves a multiplicity of laws but also state governments, the home ministry, the defence ministry, and in the current instance of Covid management, the National Disaster Management Authority. This bureaucratic maze is what prevents even private players from making a foray into defence, and the Narendra Modi government is best placed to apply a pair of secateurs to it. In sum, the defence experts calling for new strategies are right. Now to find the money and the expertise required for launching the defence of India.

– Tara Kartha, former director, National Security Council Secretariat.

Source: article published by The Print


  • Shantanu K. Bansal

    Founder of IADN. He has more than 10 years of experience in research and analysis. An award winning researcher, he writes for the leading defence and security journals, think-tanks and in-service publications. He is a senior consultant at the Indian Army Training Command (ARTRAC), Shimla. Contact him at:

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