The Indian Economy Blog

February 5, 2009

A Lazy Argument

Filed under: Basic Questions,Miscellaneous,Politics — Pragmatic @ 11:43 pm

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 now 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.

6 Comments »

  1. [...] at the Indian Economy Blog 05 Feb 2009 | Concerning India, Military, Trade & [...]

    Pingback by Pragmatic Euphony » A lazy argument — February 6, 2009 @ 8:57 am

  2. I think it is not a good idea to focus that much on the defence budget as long as investments into education are less.

    Comment by Agi Makil — February 6, 2009 @ 11:56 pm

  3. it is obviously not the correct way of comparison i.e., in the ‘percentage’ terms as the basis i.e., the GDP varies from one country to other. However I think having a totally a flexible manner of allocation as per the needs is not so good an idea. IMHO, there should a be a certain minimum ‘amount’ not ‘percent’ which should be varying year after year, as the costs involved are bound to rise in the due course, along with which, as rightly stated, keeping in view the ‘threats’ and ‘intelligence’s statistics and estimations’, the amount allocated should be adjustable.

    Comment by nayan — February 13, 2009 @ 4:30 pm

  4. Of course, setting a minimum expenditure rate as a percentage of GDP is not a good idea. But I think that it makes sense to talk about military expenditure as a percentage of GDP – as a matter of a directive or standard.

    1. The simplest argument is that a nation’s GDP doesn’t just reflect its internal wealth but also its strategic importance in the world and its neighborhood. As economic wealth increases, a nation must spend proportionally on its military strength to support and protect its prosperity. Not necessarily as an imperialist bastard, but as a matter of minimum deterrent. Failure to do so poses a serious risk to national security and trade – FDI investment is especially sensitive to such risks, and an increase in sovereign risk will increase the cost of borrowing for local firms in international markets. Look at India, it desperately needs to expand into blue seas to protect the trade routes between ASEAN and the Middle-east and in case it fails to do so China definitely would (in fact it has already offered Somalia a Navy help) – do we want Chinese Navy in the Indian Ocean? A country like Sri Lanka can ignore that because it doesn’t have the resources. But India due to its GDP is in a league where it can’t – it simply has to keep up with the other guys in its GDP league, especially if they are in its neighborhood. That is what every nation in history has done and must do if it wants to survive. What I am trying to say over here is that the needs of the nation are often linked to its GDP.

    2. Economy always moves in cycles, the current recession no matter however severe it becomes is nothing supernatural. Every country will reduce its defense expenditure during recession and I bet they would do it proportional to how rich they are or in other words – their GDP. In fact for growing nations like India it makes even more sense to go in sync with GDP, because less dollar value expense during recession should be compensated by higher dollar value expenditure during boom.

    3. Civilians aren’t masters and neither are the armed forces slaves. I have been in NCC for an year and I can say that our forces are heavily underpaid compared to global forces. But I won’t not argue over it. I would only say that military pay should be in tandem with average working earning standard of the country – and the GDP reflects that. Keeping military budget at a certain ratio with GDP would mean that our soldiers are receiving salaries proportionate to national earning, which is the least they and their families deserve.
    All laws are made in the legislature and such a measure, even if it is binding (which is certainly not what I am proposing), can be changed by the legislature.

    4. All things are right or wrong in retrospect. If Nehru believed in Panchsheel, modern military strategists in India have the opinion (which was recently submitted to GoI) that for the next 20 years China would be so busy expanding its economy that a military conflict with India is out of question for it. That is true. But it is needless to say that China follows an active containment strategy for India – both on the political and military fronts. China is known to have posts in Myanmar from where our military base in Andamans are observed 24×7, it has supplied Pakistan nuclear know-how, its relationship with Nepal is rather sweet under the Maoist regime (as I gathered from the newspapers in my recent visit to Kathmandu). The SAARC summit in Dhaka saw the emergence of a new pro-China front comprising Pakistan, Nepal and Bangladesh. In the future China will think of monetary aid to India’s poor neighbors to further its strategic interests and such strategy has been successfully tried by it in South America where even US is feeling cornered by the dragon.
    But the biggest threat is that China is actively planning diversion of Brahmaputra’s (Yarlung Tsangpo in Tibet) waters. Although China has denied such reports, India has to maintain a minimum credible military deterrent to thwart off such threats from China. China has kept its defense budget consistently proportional to its GDP.
    I wonder with a 2.1% of GDP military budget to 4.5% of GDP budget of over twice the GDP how far behind India will be after 20 years. Let us not repeat the mistake of Nehru – wise men make mistakes, only fools repeat them.

    5. How many agencies in India have successfully spent allocated money? I bet the armed forces have been one of the most efficient at it! Let us not play blame game. If tomorrow there is a war are we going to tell our military – “Dudes its your fault – you couldn’t spent the allocated money” !! I guess not – why? Probably because they will be dead !
    If a critical agency is not able to spend allocated budget it means that we have to increase its internal efficiency, not cut back and laugh!

    6. I guess the strategic importance of India, China and Pakistan are exactly in the order of their GDP so I don’t see the point over here.

    7. Guns vs Butter – I guess this article was written before blasts in Bangalore, Ahmedabad and Mumbai. Athens was a great civilization- built on the foundations of Art, Craft, Philosophy and Literature. It looked down upon Sparta, its neighbor, with contempt for its military way of life. Its own army was a hired one (probably like India has hired military hardware). Too bad, had it not been for the military might of the Spartans the Battle of Plataea would have been lost to the Persians. The only way to create peace and prosperity is to guarantee them.

    History has shown that India defense planning has been weak – from the Persians to the English to the Chinese we have failed at every frontier. Even today the general awareness among the masses about military realities is non-existent even among the 50% educated masses – forget the other half. In a democratic country political will is derived from public awareness. In a nation where even the national parliament is not completely educated perhaps its not that bad an idea to maintain a sanctum sanctorum of military budget.

    It is better to have a lazy argument than to have no argument at all.

    Comment by Ramanuj Lal — February 14, 2009 @ 2:03 am

  5. I Think Still The Indian government is not much mature in siphoning the funds or you can say a proper allocation of the funds, Our indian security is Soo much vunerable in a every second week of a month we all hear a newz of some blast or some terrorists activities, still we know who the perpretors are, where they reside, But not able to do any thing, becoz in the whole world we are reknown as an “pacifier” ,this is the Other part of the story . Now On the technical part what we have to do.
    I think The allocation of the defence budget should not be depend on the Nu mber of Threat wat we have recieved In That particular year, we have to provide them Proper and advanced ammunities, so that no threat would be able to convert in to the Real accident. a proper allocation should be there Through proper Policies and the allocation should not be ependent on the GDP nor dependent on any threat….

    Comment by Vinay — February 14, 2009 @ 1:38 pm

  6. [...] The Indian Economy Blog » A Lazy Argument [...]

    Pingback by FDI ILLUMINATI and FALSE RECESSION « Palashbiswaskl’s Weblog — February 14, 2009 @ 11:18 pm

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