Service chiefs want funds for modernisation, but bureaucrats tell him the exchequer can’t spare any

Union Finance Minister Arun Jaitley is facing calls from the three service chiefs to increase the defence budget to close to two per cent of the Gross Domestic Product (GDP), highly placed government sources have told The Hindu.

The calls come even as Mr. Jaitley, who also serves as Defence Minister, has been hearing from bureaucrats at the Finance Ministry that the money simply cannot be found for the increase without politically controversial subsidy cuts.

The Rs. 2,24,000-crore interim budget for 2013-14 presented by the outgoing government envisaged an outlay of 1.74 per cent of the anticipated GDP for defence, an historical low. The service chiefs are concerned that a lower allocation will choke modernisation plans that defence experts believe are necessary given growing Chinese military power, the sources said.

Mr. Jaitley addressed the concerns on Saturday, telling journalists in Mumbai that “balancing the resource constraint and making available all the resources that are required for national security is going to be the approach of the government.”

Restructuring subsidies

Finance Ministry officials say restructuring subsidies could make funds available, but add that such measures are unlikely to be in place before the Budget is presented in July. Industry spokespersons, though, have suggested that insolvent public sector units can be stripped to finance defence acquisitions. In a meeting with Mr. Jaitley on Friday, Confederation of Indian Industry president Ajay Sriram suggested the government monetise the assets owned by 67 public sector units that had gone insolvent.

Procurements already committed to account for 90 per cent of the Rs. 89,587.95 crore earmarked for defence capital expenditure in the interim Budget, which, in turn, accounts for just 39.99 per cent of the overall defence budget, with the rest going on expenditure such as salaries and pensions.

The former Vice-Chief of the Army Staff, Lieutenant-General Arvinder Lambah, said the slowdown in defence spending was “deeply worrying.”

“India can neither afford an arms race with China,” he said, “but we can’t ignore military developments in our neighbourhood.”

The Army hopes to make rapid progress on a $647-million deal for 145 M777 howitzers and finalise the purchase of 197 helicopters for an estimated $550 million.

The Air Force, in turn, needs $1.2 billion for 22 AH-64 Apache Longbow attack helicopters, $1.4 billion for 15 CH-47F heavy-lift helicopters and $1 billion for six Airbus A330, in addition to $20 billion for 126 French-made Rafale combat jets.

In many cases, delays have led to sharp price escalation. Last year, weapons manufacturer BAE Systems shut down the production line for the M777 howitzer the Indian Army had picked as its front-line artillery weapon, potentially adding thousands of crores to their final cost.

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