Budget 2016: 9% Hike in Defence Budget Allocation Likely this Year

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Budget 2016: 9% Hike in Defence Budget Allocation Likely this Year

NEW DELHI: India's defence budget is likely to see a modest hike of 9% to Rs 2.68 lakh crore in 2016-17 while the pension bill alone may go up by over Rs 80, 000 crore.

Further the defence ministry is likely to surrender Rs 12,400 crore, or 16% of the Rs 77,406 crore earmarked for acquisitions under the capital head since several projects could not be processed on time by the three service headquarters, officials told ET.

If pensions and civil expenses of the ministry are also counted, the budget for 2016-17 will increase about 13% to Rs 3.5 lakh crore from Rs 3.1 lakh crore.

The pension bill is set to zoom in the next fiscal owing to the expected implementation of the one rank, one pension plan. The total payout for the current fiscal is still unclear.

In 2015-16, Rs 77,406 crore of the Rs 93,675 crore allocated to the defence ministry was earmarked for acquisition of weapon systems for the three forces. The forces have not been able to exhaust their committed liabilities this year in some cases. Officials said this happened because the payments for previous procurements are to be disbursed after reaching certain milestones such as the delivery of a weapon system or a developmental achievement. "In some cases, deliveries or milestones could not be ensured on time by the departments.

This has resulted in some funds for committed liabilities also lapsing," a senior official said on condition of anonymity. The government has brought in several reforms this year to speed up the acquisition process.
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India Emerges as World's Largest Arms Importer, Yet Again
India has yet again emerged as the world’s largest buyer of weapons and military equipment, accounting for some 14 per cent of all such international imports, while Russia continues to hold a dominant position, accounting for some 70 per cent of all military equipment supplies to New Delhi.

Saudi Arabia, China, the United Arab Emirates (UAE) and Australia are the next four biggest global importers.

These trends have emerged from a report released on Monday by the Sweden-based think tank Stockholm International Peace Research Institute (SIPRI). The assessment was done for a five-year period (2011-2015).

Titled ‘Trends in international arms transfers-2015’, it says, “India was the largest importer of major arms in 2011–15, accounting for 14 per cent of the global total.”
Comparing two five years blocks – that is between 2006–10 and 2011–15 – the report says “imports (by India) increased by 90 per cent”.

During the period 2011–15 India’s imports were three times greater than those of either of its regional rivals: China and Pakistan. “A major reason for the high-level of imports is that India’s arms industry has so far largely failed to produce competitive indigenously designed weapons”, said the report. “During the period 2011–15 Russia supplied 70 per cent of India’s arms imports, the USA 14 per cent and Israel 4.5 per cent”.

The SIPRI predicts, “based on existing orders and weapons, Russia will remain, by a significant distance, the main supplier of major arms to India for the foreseeable future”.

Acquisitions from the US are a break with in the recent past. During the period studied by SIPRI, India procured fighter jets, a sea-borne aircraft carrier and Mi-17-V5 helicopters from Russia; specialised transport planes, the C-130-J Super Hercules and the C-17 Globemaster along with maritime surveillance planes the Boeing P8-I from the US; UAV’s and radars from Israel.

The bigger story is, however, China, which, in a sign of an omnipresent threat, has been helping Pakistan, Bangladesh and Burma in ramping up military prowess. China is now the third largest exporter of weapons ahead of traditional manufacturers Germany, France and UK. Its biggest benefactors are Pakistan, Bangladesh and Burma — all having a shared boundary with India and could potentially cause trouble for New Delhi. The three countries accounted for 71 per cent of Beijing’s exports during 2011-2015.

New Delhi sees China’s exports to countries around India as a part of its long-term strategy of having a ‘string of pearls’ — a kind of military toe-hold in countries around India.
The five biggest exporters in five year block period 2011-2015 were the US, Russia, China, France and Germany. The US and Russia remained by far the largest exporters, accounting for 33 per cent and 25 per cent, respectively, of all global trade.
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[garg_bharat]

Let us wait for the budget. It is just a few days away.

However it is true that money is tight. Tax collections are not up to mark and international environment is getting dicey. The only way is to do more with less money.

 

[AbRaj]

China is trapping us in weapons race like US did with USSR may be even worse as USSR produced it's weapons by itself unlike India

May God bring some sense in our leaders

 

[Indx TechStyle]

China is trapping us in weapons race like US did with USSR may be even worse as USSR produced it's weapons by itself unlike India

May God bring some sense in our leaders

Don't need to worry man, we will able to produce ourselves in one or two decades. Moreover, our economy is expanding very well. So, don't need to worry much.
This is the era of fulfilling our interests. India will become developed country in 25-30 years and a greater industrial giant. So, if now become a moral peaceful babaji, that gonna be actual stupidity. Pyaar se ya dhamkakar ap apni sari batein manwa sakte ho(kuchh had tak manwa bhi rahe ho).
Don't be silly so.

 

[dhananjay1]

No amount of money spent on weapons would earn you power and respect unless you use it when it's required. Nothing done about Pathankot attack and there is already another attack where Indian soldiers lost lives.

 

[garg_bharat]

No amount of money spent on weapons would earn you power and respect unless you use it when it's required. Nothing done about Pathankot attack and there is already another attack where Indian soldiers lost lives.

We have built a "socialist" polity after independence, and socialism weakens the State. Unless politics changes, do not expect a strong India.

Wealth is also driven by politics. Wealth cannot be protected if security is weak. Everything is interconnected.

 

[garg_bharat]

China is trapping us in weapons race like US did with USSR may be even worse as USSR produced it's weapons by itself unlike India

May God bring some sense in our leaders

China is doing what is right for it. India MUST do what is right for it.
India has plenty of potential to respond to external threats.

I believe that India is still weak internally. The internal challenges are causing external weakness.

 

[Indx TechStyle]

Yup,From selected countries....We can sustain 3% of GDP to defense.Hope Modi increases it further.

It's 1.74% if exclude pensions of veterans and 2.5% if include.

 

[garg_bharat]

Our tax collections are only 5% of GDP. So a military expense of 2.5% of GDP is quite significant.

Greater expense is possible only with greater tax collection. However that seems difficult in the current economic climate.

 

[garg_bharat]

One must always compare government expenditure with income. Government does not have infinite source of money as some people believe.

As I said before, the only way is to optimize expenditure by making stuff in India.

 

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Indian Army: State of War Readiness – A Contemporary Perspective


Brig (retd) Rahul Bhonsle

Overview of State of Readiness

There has been much focus on capital procurements regarding artillery guns, fighter aircraft and submarines for fighting wars in the future. These are no doubt essential to ensure that the nation is ready to face a future challenge given the uncertain security environment in the neighbourhood and programme of rapid modernization of the Chinese People’s Liberation Army (PLA). At the same time given the constant threat of proxy war waged by Pakistan, the Pathankot terrorist attack being a grim reminder, there is as much need to ensure readiness to fight wars today as in the future.

A series of exposures in the media in 2012-13 revealed a high state of hollowness in the Indian armed forces and more particularly in the Army. The state of ammunition, in particular, was considered critical while the level of holdings indicated to be adequate for fighting a ten days war.

The Ministry of Defence has reported in the parliament that appropriate measures have been undertaken to redress this shortcoming. Indian Army’s challenge of preparedness thus envisages being ready for battle today while preparing to deter a war tomorrow. Provision of budgeting for both these contingencies is a sine qua nan. In the light of the above, some issues which need to be examined include the current state of ammunition, availability of funds for procurement and raising of the mountain strike corps.

Status of Ammunition Holdings – An Assessment

Ammunition is a critical warfighting requirement. Scales of holdings are laid down for this purpose at the national level regarding War Wastage Reserves which are estimates of ammunition that will be expended in the case of an outbreak of hostilities. This is regarding intense (I) and Normal (N) rates that are in the case of intense and normal battlefield activity.

In the recent past, the a Comptroller Auditor General of India (CAG) report had passed severe strictures on the Indian Army for shortages in ammunition. "While availability of authorised stock against War Wastage Reserve (WWR) to meet the expected duration of operation formed the basic criteria for ensuring the operational readiness of the Army, we found during the review that against the WWR of 40 (I) days, the availability of ammunition was only in 10 per cent of the total types of ammunition held (March 2013),” the report said. “Further, in 50 per cent of the total types of ammunition, the holding was 'critical, ' i.e., less than 10 (I) days," it said.

"To tide over the persistent acute shortages, the AHQ had set (1999) a minimum threshold of MARL (Minimum Acceptable Risk Level) 20 (I) days to be achieved first. We found that even after 15 years, the threshold of MARL could not be achieved. The acute shortage was a serious cause of concern directly impairing the operational readiness of the Army," it said.

The report is for the period 2008-2013. As of now the shortage may not be 15-25 % of various types of ammunition as the Army has managed to make up deficiencies given the exposure of the issue in the public domain from time to time. The entire ammunition is likely to be made up in a couple of years.

The exposure of the deficiency and its persistence for one and a half decades from 1999 to 2013 indicates the need for a structured approach to effective management of ammunition as it affects operational readiness of the Army. With two primary sources of acquisition - Ordnance Factory Board and import - forecasting, follow up and timely action in the case of shortfall rather than accepting the same as a matter, of course, is necessary. This was lacking from 2008-2013 but is now hopefully on stream.

The roadmap for making up deficiencies o f ammunition is planned to cost Rs 19,250 Crore to make up 50 percent war wastage reserves of ammunition by end of 2015 and 100 percent by 2019 at a cost of Rs 19,250 crore.

As ammunition is procured from production agencies based on a five-year roll plan, streamlining the planning process, coordination and interaction with production agencies should be effectively managed to ensure that alarming deficiencies which are indicative of poor management do not recur. A holistic roll on plan to include procurement ex-import and ex-trade to build up adequately targeted stocks in addition to training requirements will ensure adequate stocks are available at all times.

There are issues related to ammunition manufacturing capacities. The Ordnance Factory Board (OFB) is reportedly capable of manufacturing all types of ammunition. Modern tank and artillery ammunition, however, have to be imported. Concerning indigenous production, there appears to be a lack of accountability in the OFB as even though there is a five-year roll on indent by the services it has failed to meet the requirements with deficiencies of approximately 25 percent which is inexcusable. Greater accountability of the OFB is necessary to ensure that indents placed as per roll on the plan are provisioned and the requirements for the services are met in full.

Funding Challenges

Ammunition is a part of the Stores head of the Revenue Budget of the Army. As per the structured plan of the Army deficiencies in the War Wastage Reserve of ammunition are projected to be completed by 2017-18. This was ensured by provision of an additional Rs 700 Crore in the Revised Budget Estimates in 2014-15 and Rs 1500 Crore from the budget estimates of the same year and an increase of Rs 2500 Crore from the 2013-14 expenditure. The approximate requirement under the Stores head for the Army is Rs 20,000 Crore per year as against the same the Army was allocated Rs 15,990 Crore in the Revised Estimates for 2014-15 and Rs 16697.84 Crores in the Budget Estimates for 2015-16. This would imply a shortfall in funding of Rs 7300 Crore in the past two years. This would have necessitated cutting quantities in procurements be it ammunition or other items. However, the reduction in allocations in the budget concerning demands made remains a perennial challenge.

The Parliamentary Committee on Defence has noted that while each year the Army got a major share of Defence Budget. However, it has been getting less than projections. Thus, while the Army projected a requirement of Rs. 93355.38 Crore for the Revenue outlay, it was allocated only Rs. 81119.20 Crore in the budget for 2013-14. This is almost a 15 percent shortfall. For the Capital outlay, as against Rs. 25528.08 Crore projected, Rs. 17883.83 Crore was allocated. Here the shortfall in 2013-14 is likely to be as large as 25 percent.

There is shortage of funds as generally projections by the MOD for the armed forces are reduced by the Ministry of Finance in the final budget by 25 percent or so. This is a vicious cycle - there is a problem of budget management wherein surrender from capital account and internal adjustments have led to the loss of credibility of the MOD financial management which in turn leads the Ministry of Finance to believe that the services can do with lesser allocations.

However, the Army has streamlined budget management which was one of the shortcomings of the past. Thus as per six monthly statement of expenditure for 2015-16 [April – September 2015] of the Rs 104158.95 Crore allocated under the Revenue head to the Army Rs 50318.44 Crore or 48% has been expended. The performance was even better in the previous budget year 2014-15 for the comparative period where expenditure was 53% up to September. Thus hopefully, the Budget allocations for 2016-17 which are being considered by the Finance Ministry will ensure that Services projections are fully met.

Streamlining Procurement – Case of Bullet Proof Jacket

The necessity for streamlining procurement to ensure deficiencies do not accumulate is well established. A case in point is that of acquisition of bullet proof jackets (BPJ) by the Indian Army. The BPJ is an essential protection for a soldier fighting in a counterinsurgency environment. A good BPJ is a life saver as well as gives the requisite confidence to the soldier to engage in close quarter combat in the counterinsurgency environment. While there is a long-standing requirement of 1,86, 138 BPJs for the Indian Army accepted by the Defence Acquisition Council (DAC) through Acceptance of Necessity (AoN) in October 2009 for capital procurement by 2012, these have yet to be acquired.

Defence minister Manohar Parrikar in a question in the parliament recently stated that the tender or the request for proposal (RFP) "was retracted on October 5 as the bullet-proof jackets fielded by the vendors failed in the trials". There are reports that the Ministry of Defence is now carrying out "emergency revenue procurement" of 50,000 jackets. Two Indian firms (Tata Advanced Materials and MKU) have been shortlisted and trials are due shortly. It is pertinent to note that a critical warfighting aid for the soldier could not be procured for the past six years and is likely to be delayed for at least a couple of years, indicating the necessity for streamlining procurement of essential items. Such equipment has to pre-trialed and inducted through the Buy (Indian) or even Buy (Global) route so that soldier safety and battlefield efficiency is not impacted.

Mountain Strike Corps

The aim of raising a mountain strike corps is to provide adequate capability to the armed forces to deter attempts by the adversary, China to upset the status quo and grab land in claimed area of Arunachal Pradesh or other sectors. Reports indicate that the plan has been delayed given paucity of funds with competing requirements of the services. There is an impression in some quarters that induction of technology will reduce the dependence on manpower. While technology has brought about revolutionary changes in conventional warfare in the plains and the desert sectors, the impact of wars in the mountains or on counter-insurgency militancy operations remains limited. The adage that mountains eat away troops is true even in the 21st Century as intervening terrain features in the mountains severely restricted visibility, fields of fire of direct firing weapons while restricting mobility to foot or light vehicles. This necessitates a greater number of troop deployment on the ground.

The delay in raising of the mountain strike corps comes even as China has undertaken major reforms of the People’s Liberation Army (PLA). A united front has now been formed by combining the Lanzhou and Chengdu Military Area Commands into a West Zone with the aim of jointness synergy and flexible application of force in Xinjiang and Tibet. This development has increased the level of threat on the Northern borders as the West Zone commander would have at his disposal forces from Xinjiang for application in the Medog sector opposite Arunachal Pradesh. This has effectively overcome the local force superiority that was created by raising of two new divisions in the defensive role in the Eastern Command. There is, therefore, a necessity for prioritising raising of 17 Mountain Strike Corps so that the formation is battle ready by 2020 thus deterring any designs for an adventure in the Eastern sector by China.

Conclusion

The necessity for enhancing efficiency in planning and provisioning of essential items of equipment for the armed forces procurements is underlined. Systemic measures are necessary to ensure that requirements are anticipated well in advance and procurement process initiated, so that contemporary and state of the art equipment is available to the defence forces. Deficiencies in WWR ammunition in no case can be acceptable. Budgeting for defence requirements has to be streamlined so that adequate funds are available for essential purchases. At the same time creating long term capacities such as the 17 Mountain Strike Corps cannot be relegated to the background due to alternative competing requirements.
http://www.vifindia.org/article/201...e-of-war-readiness-a-contemporary-perspective
Published Date: 22nd February 2016, Image Source: http://www.indiatimes.com
(Disclaimer: The views and opinions expressed in this article are those of the author and do not necessarily reflect the official policy or position of the Vivekananda International Foundation)

 

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Government Mulling Separate Set up for Defence Acquisition: Manohar Parrikar

In what would be a key move if implemented, Defence Minister Manohar Parrikar today said the government is "actively considering" a separate set up for defence acquisition
NEW DELHI: In what would be a key move if implemented, Defence Minister Manohar Parrikar today said the government is "actively considering" a separate set up for defence acquisition.

Many countries like France have exclusive organisations which deal with defence acquisition. This was also one of the recommendations of the Dhirendra Singh Committee, that was set up the Defence Ministry to suggest changes to the Defence Procurement Procedure.


"A separate set up for defence acquisition, at capital level as well as revenue level and OFB needs to be created. We are considering that," Parrikar said at the launch of the Defence Innovators and Industry Association ( DIIA).

He said it will take another six months for the concept to firm up.


"This concept is under active consideration and definitely during the current calender year, this set up should be there," Parrikar said replying to questions.
He said there should be continuity of information, knowledge and experience.
The minister that steps will be taken to ensure that there is career progression of officials and also that complacency does not creep in, besides any possible wrong doings.
Told by a retired Admiral that in the navy there are some Admirals and senior officers who have been associated with the Arihant submarine project right from being a Lieutenant, Parrikar said, "I will look into it."

The Dhirendra Singh Committee has proposed "Dedicated Procurement Organisation Outside The Government Of India Ministry Structure" in a report submitted last year.

It had said that the procurement executive as now established is a result of the recommendations of the Group of Ministers post Kargil, and is one of the institutions created as part of the reorganisation of the higher defence management structures.

"It has now functioned for more than a decade. Like any organisation it has its strength and weaknesses. It is our recommendation that the time is ripe for it to undergo a second set of reforms.

"Its main drawback is that it essentially performs line functions whilst being embedded in a larger structure, which is designed to perform staff functions," the report had said.
Meanwhile, talking about the proposed strategic partnership scheme, under which the Defence Ministry will tie up with one government and one private company for building strategic assets like submarines, Parrikar said the partner will be obligated to get at least 20 per cent material or technology from small and medium enterprises.

He also said the ministry is considering proposals to give a push at least 200-300 start ups in the defence sector.

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[sorcerer]

New Defence Industry Body to Promote R&D


NEW DELHI: In a first, over two dozen defence companies have come together to form a new industry association that focuses on indigenous design and development, taking a cue from the new procurement policy of the government that promotes domestic R&D with special incentives.
Defence Minister Manohar Parrikar, who is currently finalizing the new procurement policy that could be released in March, is set to speak on self-reliance in defence through design and development at the first event of the new association on Thursday.

The association does not have the big names in defence manufacturing but is a grouping of smaller companies that have been in the sector for several years and have a functioning research department. Companies include Centum electronics, Kineco Private Ltd, Avantel Ltd and Zen Technologies Pvt Ltd.


While industry associations like FICCI and CII have strong defence departments that focus on the sector, DIIA would be the first to focus exclusively on indigenous R&D. "The focus was always on how to manufacture components or equipment in India. But the IP has always been owned by someone else. DIIA's will engage the Government to ensure a policy that encourages design and development of defence equipment with IP ownership in our own hands," Ashok Atluri, Chairman, DIIA told ET.

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[sorcerer]

Budget 2016: One thing Finance Minister Should Keep in Mind — Indian Navy Deserves More


by Prakash Nanda
With 75,000 personnel, including 6,000 officers, the Indian Navy may be smallest among our three services, but it has perhaps the biggest responsibility in protecting and furthering India’s national interests.

A multi-dimensional, multi-spectrum and networked force, the Navy has a full range of operations, ranging from high intensity war fighting at one end to humanitarian assistance and disaster relief operations at the other.

A fast-growing power that it is, India has no choice other than actively pursuing and promoting its geopolitical, strategic and economic interests on the seas, particularly in the Indian Ocean, not to speak of protecting its 1,200 island territories and huge exclusive economic zone of 2.4 million square kilometers.


All told, 95 percent of India’s foreign trade by volume and 75 percent by value is conducted by sea; also, more than 70 percent of its oil was imported by sea. And what is more important, it is only the Navy which can provide the nation a credible minimum nuclear deterrent through its ballistic nuclear submarines (SSBN) like the INS Arihant.

In other words, along with India’s economic growth, its Navy has to grow in importance, too. At present, operational and maintenance units of IN consist of warships, aircraft carriers, submarines, dockyards, naval ship repair yards, armament and weapon equipment depots and material organisations. It has an Aviation wing with air stations and allied repair facilities under them. The Navy is also overseeing teams which monitor the construction of ships and submarines at the concerned shipyards.

Against this background, it is logical to assume that the Naval Budget will correspondingly go up every passing year. But that has not been the case. In fact, the Naval Budget as a percentage share of total Defence Budget has declined from 17.32 percent in the year 2006-07 to 15.32 percent in the year 2015-16. Every year, the Navy projects a figure, but that remains far off when the Finance Minister presents his Budget proposals to the nation through Parliament.

This despite the fact that if there is something called financial management then of all our defence establishments, it is the Navy that practices it best. It spends its funds relatively well keeping in mind a realistic wish-list. It has developed a comprehensive financial information system (FIS), facilitating effective planning, allotment, expenditure and monitoring of the Naval Budget. And most important, unlike the Army and Air Force, Indian Navy is becoming successfully indigenized every passing year, saving precious foreign exchange in buying foreign military systems and generating more employments at home.

Take, for instance, the Navy's revenue budget. In the year 2014-15, although it had projected an amount of Rs 19,570.57 crore as budgetary allocation, it was allocated an amount of Rs 13,975.79 crore, a shortfall of Rs 5,594.78 crore, i.e. nearly one-third of the projected amount.
This was the sixth year in succession that the Navy got far less than want it needed for its revenue side. And this trend is likely to continue, given the Finance Ministry’s standard reply of financial constraints.

What has been happening all these years is that the revenue allocations for the Indian Navy is mainly taking care of the salaries and associated perks of its personnel, leaving very little for meeting day-to-day requirements of Operational Deployments (including Anti-Piracy Patrols) and Coastal Security.

In addition, requirement of stores (fuel, weapons, armament, spares), victualling and rations, repairs and refits is also not being properly met. There is thus a serious need for reviewing the Navy’s Revenue allocations.

As far as the the Indian Navy's capital expenditure is concerned, which includes the modernisation and acquisition of new systems, compared with the Army and Air Force, it has been in better shape. Seen in terms of the Revenue/ Capital ratios, as against the Army’s 81:19 and Air Force’s 41:59, Navy’s was 39:61 in the 2015-16 Budget.

That means of the total budgetary allocations for the Navy, 61 percent went to the capital outlay. But then, in terms of the actual amount, it was Rs 23,910 crore, much less than Air Force’s Rs 31,481 crore.

The more important point is, as is the case with the other two services, the Navy's capital outlay is not in sync with its modernisation and acquisition plans. It does not meet the requirements as sanctioned in 2012. It may be noted that the sanctioned strength of vessels for Navy includes submarines, ships, aircraft carriers, etc. Some projects such as P 15 A and P28 ((Kolkata class stealth guided missile destroyers), Indian Aircraft Carrier (IAC), P75 and P75 (I) (submarine projects) are streamlined and under progress at various shipyards in the country. But there have been regular delays and cost overruns occurring in different projects.

In case of IAC, the original sanctioned cost was Rs 3,261 crore which has been revised to Rs 19,341 crore i.e. six times cost escalation. In case of P15A, the cost has been revised to Rs 11,662 crore from Rs 3,580 crore and dates have been revised from 2009-10 to 2015-16. Similarly, in case of aircraft carrier 'Vikramaditya', there had been huge cost escalation due to repeated time extensions. The indigenously built Vikrant IAC is also running behind the schedule.

As the Parliamentary Standing Committee on Defence has rightly noted, ‘time and cost overruns in almost all the projects is a major cause of concern. For long, the country’s defence needs have been lying unattended and huge gaps have emerged in Force Level. It’s high time that adequate budgetary support is made along with necessary operational reforms at shipyards and other construction sites.” One agrees with this observation in toto.


The author is Editor of Geopolitics, a Military Journal
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Budget 2016: Why India’s Great Power Ambition Cannot Do Without Focus on R&D

Indian defence budget has never received the attention it deserves. Once the Union Budget is presented, a few defence correspondents and strategic analysts swing into action and cite all available data. They try to interpret these through budgetary lenses. This is either usual reportage or ad-hoc analytics. Rarely do they go deeper and ask fundamental questions.

It must be understood that deployment of resources by the state can be objectively identified, but results are subjectively interpreted. This is more complicated in the field of national defence where general data is available but specifics elude analytical interpretation. To cite, India spends slightly more than $ 40 billion for national defence (1/12th of what the US spends or 1/3rd of what China spends). It spends less than 1.8 percent of its GDP (US spends 4 plus percent, while China spends close to 6 percent). Interpreted thus, India is actually underspending.

However, if India spends close to 2 percent (or even 3 percent as suggested by the 13th Finance Commission in 2013), its defence expenditure has to touch nearly one and half times of what it spent last year. This is highly unlikely under current circumstances, even though India has witnessed a GDP growth of 7.3 percent in turbulent global economic conditions.

Indian defence budget is conventionally about ‘revenue’ or ‘capital’ allocations. We talk about how much money the armed forces should spend for their salaries, pensions, infrastructure, weapons, services, etc. But it is high time we contemplated on investments into real military capability development. This can only happen when the State allocates adequate resources for military R&D and industrial capacity development. If great powers invariably possess great arms industries, as history has repeatedly demonstrated, it is high time that India allocate a significant portion of its resources toward military R&D and industries. Has it done the needful? An in-depth examination shows to the contrary.

Technically, defence R&D budget is a part of Indian defence budget, so are budgets for defence industries, specifically the Ordnance Factories (OFs). The latter is always in negative territory, suggesting that state-owned defence industries seldom receive central grants, rather they contribute to national exchequer by providing dividends through profits as they claim. However, a recent study by Josy Joseph of The Hindu, demonstrates that bulk of Indian defence PSUs have shown profits, not through selling of products but through interest accruals from their advanced receipts collected from their customers – Army, Navy and Air Force! As a recent entrant, the private sector’s contribution to national resources minimisation has not yet begun. In sum, domestic industrial capacity has yet to show desirable results.

Indian military R&D budget goes to DRDO, the organisation responsible for design, development and innovation in military systems and technologies. Its budget has been hovering between Rs 8,000 crore and Rs 12,000 crore in the last five years, which roughly accounts for less than 6 percent of the defence budget. Imagine a country which devotes less than 6 percent of its meager budget and expects its premier military scientific establishment to design fifth generation systems!
The bulk of the DRDO funding goes into existing or on-going design and development programmes, leaving very little for new projects. This trend almost reminds us of deployment of capital expenditure, where ‘committed liabilities’ far outnumber ‘fresh acquisitions’. Almost all specialised domains, which are directed by Director General (seven in number) and Chief Controllers (six in number) with ten technology clusters (spread across 51 laboratories) are now responsible for execution of projects and accountable to the Defence ministry.

Beyond resources for DRDO, which appears unable to spend bigger budget, there are issues that require attention. India is the only major country in the world where military R&D (DRDO) and production (Defence PSUs and Ordnance Factories) are distinct organisations; horizontal and seamless institutional interactions are almost non-existent. As like other organs, DRDO is also vertically structured, with representation at the top decision making bodies. Chief of DRDO used to wear three hats, which has now been reduced to two. Efforts to reform DRDO (implementation of P Rama Rao Committee recommendations) has not yielded desirable results. Sacking of the previous DRDO chief and appointment of two scientists as head of DRDO and scientific advisor to the defence minister are instances in recent times which may pave the way to some structural changes in future.

A comparative assessment of military R&D budgets of major countries suggest that while India spends around $2 billion, the US spends close to $90 billion, China has significantly raised its budget to $ 40 billion (almost equivalent of India’s defence budget!), so has Russia, whose R&D budget is close to $ 18 billion. China’s spectacular record in accounting for nearly 13 percent of the global military expenditure is indicative of its growing military prowess and its decision to invest heavily in R&D speaks volumes of its super power intent.

The US has consistently increased its investment in R&D. Consider this: post-Cold War American military resources allocations plummeted by 40 percent between 1989 and 1996, where most of the organs witnessed massive cuts, but R&D budget was untouched. Major powers understand the importance of innovation and quality R&D in military sector, which along with industrial capacity make them powerful. India should understand this and deploy at least 10 percent of its budget for R&D.
The author is a New Delhi-based defence analyst and head of a defence research firm
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[sorcerer]

Indian Budget Report Card: Did Modi Deliver on Last Year’s Promises?


India’s national budget was once used to reveal plans to revamp the way the economy was managed but in recent years it has been more about promises and pledges to appease different groups in the world’s largest democracy.

Some die-hard optimists had hoped last year’s budget would include “big bang” economic reforms from Prime Minister Narendra Modi’s government, instead they got tiny tinkering, more spending and a delay in the South Asian nation’s deficit-reduction plans.

Big pledges were made and the government has delivered on some. Here is a look back at what was promised last February and where Asia’s third-largest economy stands as it is set to unveil its next budget on Monday.

• Nominal GDP Growth
  Budgeted
  11.5%
  
  Actual
  8.6%
  
  Nominal GDP growth, which measures the increase in the value of an economy’s output without adjusting for inflation, has been slowing in recent quarters due to a rare fall in wholesale prices. The slowdown has worried analysts as the growth rate has now plummeted to levels below the real GDP growth rate, pointing to a deflationary threat. This has put policymakers in a spot as consumer prices continue to rise. A continued slowdown in nominal GDP growth could also put the government’s fiscal deficit target at risk.
  
  
• 
  
• Real GDP Growth
  Budgeted
  8.1%-8.5%
  
  Actual
  7.6%
  
  Real GDP growth, the benchmark gauge of economic growth, strips out the impact of price changes on output. Here too, actual growth is set to fall significantly short of the government’s estimate, a reminder that the Indian economy remains weaker than expected. This despite the country’s rejigged statistics placing it in pole position among the world’s fastest-growing large economies.
  
  
• Fiscal Deficit
  Budgeted
  3.9%
  
  Actual
  3.8%
  
  Achieving the government’s fiscal deficit target, which is measured as a proportion of nominal GDP, has become challenging.
  
  The government had budgeted a deficit of 3.9% of GDP this fiscal year. Its calculations assumed an 11.5% increase in nominal GDP.
  
  But the latest statistics-ministry projection pegs nominal GDP to grow a much weaker 8.6% this year. That has raised questions if the deficit target can still be achieved.
  
  There is a bright side. The sharp decline in global crude oil prices has reduced the government’s subsidy bill. Morgan Stanley estimates the deficit would narrow to 3.8% this year.
  
  
• Disinvestment
  Budget
  $10 Billion
  
  Actual
  $2.68 Billion
  
  This is one of the biggest areas of disappointment. Economists and investors were surprised when in the last budget the government announced plans to raise a staggering over $10 billion by selling small stakes in state-run firms, its biggest-ever target.
  
  Most economists doubted the money would be raised, although some were still willing to give the newly formed government the benefit of doubt.
  
  Now, with just over a month left before the close of the fiscal year, the numbers look dismal.
  
  The government has so far managed to raise about $2.68 billion, barely a quarter of the full-year target, as falling global commodity prices have hurt the valuations of many companies on the radar for disinvestment.
  
  
• Tax Revenue
  Budgeted
  $211 Billion
  
  Result
  $211 Billion
  
  Revenue Secretary Hasmukh Adhia said earlier this month that tax revenue for the year will be broadly in line with the budget estimate. That will be an achievement for the government given the target was missed in each of the past four years.
  
  
• Direct Taxes
  Budgeted
  $116 Billion
  
  Actual
  110 Billion
  
  The gains in indirect taxes, however, are expected to be offset by a shortfall in revenue from direct taxes such as corporate and income tax, partly due to a sluggish recovery in the economy that has weighed on profits of businesses.
  
  
  
  
• Foreign Direct Investment
  Budgeted
  No Target
  
  Actual
  Up 18%
  
  This is one feather in the government’s cap. Complete official data available until September show a robust 18% increase in FDI in the first nine months of 2015 to $26.52 billion. Amitabh Kant, secretary of the Department of Industrial Policy and Promotion, a unit of the commerce ministry, tweeted some fresh numbers earlier this month. According to these latest figures, FDI jumped 114% from a year earlier in December. FDI until December starting from the time Mr. Modi’s government assumed office around mid-2014 is up 48% from the comparable period, he added without giving details.

http://blogs.wsj.com/briefly/2016/0...i-deliver-on-last-years-promises-the-numbers/

 

[sorcerer]

Narendra Modi’s Business-Environment Report Card

Indian Prime Minister Narendra Modi boasted about his efforts to make it easier to do business in the country during a recent visit by German Chancellor Angela Merkel. He ticked off 11 jargon-laden bullet pointsthat he said showed the government’s desire to ease “long-pending concerns of investors.”

India ranks 142 out of 189 countries in the World Bank’s Ease of Doing Business index, two places lower than when Mr. Modi took office. And the government’s efforts to improve remain a work in progress.


The Environment Ministry says that between May 2014, when Mr. Modi came to power, and the end of September 2015, it had given 788 large-scale industrial projects the environmental go-ahead. That compares with 498 such permissions in the year ended March 31, 2014, and 439 in the 12 months before that.

“Across the board, we have increased the validity period of industrial licenses,” Mr. Modi said.

Industrial licenses are required for manufacturers who want to make a handful of products, including explosives, cigarettes, hazardous chemicals and alcoholic beverages. Now, companies have up to three years after the license is issued to start production. Previously production had to start within two years or the license would be cancelled. Companies that miss the three-year deadline can apply for a two-year extension, but the process is cumbersome, requiring approvals from municipal, state and national authorities.

“We have de-licensed a number of defense items and liberalized a number of restrictions like end-use certificate,” the prime minister said.

To manufacture certain items for the defense industry, companies must get speciallicenses. In July, the government said mostcomponents and testing and production equipment no longer required such permits. The idea is to make it easier for companies to become defense suppliers.

Exporters of defense products used to need an end-use certificate signed by the authorities of the importing country that specified how the products would be used. Now the company can issue the end-use certificate itself.

“We have increased the validity period of defense industrial licenses up to eighteen years from three years,” he said.

The increase is designed to give manufacturers more time to acquire land and get production going. Once production starts, a license becomes valid for as long as production continues.

“These are small but crucial initiatives,” says Laxman Kumar Behera, a research fellow at the Institute for Defense Studies and Analysis in New Delhi. “Earlier, the industry was struggling to get licenses” and would have to keep going back to the government when they expired.

“We have clearly articulated that we will not resort to retrospective taxation and reinforced this position by not going for imposition of minimum alternate tax on FPIs,” Mr. Modi said.

Earlier this year, Mr. Modi’s government sent tax notices to foreign portfolio investors, or FPIs, saying for the first time that they were required to pay the minimum alternative tax on their investment gains from previous years. The move prompted vociferous complaints and major outflow of foreign funds from India’s stock market.

The Indian government in September said the MAT won’t be applied to foreign portfolio investors.

“We have notified the regulations for the Alternative Investment Funds allowing foreign investments in such funds,” Mr. Modi said.

India’s capital-markets regulator, the Securities and Exchange Board of India, allowed the creation of Alternative Investment Funds, India-based vehicles for investments into real estate and startups, in 2012, before Mr. Modi took office. Under the rules, foreigners need to seek approval from the Foreign Investment Promotion Board to invest, a process experts say can take four to eight months.

“We have rationalized the capital-gains tax regime for real estate investment trusts,” Mr. Modi said.

Indian regulations say that developers who sell their properties to a real-estate investment trust don’t have to pay capital-gains taxes on these sales. But other tax issues remain. Indian tax law subjects all dividends, including those from REITS, to a 15% tax.

“We have modified the permanent-establishment norms,” Mr. Modi said.

If a company has an office in India from which it derives income, it is considered a permanent establishment, and thus subject to Indian taxes. Mr. Modi’s government has created an exemption for investment funds that fulfill certain conditions. To qualify, a fund must have at least 20 investors and not “control” any Indian company. “Funds have not rushed in” and are waiting for more clarity on what constitutes “control,” says Sudhir Kapadia, a tax consultant at Ernst & Young LLP inIndia.

“We have also decided to defer the implementation of the General Anti-Avoidance Rules for two years,” Mr. Modi said.

The General Anti-Avoidance Rules, would allow Indian tax officials to scrutinize transactions and corporate structures they believe are aimed at avoiding taxes. Under the rules, for example, India could penalize a Mauritius-based investment fund if officials concluded it had been created solely to benefit from the tax treaty between India and Mauritius. Enforcement of the rules has been put off until 2017.

“We have introduced the GST bill in Parliament, we are hopeful to roll it out in 2016,” Mr. Modi said.

India has been trying for years to introduce a national goods-and-services tax. In its last session, Parliament, bogged down in partisan battles, didn’t pass the constitutional amendment required for GST. If it is passed by federal lawmakers later this year, it then must be approved at least half of the country’s state legislatures to take effect. After that, a host of details, including the new GST tax rate, will need to be worked out, making implementation next year a difficult challenge.

“We are working on a new bankruptcy code; the company law tribunal is soon going to be formed,” Mr. Modi said.

The government set up a committee last fall to revamp India’s bankruptcy law, and the committee released an interim report for public comment in February. The next step will be to introduce draft legislation. “It’s a work in progress,” says Lalit Kumar, a lawyer at J. Sagar Associates.

For breaking news, features and analysis from India, follow WSJ India on Facebook.

 

[aditya g]

Pakistan should be on this list and it is way higher than India when it comes to spending ratio

Yup,From selected countries....We can sustain 3% of GDP to defense.Hope Modi increases it further.

 

[Sam Biswas]

Narendra Modi’s Business-Environment Report Card

Indian Prime Minister Narendra Modi boasted about his efforts to make it easier to do business in the country during a recent visit by German Chancellor Angela Merkel. He ticked off 11 jargon-laden bullet pointsthat he said showed the government’s desire to ease “long-pending concerns of investors.”

India ranks 142 out of 189 countries in the World Bank’s Ease of Doing Business index, two places lower than when Mr. Modi took office. And the government’s efforts to improve remain a work in progress.


The Environment Ministry says that between May 2014, when Mr. Modi came to power, and the end of September 2015, it had given 788 large-scale industrial projects the environmental go-ahead. That compares with 498 such permissions in the year ended March 31, 2014, and 439 in the 12 months before that.

“Across the board, we have increased the validity period of industrial licenses,” Mr. Modi said.

Industrial licenses are required for manufacturers who want to make a handful of products, including explosives, cigarettes, hazardous chemicals and alcoholic beverages. Now, companies have up to three years after the license is issued to start production. Previously production had to start within two years or the license would be cancelled. Companies that miss the three-year deadline can apply for a two-year extension, but the process is cumbersome, requiring approvals from municipal, state and national authorities.

“We have de-licensed a number of defense items and liberalized a number of restrictions like end-use certificate,” the prime minister said.

To manufacture certain items for the defense industry, companies must get speciallicenses. In July, the government said mostcomponents and testing and production equipment no longer required such permits. The idea is to make it easier for companies to become defense suppliers.

Exporters of defense products used to need an end-use certificate signed by the authorities of the importing country that specified how the products would be used. Now the company can issue the end-use certificate itself.

“We have increased the validity period of defense industrial licenses up to eighteen years from three years,” he said.

The increase is designed to give manufacturers more time to acquire land and get production going. Once production starts, a license becomes valid for as long as production continues.

“These are small but crucial initiatives,” says Laxman Kumar Behera, a research fellow at the Institute for Defense Studies and Analysis in New Delhi. “Earlier, the industry was struggling to get licenses” and would have to keep going back to the government when they expired.

“We have clearly articulated that we will not resort to retrospective taxation and reinforced this position by not going for imposition of minimum alternate tax on FPIs,” Mr. Modi said.

Earlier this year, Mr. Modi’s government sent tax notices to foreign portfolio investors, or FPIs, saying for the first time that they were required to pay the minimum alternative tax on their investment gains from previous years. The move prompted vociferous complaints and major outflow of foreign funds from India’s stock market.

The Indian government in September said the MAT won’t be applied to foreign portfolio investors.

“We have notified the regulations for the Alternative Investment Funds allowing foreign investments in such funds,” Mr. Modi said.

India’s capital-markets regulator, the Securities and Exchange Board of India, allowed the creation of Alternative Investment Funds, India-based vehicles for investments into real estate and startups, in 2012, before Mr. Modi took office. Under the rules, foreigners need to seek approval from the Foreign Investment Promotion Board to invest, a process experts say can take four to eight months.

“We have rationalized the capital-gains tax regime for real estate investment trusts,” Mr. Modi said.

Indian regulations say that developers who sell their properties to a real-estate investment trust don’t have to pay capital-gains taxes on these sales. But other tax issues remain. Indian tax law subjects all dividends, including those from REITS, to a 15% tax.

“We have modified the permanent-establishment norms,” Mr. Modi said.

If a company has an office in India from which it derives income, it is considered a permanent establishment, and thus subject to Indian taxes. Mr. Modi’s government has created an exemption for investment funds that fulfill certain conditions. To qualify, a fund must have at least 20 investors and not “control” any Indian company. “Funds have not rushed in” and are waiting for more clarity on what constitutes “control,” says Sudhir Kapadia, a tax consultant at Ernst & Young LLP inIndia.

“We have also decided to defer the implementation of the General Anti-Avoidance Rules for two years,” Mr. Modi said.

The General Anti-Avoidance Rules, would allow Indian tax officials to scrutinize transactions and corporate structures they believe are aimed at avoiding taxes. Under the rules, for example, India could penalize a Mauritius-based investment fund if officials concluded it had been created solely to benefit from the tax treaty between India and Mauritius. Enforcement of the rules has been put off until 2017.

“We have introduced the GST bill in Parliament, we are hopeful to roll it out in 2016,” Mr. Modi said.

India has been trying for years to introduce a national goods-and-services tax. In its last session, Parliament, bogged down in partisan battles, didn’t pass the constitutional amendment required for GST. If it is passed by federal lawmakers later this year, it then must be approved at least half of the country’s state legislatures to take effect. After that, a host of details, including the new GST tax rate, will need to be worked out, making implementation next year a difficult challenge.

“We are working on a new bankruptcy code; the company law tribunal is soon going to be formed,” Mr. Modi said.

The government set up a committee last fall to revamp India’s bankruptcy law, and the committee released an interim report for public comment in February. The next step will be to introduce draft legislation. “It’s a work in progress,” says Lalit Kumar, a lawyer at J. Sagar Associates.

For breaking news, features and analysis from India, follow WSJ India on Facebook.

IT IS A VERY ONE SIDED ATTACK YOU AND OTHERS ARE DOING. MODI IS MAKING EVERY EFFORT TO ADVANCE THE COUNTRY DESPITE THE OPPOSITION. INDIA WAS DOING TERRIBLE UNDER GANDHI REGIME. DESPITE ALL THE OPPOSITION AND TECHNICAL PROBLEMS, INDIA HAS ADVANCING FASTER THAN ANY COUNTRY IN THE PLANET UNDER MODI. USA IS EXPECTING A 0.4% GROWTH. IT COULD BE NEGATIVE. YOU HAD NO COMPLAINT AFTER TEN YEARS OF GANDHI REGIME AND YOU ARE NOT EVEN WILLING TO GIVE FIVE YEARS BEFORE YOU START CRITICIZING. IN BUSINESS OR GOVERNMENT IT TAKES TIME TO GET RESULTS FROM ACTION.