A Lazy Argument: Tying defence expenditure to GDP is no substitute for policy making


Senior Member
Feb 23, 2009
A Lazy Argument

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

Feb 5, 2009

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.

The Indian Economy Blog: A Lazy Argument


New Member
Mar 22, 2009
You have started a very nice thread, RAGE , it is a very important topic focused on the back ground of changing military scenario other sides of the border around us.



Feb 22, 2009
Great find Rage. Its a sticky.


Devil's Advocate
Senior Member
Apr 21, 2009
The author is right in saying that we first need to streamline the acquisition process to make sure that the money which we do allocate for defence does not end up being returned to the MoD. Although the new defence acquisition policy seems to be quite effective at cutting corruption, it may have introduced additional bureaucratic red tape thus complicating the process. The MRCA process itself is expected to take 4-5 years to complete! That seems like an abnormally long time period to merely test 6/7 aircraft.

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