Promoting competence in defence economics an urgent imperative


The southern Man
Senior Member
Jul 15, 2009
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Promoting competence in defence economics an urgent imperative

As India prepares for increasingly complex internal and external security challenges, both traditional and non-traditional, there is a strong case for developing much greater competence and sophistication in applying economic reasoning and analysis to the expenditure, revenue sources and organisational structures of the defence sector. Such analysis is also needed in evaluating the nature and terms and conditions under which defence sector organisations cooperate or partner with organisations from private and not-for-profit sectors, both domestic and international. This will require a different mindset and set of skills from India's defence sector organisations.

India's defence budget for 2009-10, excluding internal security expenditure, was projected to be Rs 1,42,000 crore, equivalent to about 2.7% of GDP. The respective shares of current and of capital expenditure are projected to be 61% and 39%. India's share in global military expenditure in 2008 was just 2.2%, though it has a 17% share of the global population; per capita expenditure was $25, a fraction of what is spent by other major countries, including Japan ($361), Germany ($568) and France ($1,061), which do not face comparable internal and external security challenges.All of the following four key drivers of defence expenditure strongly suggest that India's defence expenditure will rise substantially in absolute terms, and moderately in relative terms. First, positive correlation is evident internationally from time-series as well as cross-section data, between defence expenditure on the one hand and national income and international integration on the other. India's current nominal GDP of about $1,300 billion will, at recent growth rates, reach $5,000 billion by 2025; and its international trade in goods and services will increase from $550 billion to around $1,800 billion. India's annual official remittance flows are over $50 billion; its diaspora of over 25 million is spread around the globe, inward FDI stock has crossed $100 billion, and outward FDI stock from India is also rising rapidly. India's growing integration with the world economy, requiring protection of sea lanes, and sources of intermediate inputs and of markets, requires significant strengthening of maritime security.

Second, over the decades, the defence sector is utilising increasingly sophisticated and specialised plant and equipment, and this in turn requires concomitant investments in human resources, which are also increasingly specialised and expensive. Rapid technological developments have resulted in much shorter product cycles in military equipment and weapons, rapid obsolescence of existing plants, and need for continuously upgrading human resources and skills.
Third, new forms of warfare involving information and technology infrastructure, outer space and biological and other areas have made traditional separation between Army, Navy and Air Force obsolete. What is now relevant is the concept of total defence in which there is much greater functional coordination among the above three branches; and between them and the civilian sectors.

There is also an urgent need to bring more internal accountability and transparency in managing our civilian and military nuclear programmes. Current organisational structures need to be revamped in light of securing greater strategic space, and taking advantage of potentially large opportunities in nuclear trade and commerce.Fourth, the non-traditional threats to security involving climate change, narcotics, human trafficking, smuggling, and illegal migration involving India's neighbours, infectious diseases, etc have increasingly blurred the distinction between traditional defence sector and internal security, requiring much closer coordination. The internal security sub-sector of services has exhibited above-average growth in recent years, which constrains more productive use of the economic resources.

The current focus in defence sector budget formulation, in parliamentary approval process, and in post-budget assessment is almost solely on accounting procedures and practices. Even these are outdated as neither outcome nor accrual budgeting, which permits both income-expenditure flows and balance sheet assets and liabilities to be formulated, are utilised. The capital component of the defence budget involves multi-year expenditures and planning, which annual budget cycles are unable to accommodate effectively.

The current defence budget formulation largely involves incremental budgeting (e.g. 10% increase in nominal terms over the previous period), with usually no separation between inflation-induced and real increase in expenditure. No groups at the planning or strategic levels, whether at the Planning Commission or at the Prime Minister's Economic Advisory Committee appears to be analysing the defence budget from forward strategic planning perspective incorporating current and prospective threat perceptions. The budget proposals are also not subjected to analysis from the perspective of defence economics as a distinct sub-discipline and profession.

This is a serious gap, which needs to be urgently addressed in an era when geo-politics and geo-economics are increasingly inter-related. While this is recognised by other major powers, particularly China, India has been relatively slow in integrating the two to enhance its economic and security space and leverage. An important step towards integration of the two would be to give greater prominence to the role of defence economists at every level of the defence sector, and encourage their coordination with economists in other sectors.

There are three critical aspects of defence economics: projecting national resources available now and in the future; working out the proportion of these resources which should be allocated for internal and external security and division of resources within each of the two areas; and tracking the efficiency with which the resources so allocated are used. The above requires developing a competent group of analysts specialising in defence economics. Currently, no university in India, to our knowledge, offers such specialisation at any level. The need is particularly acute at the post-graduate levels. The absence of such expertise in defence related think tanks is also striking. The media and professional military and economic journals have also not promoted this branch of economics.

In the short run, such specialists would need to be trained (or recruited from) abroad; particularly in the US where defence economics is a thriving discipline. But there is no substitute for developing indigenous capacity to train its own defence economists and analysts.As India revamps its higher education sector, and Knowledge Commission advances the scope for applying knowledge and technology to a wide variety of sectors to bring about greater economic efficiency, the need to subject the defence sector to greater economic reasoning and analysis should receive deserved consideration.

Promoting competence in defence economics an urgent imperative -

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