MILITARY BUDGETS in INDIA and PAKISTAN

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Military Budgets in India and Pakistan: Trajectories, Priorities, and Risks 2000s. 20 Difficulty began with the implementation of recommendations from the Sixth Central Pay Commission Report in 2008. 21 The report, produced once a decade by a governmentsanctioned committee to assess the federal pay structure, called for increased pay for Indian service members. 22 The results had an immediate impact on the defense personnel budget. The Indian government recently noted that after “the implementation of [the pay commission] this share of expenditure on personnel to total defense revenue expenditure has increased sharply.” 23 It added that the “conclusion that increased expenditure on personnel has been at the expense of operational and maintenance expenditure … is inescapable.” 24 The Indian Parliament has been troubled by trends in the capital budget and the defense ministry’s general mismanagement of the budget process. In a May 2016 report, the Lok Sabha’s defense committee focused on the decline in the capital budget, the underutilization of capital funds, and how these two trends will affect India’s procurement ambitions. 25 The report noted that the ratio between defense services and capital outlays in both the Army and the Air Force is trending toward defense services. It added that if the ministry wants to meet its 30:40:30 target for the capital account – 30 percent for state-of-the-art technology, 40 percent for current technology, and 30 percent for older technology – it would have to “enhance our capital outlay” and enact reforms to enable underutilized funds from one year to be available the next. The committee focused on the pattern of underspending the capital fund, concluding that the “capital head invariably ends off with unutilized funds.” 26 The report noted that capital funds that are not used are instead “diverted to non-priority or non-essential heads of account.” The primary cause of underutilization is poor planning in the MOD and the reluctance of the Ministry of Finance (MOF) to allocate defense dollars more strategically. The MOD and Parliament explained that budget planning “needs to be drastically changed.” 27 These trends and the mismanagement of the defense budget have implications not only for the budget itself but also for India’s defense posture. 20 Laxman K. Behera, “Defence Budget 2016-17: The Bigger Worry,” Institute for Defence Studies and Analysis (IDSA), http://www.idsa.in/idsacomments/defence-budget-2016-17_lkbehera_220316. 21 Government of India, “Report of the Sixth Central Pay Commission,” http://pensionersportal.gov.in/sixthcpc/paycommissionreport.pdf. 22 Meera Siva, “All You Wanted to Know about Seventh Pay Commission,” The Hindu, September 7, 2015, http://www.thehindubusinessline.com/opinion/columns/all-you-wanted-to-know-about-seventh-paycommission/article7625708.ece. 23 Government of India, “Report of the Seventh Central Pay Commission,” http://7cpc.india.gov.in/pdf/sevencpcreport.pdf. 24 Ibid. 25 Government of India, “Twenty-Second Report: Standing Committee on Defence (2015-2016),” Sixteenth Lok Sabha, Ministry of Defence, Demands for Grants (2016-2017) on Capital Outlay on Defence Services, Procurement Policy and Defence Planning (Demand No. 23), http://164.100.47.134/lsscommittee/Defence/16_Defence_22.pdf. 26 Ibid., 18. 27 Ibid. 16
Military Budgets in India and Pakistan: Trajectories, Priorities, and Risks In March 2016, a senior ranking IAF official noted that under present conditions, the Air Force would not be able to conduct a twofront war. Declining capital budgets will delay military modernization efforts and reduce projections of India’s advantages over Pakistan, particularly with the Indian Air Force. Modernization plans for all three defense services will be delayed, cancelled, or less robust 28 than originally planned. According to the aforementioned Lok Sabha report, the defense secretary acknowledged that “the money allocated for Capital acquisition was not in accordance with the requirements of the Services.” 29 While the MOF argues that the services have to make do with what they are given, the Indian military is already feeling the pinch of declining capital budgets. The most worrisome development from New Delhi’s perspective is the readiness posture of the Indian Air Force (IAF), the service that has been most subject to fluctuations in the procurement budget. In March 2016, a senior ranking IAF official noted that under present conditions, the Air Force would not be able to conduct a two-front war. 30 While there is a debate in New Delhi about whether China or Pakistan poses the most pressing threat to India, it is an article of faith in the country’s strategic community that the armed forces should be able to prosecute a war simultaneously against Pakistan and China, if compelled to do so. The public repudiation of the government’s defense management was a clear signal that the IAF considered its budgetary and procurement position as an unacceptable danger to vital Indian interests. What, exactly, is the IAF concerned about? A close look at the inter-service distribution of the capital budget underscores that changes in procurement resources have most adversely affected the IAF at a time when India needs to replace its aging aircraft. Specifically, although the IAF’s capital budget has increased since 1999, it has decreased in the last few years. Within the capital budget, the IAF benefited the most from the spike in modernization money between 1999 and 2005 (see Figure 4). During the six years starting in 1999, the IAF went from being allocated a third of the capital budget to being allocated 44 percent. The spike was most clearly felt in the budget for aircraft, which actually tripled in 2005. However, things began to change in the next budget. Since 2006, the capital budget for aircraft has declined an average of one percent each year. 28 Sushant Singh, “Defence Procurement: If Process Not Expedited, We’ll Have to Rethink Our Investment in India, Says IWI,” Indian Express, August 9, 2016, http://indianexpress.com/article/business/businessothers/defence-procurement-if-process-not-expedited-well-have-to-rethink-our-investment-in-india-saysiwi-2962633/. 29 Government of India, “Twenty-Second Report: Standing Committee on Defence (2015-2016),” 56, http://164.100.47.134/lsscommittee/Defence/16_Defence_22.pdf. 30 Rahul Bedi, “IAF’s Depleting Assets Preclude Two-Front War Option,” IHS Jane’s 360, March 17, 2016, http://www.janes.com/article/58847/iaf-s-depleting-assets-preclude-two-front-waroption#.VuxtZq1v3O8.twitter. 17
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MILITARY BUDGETS in INDIA and PAKISTAN

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