India: Cuts in Defense Spending Neither Surprising or Permanent

New Delhi recently announced plans to cut its 2013-14 fiscal year defense budget by over $2.5 billion as part of an overall $21 billion spending reduction. These cuts are due to an economic slowdown and are sure to shock US legislators who have never let anything as minor as lack of funds stand in the way of increased spending.

India’s defense budget grew 17 percent in 2011-12 and 12 percent in 2012-13, comprising 11 percent of the overall budget. These cuts, however, in addition to destroying the retirement plans of numerous military contractors and the credibility of KPMG International (they estimated India would spend $42 billion in military procurements by 2018), will – in the short-term – hurt the military’s modernization plans. Its likely, therefore, that this South Asian nation – the leading importer of weapons between 2006 and 2010, according to the Stockholm International Peace Research Institute – won’t retain this position in 2013.

These budget reductions also raise questions about India’s plans to become a regional military power. Procurements such as 200 new-generation fighter jets from France costing up to $ 17 billion, ultra-light howitzers for use on the border with China, six new submarines, Anti-Tank Guided Missiles and 197 light reconnaissance and surveillance helicopters reflect New Delhi’s ambitions which may have to be curtailed in light of the new funding mandate.

In order to minimize their perceived impact, New Delhi has noted these cuts will not affect “priority areas” or the military’s “operational preparedness.” I, being a realist, fail to see how that will happen since the armed forces will either delay or stop some procurements and this will, consequently, hurt their preparedness.

Having said that, I don’t believe all the announced cuts will be implemented and, indeed, some may be reversed. There are a number of reasons for my assessment, the first being that nature of these reductions which are divided into $2 billion for capital expenditures and the rest for administrative expenses such as salaries, etc. Given that India is a democracy and New Delhi is always looking for votes, the administrative cuts will likely be reversed during the upcoming fiscal year.

The second reason is that New Delhi has always said that it would spend three percent of its GDP on defense but it has never done so: the 2012 budget was 1.9 percent of the GDP. Therefore, a lower budget percentage – even in light of slower economic growth – is unlikely to be maintained.

The third reason is that, according to India’s finance minister, these cuts are part of New Delhi’s plan to maintain the fiscal deficit between 4.8 percent and 5.3 percent. The Indian government has never stuck to these plans so it wouldn’t be surprising if, given the aforementioned reasons, the defense spending was increased regardless of its impact on the deficit.

Finally, and most importantly, the government will reverse this reduction if New Delhi is able to spend a majority of its military procurement budget in India i.e. through offsets. This would be a significant and positive change for the country since it currently spends over 70 percent of its defense budget on imports.

In fact, the government has already taken some steps to implement this plan through the “buy and make Indian” provision that requires foreign suppliers to source at least 30 percent of a defense contract from local companies.

India’s economic growth has slowed and the government’s budget plans reflect its intention to use its limited resources towards domestic initiatives. The country’s defense budget is consequently an innocent victim of these tough times, not unlike a poor Indian wife caught between a moron husband and a self-involved mother-in-law.

However, in the absence of an attack, if New Delhi can be convinced that a higher budget could be used to increase employment in the country’s nascent defense industry, it may reverse its decision – unlike the poor “bahu” who can never find a way out of the clutches of her evil in-laws.