The Union Budget 2008-09 allocated Rs.1,05,600 crores, or 10 per cent more than previous year's allocation, for defence. Crossing the Rs.1 lakh crores barrier for the first time, the defence budget looks impressive. However, the question remains whether India's defence allocation is adequate for the country's economic and security interests. An analysis of these two factors reveals that India's defence allocation remains moderate as always.

With the new budget, India's defence spending has risen by nearly 125 per cent in current prices over the last one decade from Rs.47,071 crores in 1999-00 (see Figure below). The increased allocation over the years comes at a time when the Indian economy is growing at an impressive rate. What is important is that the present economy is more globalized than before. As the economy grows further and becomes more globalized, the need for maintaining the growth momentum and protecting the economy's global character simultaneously increases. The least that India want at present, in the face of increasing signs of a global economic slowdown and its adverse impact on the Indian economy, is a disruption of the current momentum due to its adversaries.

Source: Extrapolated by the author from figures from Defence Services Estimates (DSE) in various years; and the Union Budget 2008-09.

To meet any threats to its vital interests India requires, among others, a strong military capability that could safeguard its interests within and outside domestic boundaries, including in the vast seas that account for 70 per cent of the country's total trade by value. If India's present maritime capability is any indication, it is inadequate to protect its merchant ships that carry nearly 90 percent of India's traded goods by volume. So the bottom line is: India needs enhanced maritime capability, which, in turn, demands higher allocation.

The higher allocation for defence, given its close links with military capability, has the added advantage of projecting India's hard military power. However, an analysis of India's military spending, through the prism of its share in Gross Domestic Product (GDP), does not convey India's active intention to showcase its military ambitions. This is apparent because the proportion of economic resources devoted to defence has continuously fallen in the last half decade or so. In fact, the latest defence budget as a proportion of GDP has, for the first time, fallen below 2 per cent since the India-China war in 1962, and from a high of 2.46 per cent in 2004-05.

The declining share of defence in GDP and its possible adverse impact on military capability may be little misleading given the fact that India's military capability-related spending, coming under the 'capital expenditure' of the budget, has increased significantly, from less than 25 per cent to more than 45 per cent over a decade. However, from the international perspective, India's defence spending is on the low side.

From a global perspective, India's latest defence budget, estimated at roughly US$26.5 billion at the current market exchange rate, constitutes a mere 2 per cent of the total world military expenditure. While the US, with a military budget of more than US$700 billion, remains the world's largest military spender, it has devoted over four per cent of GDP to defence, which sets the yardstick for 'affordable defence' by other countries. Against this yardstick, Pakistan spends around 3.5 per cent of its GDP on defence, and China spends nearly 4.3 per cent. In contrast, India's defence budget is only 1.99 per cent of the expected GDP for the coming Fiscal Year.

Given these perspectives suggesting India's moderate defence spending, the question arises whether the defence allocation could meet the security needs of the country. A regional survey of military balance reveals the increasing advantage of India's neighbours, especially for China. The military modernisation, in the face of double digit growth of defence expenditure for more than a decade, has resulted in China developing its own IT- and Space-based capability which, along with other 'anti-access/area denial capabilities', have left even the US worried. At the same time Pakistan's military modernisation, especially with American military assistance by transferring fighter planes, missiles, bombs and surveillance technologies, has direct security implications for India, and narrows the advantage in conventional warfare that were in India's favour for long.

To cope with these security imperatives, the present allocation seems inadequate, given the fact that most of the outlays in the budget for modernisation cater for projects signed years earlier. This means, the present budget leaves little that could be used to enhance military capability, meet the security threats in the neighbourhood and technological developments elsewhere.