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Two of the main Asian protagonists announced future defence spending this week. Budget restrictions caused India to cut its Budget whilst growth enabled China to grow its budget by over 10%, albeit at a slower pace than previous years. What the effects of this digression will be for the future stability of the region will be seen in coming years. But there is little doubt that China is growing its military capabilities at an alarming rate which, in our view, will almost certainly create a conflict in the area over the next few years.

India Cuts

05 Mar 13. The Deccan Herald reported that India’s defence budget needs to match strategic expectations. India’s defence budget has been hardest hit, as the government scrambled to cut costs given the bleak economic growth of five percent — the lowest in a decade. The cut came also against the backdrop of a history of under-utilisation of allocation by the defence ministry and the political hesitancy to conclude deals. Unveiling the national budget for the next fiscal last Thursday, Finance Minister P. Chidambaram proposed a defence spending of Rs.2.03trn ($37.45bn). This is a 5.2-percent increase from 2012-13, when the budget stood at Rs.1.93trn. Since the allocation and utilisation may change in the course of the fiscal year, the revised estimates accord a more realistic estimate of funds outflow. Accordingly, the budget hike, in real terms, amounts to Rs.251.68bn ($4.57bn) over the revised estimates of Rs.1.78trn for the fiscal ending March 31, which amounts to a 14-percent increase. In 2012-13, the increase had been 17 percent. Figures also reveal that the defence ministry suffered a budget cut of over Rs.140bn last year, a majority of which — over Rs.100bn — had been marked for procurement of new defence hardware. India’s annualised inflation rate of around 6 percent implies that the military has actually gained little from this year’s increase.

The U.S. defence expenditure amounted to $500bn last year and China’s was $110bn. In comparison, India’s defence budget of $38bn is humble and barely 1.79 percent of the country’s gross domestic product (GDP). This is a record low for India in at least three decades, with the figure dropping considerably from 3.16 percent of the GDP in 1987. This year’s allocation is also the lowest in terms of percentage of the total annual government expenditure. This year’s defence budget is 12.23 percent of the estimated spending of the government in the upcoming fiscal year, considerably down from the 15.79 percent in 1999 — and lower from last year’s 12.97 percent.

Despite this dismal allocation, Defence Minister A.K. Antony put up a brave front by saying taking into account the “difficult economic situation both at home and abroad” this was the best possible outlay. “Factoring the current economic scenario, he (the finance minister) has been fair to the defence sector also by increasing the budget and assuring that should there be any urgent need in future the same would be provided.”

The allocated budget of Rs.2.03trn will be bifurcated into two broad sections, capital and revenue. The capital budget is earmarked and utilised for the force build-up, which includes procurement of new weapons and systems and toward meeting committed liabilities in the form of payments for contracts signed in previous years. The other part of the budget, termed as revenue budget, is meant for salaries, pension, recurring expenditure, maintenance of arms and equipment and expenditures of a repetitive nature. Out of the Rs.1.169trn allocated for revenue expenditure, the army has been allocated Rs.818.33bn, the navy has got Rs.121.94bn while the air force has got Rs.182.95bn. Out of the Rs.867.41-bn capital expenditure, the air force has the largest share of over Rs.380bn followed by the navy and the army. The major portion of these funds would be used to procure aircraft and aero-engines. India is also in the process of finalising a contract for 126

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