Indian defence budget surges by 10%

NEW DELHI—India raised its defence spending on Friday by 10 percent to $26.5 billion for 2008/09, but experts said a slow bureaucratic process could delay modernisation of the world’s fourth largest military.
The latest increase was above inflation but defence analysts said spending had fallen below 2 percent of GDP for the first time in at least a decade due to fiscal pressures and larger outlays for farm, health and education sectors. India seldom spends its entire budget allocation for defence because of red tape associated with arms purchases, and analysts said unless it clears pending deals faster, the budgetary allocation would not make any difference.
“We know that physical outlays don’t get translated into outcomes and when you consider this aspect with a below 2 percent spending of GDP, you know it is not a happy auguring,” C. Uday Bhaskar, former director of New Delhi’s Institute for Defence Studies and Analyses, said on Friday. “They have a long shopping list and every year all they have been doing is returning money as files have not moved.” India is planning one of its biggest ever arms purchases, a $10 billion deal to buy 126 fighter jets and U.S. Defense Secretary Robert Gates was in India earlier this week to push American bids for that deal.
It also has plans to spend $30 billion on imports over the next four years to modernise its largely Soviet-era arms as India asserts its military power in South Asia. But experts said politicians no longer saw defence as an urgent priority. “The bureaucratic system has become unresponsive, there is no urgency and they are not looking at defence as a national issue,” Ajai Sahni of New Delhi’s Institute for Conflict Management said. “There is no missionary purpose anymore.” At least 38 court cases relating to arms agreements are still pending against bureaucrats and military officers, and analysts say civil servants are afraid of signing contracts fearing more controversies.
India’s Congress-led government announced on Friday a 15-billion-dollar loan bailout for small farmers in a populist pre-election budget targeting the party’s traditional poor rural supporters. Finance Minister Palaniappan Chidambaram, releasing the budget for the year starting April 1 as India’s blistering economic growth has begun to slow, announced a 600-billion-rupee (15.05-billion-dollar) relief plan.
Some 30 million indebted farmers’ loans would be fully waived and another 10 million would receive aid, said Chidambaram, who presented the budget ahead of nine state elections slated this year followed by national polls in early 2009. He pledged to wrestle down the fiscal deficit and tame inflation. But the lack of any big corporate incentives along with the debt giveaway dismayed the stock market which tumbled nearly 1.4 percent.
“The country is discharging a deep debt and sense of gratitude to farmers” through the loan scheme, the Harvard lawyer said, adding the government wants “to make growth more inclusive” for those bypassed by the economic boom. As many as 150,000 debt-hit farmers have killed themselves in a decade, according to the Tata Institute of Social Sciences. The farm sector is key as it provides a living for nearly two-thirds of India’s 1.1 billion population.
T.N. Ninan, publisher of the daily Business Standard, called the relief plan “the single biggest giveaway in India’s fiscal and banking history” but questioned how it would be applied, noting many debts were to money-lenders. Congress is keen to maintain the support of poor voters, mainly in rural areas, who were seen as mainly responsible for its upset 2004 election victory.
Farm growth is forecast to slow to 2.6 percent this fiscal year from 3.8 percent the previous year, raising alarm among experts about India’s ability to feed itself. India’s benchmark 30-share Sensex index closed down 1.38 percent or 245.76 points at 17,578.72 after the minister spoke, struggling to be heard over opposition MPs denouncing what they called a “poll-centric budget.”
Chidambaram presented “a typical election-year budget dominated by spending increases on agriculture and social sectors ... and increasing income-tax exemption limits,” said Goldman Sachs economist Tushar Poddar.—Agencies