IDSA Special Feature Nature, Quantum & Components of Defence Expenditure and Defence Pensions IDSA Team IDSA was tasked by the 7th Central Pay Commission in July 2014 to conduct a study on the “Nature, Quantum & Components of Defence Expenditure and Defence Pensions”. The Terms of Reference November 30, 2015 (TORs) required IDSA to: Analyse the nature, quantum and components of Defence Expenditure from 1995-96 to 2013-14 with a specific focus on salary versus non-salary component. How this compares with similarly placed counties may also be analysed in detail. Further, in this non-salary component, the expenditure on modernisation of armed forces and Summary upgradation may separately be highlighted. IDSA was tasked by the 7th Central Pay Commission in July 2014 to conduct a study on the “Nature, Quantum & The impact of the implementation of the Fifth and Sixth Pay Commissions' recommendations on the Components of Defence Expenditure and Defence Pensions”. The Terms of Reference (TORs) required IDSA to: pattern and composition of defence expenditure, time frame in which the additional expenditure on ?Analyse the nature, quantum and components of Defence Expenditure from 1995-96 to 2013-14 with a specific salaries and emoluments, in relative terms, was absorbed. focus on salary versus non-salary component. How this compares with similarly placed counties may also be Analyse the quantum and components of expenditure on defence pension from 1995-96 to 2013-14. analysed in detail. How this compares with similarly placed counties may also be focused upon. ?Further, in this non-salary component, the expenditure on modernisation of armed forces and upgradation may The manner in which defence pensioners' liabilities are financed in similarly placed countries may be separately be highlighted. focused upon. ?The impact of the implementation of the Fifth and Sixth Pay Commissions' recommendations on the pattern Compare the salary structure of personnel in the Indian Defence Forces with those in similarly placed and composition of defence expenditure, time frame in which the additional expenditure on salaries and countries, preferably in purchasing power parity (PPP) terms. emoluments, in relative terms, was absorbed. Analyse the relationship of Defence Expenditure with the Central Government Expenditure and the ?Analyse the quantum and components of expenditure on defence pension from 1995-96 to 2013-14. How this GDP from 1995-96 to 2013-14. compares with similarly placed counties may also be focused upon. Analyse the Defence Expenditure of the neighbouring countries from 1995-96 to 2013-14. ?The manner in which defence pensioners' liabilities are financed in similarly placed countries may be focused upon. ?Compare the salary structure of personnel in the Indian Defence Forces with those in similarly placed countries, preferably in purchasing power parity (PPP) terms. ?Analyse the relationship of Defence Expenditure with the Central Government Expenditure and the GDP from 1995-96 to 2013-14. Chapter 1 Introduction 1 INTRODUCTION 1.1 The Institute for Defence Studies and Analyses (IDSA) is a non-partisan; autonomous body dedicated to objective research and policy relevant studies on all aspects of defence and security. Research at the Institute is driven by a comprehensive agenda and by the need to provide impartial analyses and policy recommendations. 1.2 IDSA was tasked by the 7th Central Pay Commission vide Work Order Number 7th CPC/62/Studies/IDSA/2 dated 16-07-2014 for conducting a study on “Nature, Quantum & Components of Defence Expenditure and Defence Pensions. The Terms of Reference (TORs) require IDSA to • Analyse the nature, quantum and components of Defence Expenditure from 1995-96 to 2013-14 with a specific focus on salary versus non-salary component. How this compares with similarly placed counties may also be analysed in detail. • Further, in this non-salary component, the expenditure on modernization of armed forces and upgradation may separately be highlighted. • The impact of the implementation of the Fifth and Sixth Pay Commissions’ recommendations on the pattern and composition of defence expenditure, time frame in which the additional expenditure on salaries and emoluments, in relative terms, was absorbed. • Analyse the quantum and components of expenditure on defence pension from 1995-96 to 2013-14. How this compares with similarly placed counties may also be focused upon. • The manner in which defence pensioners’ liabilities are financed in similarly placed countries maybe focused upon. • Compare the salary structure of personnel in the Indian Defence Forces with those in similarly placed countries, preferably in purchasing power parity (PPP) terms. • Analyse the relationship of Defence expenditure with the Central Government expenditure and the GDP from 1995-96 to 2013-14. • Analyse the Defence expenditure of the neighbouring countries from 1995-96 to 2013-14. MEHODOLOGY 1.3 A team was formed at IDSA to carry out this study. The team after deliberations decided that the importance and the usage of the data by the 7th CPC for its report requires that the data be collected from primary sources in the public domain: country specific websites or alliance websites e.g. European Defence Agency etc. and United Nations (UN) websites and the data for Indian Defence Expenditure will be collected from Defence Services Estimates (DSE) Vol I. Controller General of Defence Accounts (CGDA) was requested for greater detailed information on Pension & Pay and Allowances beyond those available in DSE Vol I to carry out detailed analysis. Economic Survey and Union Budget (of the relevant years) would be the source documents for GDP and Central Govt expenditure. 2 Comparison with Similarly Placed Counties and Neighbouring Countries 1.4 The TORs also required the study to compare India’s defence expenditure with similarly placed counties and analyse the Defence expenditure of the neighbouring countries. This required objective selection of the countries at the initial stage itself so as to focus the efforts on the specifically selected countries. These countries were shortlisted by taking the list of top defence spending countries for the year 2013 by two of the internationally recognised institutes i.e. Stockholm International Peace Research Institute (SIPRI) and International Institute for Strategic Studies (IISS). Table 1 LIST OF COUNTRIES BY MILITARY EXPENDITURE (IN BILLION US $) Stockholm International Peace International Institute for Research Institute (SIPRI) 2013, Strategic Studies (IISS) 2013, based on current market using average market exchange Rank exchange rates rates Country Amount Country Amount World total 1747 World total 1595.1 1 USA 640.0 USA 600.4 2 CHINA 188.0 CHINA 122.2 3 RUSSIA 87.8 RUSSIA 68.2 4 SAUDI ARABIA 67.0 SAUDI ARABIA 59.6 5 FRANCE 61.2 UK 57.0 6 UK 57.9 FRANCE 52.4 7 GERMANY 48.8 JAPAN 51.0 8 JAPAN 48.6 GERMANY 44.2 9 INDIA 47.4 INDIA 36.3 10 SOUTH KOREA 33.9 BRAZIL 34.7 11 ITALY 32.7 SOUTH KOREA 31.8 1.5 Brazil and Italy feature only in one list, to restrict the number of countries to manageable number of 10 (Ten) and also include Pakistan, Saudi Arabia, Brazil & Italy were excluded. 3 CHAPTER – 2 Defence Expenditure 4 Defence Expenditure 2.1 All countries developed, developing, under-developed, rich or poor, stable democracies or any other form or kind of regime have an insatiable need for resources for development and the wellbeing of their people. Development of the country & prosperity of its people need a peaceful environment for economic activity to thrive and generate resources for the Government to enable it to collect revenue and spend for the general good. While there are well-evolved parameters that measure the state of the economy e.g. GDP, rate of growth of GDP, Per capita income etc., the federal structure of a country is unique and decides what resources the government at the national level can raise and what can it retain. Irrespective of the federal structure, the responsibility of National Defence is always that of the federal or the central government. The defence expenditure is to be met out of these resources and it has to compete against other social, welfare and developmental needs. The debate is never Bread vs. Guns as both are needed but what is adequate for each within the limited resources. Defence expenditure as a % of the GDP or of the Central Govt expenditure are some of the parameters used to express and compare but what is needed is to be determined by each nation based on its threat perception, the Global and Regional role it perceives for itself in the League of Nations. Each country articulates its threat perception, security strategy and the policy to counter the perceived threat which identifies the ways and means to achieve it both as goal for long term planning and also share it with its citizens so as to mobilise the whole of Government behind the protection of the country’s security interests. The military means of achieving the aim requires capabilities illustrated in the figure below. The periodicity at which these are 21 articulated and issued varies and some choose to call it a ‘Defence White Paper’ or ‘National Security Strategy’. Figure 1 Capability Acquisition' Defence*Industrial*Base* Research*and*Development* O War*Wastage* THREAT' P Maintenance'and'Supply'Chain' Reserve* E ManagementProcurement' * (WWR)* R PERCEPTION ' A T In*Service*Support* I Storage*and* POLICY O N Distribution* S* ' INFRASTRUCTURE* CREATION* MAINTENANCE* Basic*Ab<initio*Training* Advanced*In<Service*Training* Manpower' 5 Before we look at the Defence expenditure of each of the selected ten countries, an idea of what is their threat perception, their strategy to prepare for the perceived threat and the role they expect to play on the global or regional arena. These documents are very comprehensive and elaborate but for the purpose of this study select excerpts have been summarised and are given in the succeeding paragraphs.