The world's biggest defence budgets

The ten biggest defence budgets for 2010 add up to a total of more than $1.1 trillion, according to the latest Military Balance report from the International Institute for Strategic Studies (IISS), a think-tank. The defence budget of America alone, at $693 billion, accounts for more than 60% of the total. But when defence spending is compared to the overall size of each country's economy, Saudi Arabia tops the list. It spends over 10% of GDP on defence, more than double the proportion spent by America. China ranks second in the world's biggest defence budgets (spending some $76 billion) and also boasts the largest armed forces. Only America, India, Russia and North Korea (not shown) have more than 1m military personnel. Defence budgets have grown since 2005, but the balance of military power may be shifting. Western countries, many of which are engaged in Afghanistan, now face budget constrains and cuts, whilst emerging economies, such as Brazil and China, have increased military spending in line with economic growth.

Defence Budget 2013-14: Key Statistics

With the modest growth in the new defence budget, its key indicators show a downward revision except for the percentage share of the capital expenditure in the total defence budget (see Table I). Of note is the further decline of the share of the defence budget in GDP, which is now the lowest over the past five decades since 1961-62 when it was only 1.66.

Table I: Comparative Statistics of Defence Budgets, 2011-12 & 2012-13

	2012-13	2013-14
Defence Budget (Rs. in Crore)	1,93,407.29	2,03,672.12
Growth of Defence Budget (%)	17.63	5.31
Revenue Expenditure (Rs. in Crore)	1,13,828.66	1,16,931.41
Growth of Revenue Expenditure (%)	19.55	2.73
Share of Revenue Expenditure in Defence Budget (%)	58.85	57.41
Capital Expenditure (Rs. in Crore)	79,578.63	86,740.71
Growth of Capital Expenditure (%)	15.00	9.00
Share of Capital Expenditure in Defence Budget (%)	41.15	42.59
Share of Defence Budget in GDP (%)	1.90	1.79
Share of Defence Budget in Central Government Expenditure (%)	12.97	12.23

Note: Rs. 1.0 crore = Rs. 10 million = US$ 183,637.4 (as per the average exchange rate for the first 11 months of 2012-13)

Share of Defence Services

The Army with an approximate budget of Rs. 99,707.8 crore accounts for 49 per cent of the latest defence budget, followed by the Air Force (Rs. 57,502.9 crore), Navy (Rs. 36,343.5 crore), Defence Research and Development Organisation (Rs. 10,610.2 crore) and Ordnance Factories (Rs. 508.7 crore) (see Figure I). It is noteworthy that compared to the previous budget, the Air Force is the only service which has increased its share in the total defence allocation (from 24.9 per cent to 28.2 per cent). The Navy’s share has decreased the most (by 1.4 percentage points), whereas the Army’s and DRDO’s shares have declined by 1.3 and 0.3 percentage points, respectively. It is also noteworthy that except for the Air Force, which has seen an increase in both the revenue expenditure and capital expenditure, the others have a decline in one of these heads.Figure I: %Share of Services in Defence Budget 2013-14

Note: Share of services is exclusive of the Rs. 16.5 crore allocated under the heads of ‘Inspection’, ‘Prototype development under Make Procedure’ and ‘Others’.

Impact on Modernisation

The Indian armed forces are on a massive modernisation process, although the intensity varies from one service to another. Besides the existing ones, contracts worth several billions of dollars are expected to be signed in 2013-14. Among the services, the Air Force, the most capital intensive service, is expected to sign the $15-20 billion contract for 126 French Rafale fighters early in the next financial year. Besides, it has already selected the prospective suppliers for at least three more big contracts – 22 Boeing AH-64D Apache Longbow attack helicopters ($1.2 billion); 15 Boeing CH-47F Chinook heavy lift helicopters ($1.4 billion), and six Airbus A330 Multi Role Tanker Transport ($1.0 billion) – which are expected to be signed in the near future. The Navy is also expected to sign a $1.0 billion contract for 16 multi-role helicopters, which is at an advance stage of vendor selection. The Army on its part is hoping that its much delayed artillery programme finally gets going in 2013, with the procurement of 145 ultra-light howitzers ($647 million).

Given the long list of new acquisition proposals, the question is how much the new defence budget supports it. It is most noteworthy that the modernisation budget is earmarked for committed liabilities, with little money available for new schemes. For instance, for the years 2011-12 and 2012-13, the overall ratio between these stands at roughly 85:15, although there exists a significant variation among the services and between the years. Nonetheless, assuming the same ratio in the new allocation, total available funds for new schemes would be little over Rs. 11,000 crore, which is probably enough for the first stage payment towards the Rafale deal. This means that there is very little money available for other new schemes including of the Air Force, which, despite having a 30 per cent hike in its modernisation budget, would still need more money to sustain its modernisation drive. For the Army and Navy, the resource constraint is more severe, with negative growth in their respective modernisation budgets (Table II).

Table II: Allocation for Modernisation of Armed Forces

	BE 2012-13 (Rs in Cr)	RE 2012-13 (Rs in Cr)	Under/over Spending (Rs in Cr)	Under/over Spending (%)	BE 2013-14 (Rs in Cr)	% Growth of BE 2013-14 over BE 2012-13
Army	13804.02	11568.76	2235.26	16.19	13327.04	-3.46
Navy	24151.51	17651.51	6500	26.91	23478.78	-2.79
Air Force	28503.9	28575.99	-72.09	-0.25	37048.06	29.98
Total	66459.43	57796.26	8663.17	13.04	73853.88	11.13

Note: In columns 4 and 5, plus figures denote under-utilization and minus figures over-utilization.China and Russia could be put in the category of potential adversaries.

Another way to visualize this is to combine all the world’s military spending together. At the height of the Iraq war, U.S. spending was above half of all the world’s military spending, but is now down to slightly above 40% of all military spending. Sequestration would take it down by about 2 percentage points more of the pie, roughly 38% of all global military spending, excluding any likely contingency or war spending.

Indeed, it is only in terms of percent of GDP that the U.S. is not ahead, in second place to Saudi Arabia. But here again, sequestration doesn’t change the overall ranking.