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Experts advocate increasing defence budget

Experts have called for measures to increase India's gross domestic product so that the defence budget can be expanded to meet conflicts like that in Kargil.

An increase in defence spending from 2.4 to 3.5 per cent of the GDP will help in the modernisation of equipment for the forces, according to former foreign secretary J N Dixit.

''Pakistan's withdrawal from Kargil is the end of an episode in the conflict. I anticipate a series of similar conflicts in Kashmir," he said during a discussion on 'Kargil conflict's economic implications.'

The participants in the discussion included former head of military operations Lieutenant General H Kaul, senior fellow at the Institute of Defence Study and Analysis Brigadier Surjeet Singh, Secretary (economic) at the Ministry of External Affairs A N Ram, Professor at the Indian Council for Research on International Economic Relations Sanjaya Baru and journalists Inderjeet and C Raja Mohan.

General Kaul said India will have to spend huge sums on guns and ammunition: ''Wars are expensive but we must have a credible deterrent for security purposes.''

Baru said India is not a big defence spender and is capable of absorbing an increase of an additional one percentage of GDP for defence over two to three years without much difficulty.

He said the cost of a limited military engagement is included in the existing budget. The only additional spending was the cost of transportation to forward posts.

Baru said India must not fall into the trap of external borrowings in the long run. The inflation rate is down to two per cent or so; even if it goes up by two to three per cent, it should not cause any alarm.

''Indians have generally welcomed the positive attitude of the global community on the Kargil conflict. India must reciprocate this sentiment by becoming a more open economy, which enables it to create relations of mutual benefit and interdependence so that the world has a greater stake in India's stability and prosperity,'' Baru said.

Other experts said, besides an inevitable impact on the fiscal deficit, government borrowings, trade, capital inflows and pressure on the rupee, there are possible implications on overall economic development and deterioration of plan prospects, depletion of oil inventories and, also, adverse effect on the reform process.

It is estimated that the defence expenditure of Rs 456.94 billion for the current year will be exceeded. The share of defence in the total spending of the government had been stabilised at around 15 to 16 per cent of total expenditure.

It is likely that the outbreak of hostilities will push up the share of defence spending from the projected 16.1 per cent in 1999-2000 and take it closer to 20 per cent of the total government expenditure. The fiscal deficit in 1999-2000 was projected to be Rs 799.55 billion. This amounts to four per cent of the GDP. An increase of around Rs 100 billion will push up the fiscal deficit by 0.5 per cent of the GDP, to 4.5 per cent.

This will mean that the government borrowing will exceed the budgeted figure. This will exert an upward pressure on interest rates, thereby affecting the availability of credit.

The balance of trade may worsen as a result of increase in imports on account of defence purchases. This will have an adverse effect on the current account position.

So far, the investors have been showing confidence in the economy. But if the hostility persists and extends to other sectors, this confidence in the economy will be derailed resulting in a slower growth of reserves or even a decline in absolute terms.

Despite the above, commerce and industry organisations said the Indian economy has exhibited resilience to withstand the effects of the crisis: Indian economy has been growing at an average rate of six per cent, the foreign exchange reserves position is very sound, there is enough buffer stock of food grains, the country has been rated as moderately indebted and has not defaulted in debt servicing.

On the other hand, the economic indicators for Pakistan show that it is going through tough times: the economic growth rate has been less than three per cent, foreign exchange reserves stand at less than a billion dollars, the Pakistani rupee is under tremendous pressure, the magnitude of their external debt is unmanageably high.

Given these facts, Pakistan's ability to sustain a war purely on economic conditions is suspected, the commerce organisations hold.

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