Even if the MoD does tell FinMin to be concerned towards national defence, the latter cannot provide the funds required because it doesn’t have them.
The sinews of war, wrote Cicero, are infinite money. This is where the shoe pinches—and will continue to pinch so long as economic and foreign policies remain wedded to the Nehruvian imperative of ignoring the need for defence spending. Our armed forces need to spend more on arms and armaments but, as the Parliamentary Standing Committee on Defence pointed out recently, are unable to do that because the exchequer is badly strained as a consequence of the costs of the Wuhan virus.
The Nehruvian policy aristocracy—comprising policy and decision makers who are socialist by education and temperament—continues to disdain the business class. Consequently, they keep coming up with rules, regulations, and compliances that torment entrepreneurs. Unsurprisingly, the wealth creators are not very keen on investing in India; many of them, with their moneybags, are shifting to countries where enterprise is respected. As a result, growth stays sluggish; in fact, it was declining even before the Covid pandemic and the ensuing lockdowns hit economies all over the world. And now growth is K- rather than V-shaped; inequalities are growing and the bottom of the pyramid is getting crowded. The exchequer gets further strained because of all this.
And what gets done in such situations? Cutting defence expenditure—that is, apart from driving away businesspersons with compliances and rising tax demands. At a time when the military confrontation with China in eastern Ladakh shows no signs of de-escalation, and the China-Pakistan collusion is fast extending from the land borders to the high seas, the Indian armed forces got around Rs 63,000 crore less for modernization than what they had asked for in the 2022-2023 budget, the Times of India reported on 17 March.
All services suffered. The Army got only Rs 32,115 crore when it had projected a requirement for Rs 46,844 core under the capital outlay. The IAF got Rs 56,852 crore instead of Rs 85,323 crore, while the Navy got Rs 47,591 crore instead of Rs 67,623 crore. In March 2012, the then Army chief, General V.K. Singh, had written a letter to Defence Minister A.K. Antony, informing him of the serious shortage of ammunition. The General had expressed his fear that in the event of war, it may run out of stocks in two days. Now that General Singh himself is a Union Minister, what does he have to say? Has anything changed in the last decade?
The committee, in its reports tabled in Parliament, said that the aim should be to induct “capital-intensive modern machines, which are imperative to tilt the result of war in our favour and also increase the deterrence capabilities of our country.” It also said the Ministry of Defence should ask the Finance Ministry “to not curtail the projected amounts as this results in reprioritization of schemes/activities, which might end up compromising operational preparedness.”
Even if the MoD does tell FinMin to be concerned towards national defence, the latter cannot provide the funds required because it doesn’t have them. The Goods and Services Tax crossed the Rs 1.3-lakh-crore mark in January, but social welfare schemes are expensive for the exchequer. What is more harmful is the persisting statist attitude which results in tight regulation. The corporate sector somehow negotiates byzantine regulations but startups and micro, small and medium enterprises (MSMEs) often get lost in the labyrinth of compliances and rules. As many as 5,907 businesses registered with the MSME Ministry were shut during 2020-21 and 2021-22 (till March 9, 2022), according to the government data. Nobody is likely to know how many were actually shut down, for not all MSMEs are registered.
Then there is the GST. Ritesh Kumar Singh, a business economist and CEO, Indonomics Consulting, a policy research and advisory startup, recently wrote that “multiple rates and never-ending filing and reporting requirements have turned the GST regime against smaller businesses and first-time entrepreneurs. No wonder, out of 6.3 crore enterprises (the latest available data from NSSO 2015-16), only 1.34 crore have joined the GST network. There is no official data on how many firms have cancelled their GST registrations. But anecdotal evidence suggests that an increasing number of small businesses are either de-registering, and/or trying to remain small by not letting their sales turnover increase the threshold of Rs 20 lakh for services firms and Rs 40 lakh for manufacturing entities, above which GST registration is mandatory.” Thresholds unrealistically low in the first place.
It is not that the problem is new or was not pointed out earlier. A year ago, the Confederation of All India Traders (CAIT) had written a letter to Prime Minister Narendra Modi seeking his intervention on the “complicated” GST. CAIT is run by Praveen Khandelwal, an activist with links to the Sangh Parivar. “Much against the public announcements on GST, the GST Council has made the GST as the most complicated tax system which runs contrary to ‘ease of doing business’ mandate of the government,” said Khandelwal. While the authorities have been given arbitrary and unfettered powers, including the power to issue show-cause notice, the opportunity of hearing has been denied to the alleged offenders, CAIT said.
In a country where the state keeps arrogating huge powers to itself and, concomitantly, subjects wealth creators to arbitrary rules, it would not be possible to expect a comfortable fiscal situation. And when that happens, everything feels the strain, not excluding national defence.
The author is a freelance journalist.