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chapter 13 The Evolution of a Regional Military Power Following the 1971 war India enjoyed relative political and economic stability . The exception was the late 1970s, when the beleaguered prime minister , Indira Gandhi, declared emergency rule. The first-ever rejection of the Congress Party by the Indian electorate and the election of the Bharatiya Janata Party (bjp), which controlled the government from 1977 to 1979, followed this action. Indira Gandhi returned to power in 1980, and the Congress (I) Party essentially governed the country until the general election in May 1996. During this time the Indian economy grew at a modest rate, although in the post-1990 era the last Congress (I) government’s radical economic liberalization policies opened the floodgates of economic growth. For the military this has meant that although modernization and expansion programs have evolved slowly, the steady economic growth has resulted in many of the seemingly ambitious goals set in the 1940s finally coming to fruition.These goals have been achieved despite the outlay for defense hovering at around 3.5 percent of the gnp. However, because the Indian economy has grown at an average rate of 5 percent of the gnp since 1979 and 9 percent since 1988, the amounts allocated to defense since 1979 are far greater than in the 1960s and 1970s. Taking inflation into account, there was a 27.3 percent increase in defense allocations in 1985–86 and a 21.1 percent increase in 1986–87.1 Indian defense expenditure peaked in 1987–90, reaching $8.5 billion , or roughly 5.5 percent of the gnp. The defense budget increases were mainlydue to the economic success that India enjoyed in the mid-1980s,with low inflation being supplemented by a 5 percent rate of growth in the gnp. A steady increase in the gdp also offset defense-spending increases.2 By the early 1990s a severe budget problem had developed as India’s foreign exchange reserves plummeted. Although defense spending was only 4 percent of the gnp, it had to be reduced to about 2.5 percent. In fiscal year 1991–92 the defense budget increased by about 7 percent but actually fell in real terms, given the 17 percent inflation rate and the devaluation of 267 The Evolution of a Regional Military Power the Indian rupee.3 The problems appeared as early as 1988, when the government cleared the Seventh Defense Plan late that year; however, this was the plan’s fourth year with little if any funds to pay for it.The budgetary cuts had reduced the army to near bankruptcy,with no funds to pay salaries foralmost three months.4 So precarious was India’s financial situation that critics of the Narasimha Rao government alleged that it showed the World Bank a draft of the Eighth Five-Year Plan in mid-1992 (presumably to get loan approvals) before the Indian Parliament could debate it. By the mid-1990s, however, the economic liberalization policies of the Narasimha Rao government began to bear fruit. A reinvigorated foreign exchange reserve and the influx of foreign investment enabled an increase in defense spending. In 2001, according to theWorld Bank’s world development indicators, India was theworld’s fourth largest economy after the United States, China, and Japan.5 All three armed services have benefited from the increased levels of defense spending over the decades. The distribution of the defense budget between the services approximates to 70 percent for the army, 20 percent for the air force, and 10 percent for the navy. Since the late 1970s, however, the distribution ratio has altered in favor of the air force and the navy at the army’s expense.6 In 1970–71, for example, the army received 74 percent of the defense budget, but by 1980–81 it received only 66 percent. During the same period the capital allocation for the army also saw a drop, from 51 percent to 36 percent. To make matters worse, manpower costs (pay and pensions) absorbed an increasingly large portion of the army’s budget.7 The 1995 defense budget amounted to Rs 255 billion ($8.1 billion), a real increase of about 6 percent over the 1994 budget (Rs 235 billion, or $7.5 billion). By this time, however, the army’s budget had fallen 50 percent (Rs 125 billion), the air force budget stood at 16.3 percent (Rs 41 billion), while the navy got 12 percent (Rs 15 billion...


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