Foreign Exchange Costs of the Indian Military 1950 - 1972

Abstract

From the day of Independence onwards, India has tried to find shifting compromises between three (partially) conflicting policy goals: (1) reducing foreign political dependence through non-alignment; (2) building up a strong defense apparatus; (3) minimizing the defense claim upon foreign exchange earnings in order to further economic growth. This article analyses the degree of success with respect to the third goal for the period 1950 - 1972. It presents quantitative findings about the burden of defense on the Indian balance of payments for the period 1950 - 1972. This burden is expressed in the estimated value of foreign exchange (US dollars of 1972) used for military purposes. Three components are distringuished: direct military imports (ready made military hardware); imports for defense industries; imports for civil industries which provide goods and services to the military sector. For each component and each year, dollar estimates are provided, based on whatever evidence could be found in published sources. Main sources used are those of Stockholm Internatio nal Peace Research Institute, and US Arms Control and Disarmament Agency. As India during the second halve of the sixties imported much military hardware from Communist countries under favourable credit arrangements, a method had to be found for converting these credits into their dollar-equivalent. The two-fold strategy of India for reducing the foreign exchange burden of an increased defense effort - especially after the traumatic military experience of the war with China in 1962 - was (1) to build up domestic defense industries; (2) in spite of non-alignment to accept increasing amounts of military aid. The second policy did have temporary positive effects during the first half of the sixties, but it appears that both policies were structurally inadequate to offer permanent relief to the Indian balance of payments. In the late sixties, the military claim on foreign exchange was nearly half the value of Indian civil imports of machinery and equipment.