While Budget 2017-18 is upon us, the defence budget – the largest – deserves a closer look. The defence outlay for financial year 2016-17 was a whopping Rs 3,40,922 crore: Rs 82,333 crore (24.15%) on pension, Rs 1,62,759 crore (47.4%) on revenue spends and Rs 86,332 crore (25.32%) on capital acquisition. The sheer size, magnitude and complexity of the Ministry of Defence (MoD) and its multiple organisations, make any changes in outlays a challenging ask.
The Shekatkar Committee appointed by the MoD has already submitted its Report; hopefully its suggestions will help re-balance the defence budget – where revenue spends outstrip capital outlays by a long measure – while recommending measures to enhance the armed forces’ combat capabilities.
Reduce Replication of Assets
To begin with, reducing replication of capital assets without compromising on the three services’ individual roles is crucial not only for reducing cost, but also for true ‘jointness’. Scientific simulation methods to optimise common capital asset creation can help. Cost-centric analysis for each service, formation, and units will also help prioritise the mutually varying needs and facilitate decision-making – to add/retain or modify outlays.
A priority-based budget plan for cost-centres based on need for defence preparedness, threat perception and practicality, with needs categorised – (A) absolute; (B) medium to high; (C) medium to low – can be worked out with each dynamically reviewed on changing priorities and with percentages too varying across services.
With huge capital expenditure incurred in past years, the financial burden of maintenance of systems acquired will, naturally, weigh heavy in the foreseeable future. A comprehensive policy for maintenance of inducted weapon systems – both Indian and foreign – keeping in view the Make in India policy, will therefore need articulation.
Similarly, there’s a need to streamline policy for maintenance through Indian-deemed OEMs or foreign OEMs/government-nominated Agencies, benchmarking costs of maintenance, escalation percentages with foreign vendors (especially Russian-origin in the wake of the depreciated rouble) etc in order to bring down the repair and maintenance costs of inducted systems incurred with foreign vendors who leverage monopolistic situations. What we need is an analysis exploring possibilities to breach this monopoly by Indian industry with an assured order to kick-start indigenous production of spares.
Utilise Vast Tracts of Defence Land
That said, the need for optimal resource utilisation can’t be overlooked. Nor can the many other issues that seem insignificant – for when aggregated, they tote up to sizeable numbers; they need drastic tinkering and fine-tuning. Expansion of alternate sources of non-conventional energy is one such; solar energy in vast tracts of available defence land will also help promote a response to climate change. MoD, incidentally, is India’s largest holder of land.
The colonialist has left, but the mindset hasn’t; the vast tracts still remain amid turf battles and mounting pressure to house India’s billowing population. Close scrutiny will help identify surplus defence land for non-defence use. Even the vast defence lands and buildings must be leveraged to gain revenue.
Sadly, the revenue generated through commercial utilisation of defence land is siphoned off to non-public/regimental funds with only a pittance credited to the government account. A ballpark figure will suggest diversion of Rs 5,000 to 6,000 crore in the last 40 years; in reality, it could be a lot more; maybe more still if indexed to the present value of money.
What’s galling is the ingenious way adopted to siphon off these funds; splitting the license fee into two components: Administrative Charges (Rebate) and License Fee – the bulk (rebate) going to the Non-Public Fund/Regimental Fund and a minuscule (License Fee) amount to the government account.
The Parliamentary Committees have scathingly criticised such haemorrhaging of government revenue. In 2013-14, the Public Accounts Committee had directed the ministry to formulate policy to realise government dues from commercial utilisation of defence land within six months.
Three years later, nothing has changed. A similar diversion of funds is endemic in the running of various Guest Houses/Transit Facilities, and commercial utilisation of land for golfing. It’s shocking that despite severe indictments by Parliamentary Committees, far from plugging such reprehensible and depraved motivations, they go on undeterred.
End Foreign Junkets
Such impulses, like numerous fun-filled, even frivolous and trumped-up visits abroad (Pre-Despatch Inspection [PDI]) involving spending huge government funds abroad rather than Joint Receipt Inspection (JRI) in India at sellers’ cost, to cite an example), lavish and conspicuous consumption, showing up India-Bharat as a veritable twin-nation, are sheer anachronisms in any modern democracy.
Very few inside the government, even in the MoD, know that the taxpayers pick up the tab (Business class airfare and per diem) for the Army/Air Force/Naval Chiefs’ spouses’ visits abroad. It sounds surreal but the truth is this relic of the Raj continues to this day – a good 70 years after independence! What seems a pittance in the huge defence outlay is citizens’ hard-earned money!
While no one can question the defence need, we can’t miss the woods for the trees: there’s a limit to government spending on insurance; unmistakably every rupee spent on defence is a rupee denied to development.
Sadly, the MoD’s vision on budget outlays isn’t inclusive; most fail to grasp the full picture – the taxpayers’ money sits lightly on their collective consciousness. Important social ministries get crumbs, just a few hundred or thousand crore, for the huge job they’re tasked with. They’re forever starved; denied additional funding on important programmes – not because their needs aren’t appreciated by the finance ministry, but because precious little is left in the kitty.
Sadly, the parliamentary committee examining the detailed demands for grants too fails to take a holistic view, often swayed by the Services’ blinkered vision trotted out with patriotic vehemence and ebullience. While all Indians are equal, some sure are more equal than others!
Need for Greater Accountability
It’s time to fully exploit the DRDO’s potential by dovetailing the Services’ demands with theirs through joint accountability and creating a convivial ecosystem in quest for ‘Make in India’. Aeronautical Development Agency’s (ADA) LCA is a shining example; just that the faith has been reposed belatedly only now. Realistic project completion timelines and costing with strict monitoring and deterrence (financial and technical) are crucial; delays demand joint ownership, explanation, accountability and traceability. Apart from huge savings, it’ll be hugely gratifying.
In the spirit of propriety for spends from the public funds, accountability can be embedded by hugging FRBM principles to ensure inter-generational equity in fiscal management, long-run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operations of the MoD.
In the spirit of propriety for spends from the public funds, accountability can be embedded by hugging FRBM principles to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operations of the MoD.
In the spirit of propriety for spends from the public funds, accountability can be embedded by hugging FRBM principles to ensure inter-generational equity in fiscal management, long run macroeconomic stability, better coordination between fiscal and monetary policy, and transparency in fiscal operations of the MoD.
With the risk of broken confidentiality and compromised secrecy looming large over national security, limited disclosure as deterrence can be considered, with nodes provided to relevant functionaries in the MoD, Services Headquarters, CGDA and other important functionaries who are already part of decision-making.
Yet the need for transparency in other areas – especially in Revenue non-salary, non-core procurements – ought be via e-procurement as per existing orders, by generating supply orders and contract agreements through the system in real-time with access granted to all stakeholders in line of activities, such as higher CFAs, financial advisers and internal audit. Thus enabled, internal audit can carry out concurrent audit and take care of sanction audit with a simultaneity that will facilitate quick transparent payment, which remains another bugbear and has immense scope for corruption.
Focus on Quality of Expenditure
There is yet more scope to delegate to cut delays, prompt every layer to value-add, and take responsibility. While the DFPDS-2016 has set the tone with more delegation, it has suggested greater accountability through transparency by leveraging technology, aided by concurrent audit that’ll throw up poor decision-making to deter malfeasance/misfeasance and mismanagement of public funds.
Going forward, more innovative and non-intrusive ways of Internal Control Risk Management (ICRM) framework and oversight mechanism will have to be injected into the system.
Budgetary outlays are mere estimates of likely expenditure. It is likely spends are asymmetrical, often with residual funds available in the last fiscal quarter.
The focus hence should be on quality of expenditure, not on full utilisation of budgetary outlays, and allaying the popular misconception that non-spending leading to lapse of funds is a sign of management failure.
It’s time we moved out of this past vestige by reposing faith in public officials who abhor invasion of market economy values to sculpt a virtual market society that has no place in a regimental order. Outcome-oriented qualitative transparent expenditure with clear deliverables – tangibles and non-tangibles – must take centre-stage rather than mere typecast quantitative utilisation of budgetary outlays.
(The author is a former Financial Advisor, Defence Services in the Ministry of Defence. He can be reached @MohantyMohanti . The views expressed above are the author’s own. The Quint neither endorses nor is responsible for the same)
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