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. 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.
(Reproduced from The Quint)
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