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Focus on defence funds utilisation

NEW DELHI: Ever since the Kargil war, the government has been pumping money into the purchase of advanced weapon and surveillance platforms. The outlay for the defence sector, particularly on the capital account, has been growing year after year. And the coming budget will prove to be no different with Defence Minister A.K. Antony having gone on record saying that his Ministry has sought more money.

Little is authoritatively known about the exact quantum of increase sought but if the past trends are any indication, the allocation on the capital account seems set to go up by 10 per cent, which will translate into a 6-7 per cent increase over the current fiscal’s allocation of Rs.96,000 crore. Thus, for the first-time ever, the defence budget is likely to breach the Rs.1-lakh crore mark due to the hike in the capital outlay alone.

The long-term intention is to improve the ratio on capital account compared to the revenue allocation.

Senior defence finance officials say the aim in the long term is to ensure that capital outlays account for at least 60 per cent of the budget. But this could be derailed if the Sixth Pay Commission recommendation is implemented and the government fails to break the resistance of the armed forces, especially the Army, to downsize the huge manpower.

However, more important than the actual allocation is the manner in which the funds are utilised and whether policies intended to accomplish complementary objectives are properly implemented.

According to estimates, India plans to spend close to Rs.1,80,000 crore ($45 billions) over the next five years to purchase new weapon systems. The government has set for itself two objectives, besides the main aim of avoiding the situation faced at the time of the Kargil war when military transport planes landed at night in New Delhi carrying emergency supplies of spares and ammunition from Moscow and Tel Aviv.

The situation forced the then Chief of the Army Staff to comment that “we will fight with what we have,” which was a shorthand for “there is nothing in the godowns and ordnance depots.”

The Ministry has lagged in spending the funds, putting a serious question mark over the existing structure’s ability, confidence and integrity to handle purchases running into thousands of crores for one type of military platform alone. Every year funds have been surrendered at the end of the fiscal year or reduced at the revised estimates stage after it became clear that the Ministry would not be able to spend the entire allocation. There is also a rush for expenditure at the end of the year.

By hurriedly inking contracts at the closing stages of the financial year, the government lands itself in a financial mess as has been the case with the Russian aircraft carrier. To tide over this problem, which affects at least one big-ticket purchase every year, the Finance and Defence Ministries need to coordinate better.

This requirement has become particularly acute as the United Progressive Alliance government has clearly expressed itself against a non-lapsable rolling fund for capital purchases whose allocation does not lapse with the end of the financial year.

The coming budget may provide a break from the practice of surrendering funds every year, if the assurance from Mr. Antony is any indication. He is confident of his Ministry utilising the entire allocation this year although a couple of major purchases did not fructify. How this is accomplished will be an issue of major interest when the budget papers are tabled in Parliament on February 29.

The two complementary objectives are to leverage defence purchases for diplomatic gains and to ensure that the Indian industry, private as well as public, benefits from the massive purchases in the pipeline.

While the first objective falls outside the budgetary parameters and hinges on appropriate exertions by the Foreign Office, the second is squarely in the domain of the Ministries of Finance, Defence and Industry.

Now that the government has convinced itself that ‘offsets’ are the right path for the development of a vibrant defence industry, it is time that other aspects of the plan begin moving at a rapid pace.

More than 15 months after the government announced its intention to declare some corporates Raksha Udyog Ratnas (RURs), which will be allowed to partner the government’s defence science establishment to make products, the issue remains tangled.

Finance Minister P. Chidambaram could remove the misgivings of the one-lakh plus workforce of the defence public sector undertakings and ordnance factories by giving them more freedom to operate and enter into tie-ups. But he needs to announce some incentives for the RURs so that their efforts do not remain an exercise in gold plating. Then there is the issue of monitoring the offsets.

According to the Transparency International, offsets have the potential to become a major source of corruption if they are not properly negotiated and tracked. The present department of offsets is too small to perform both these tasks adequately. It is time the department was expanded suitably and given more autonomy for it to discharge the obligations and ensure the industry does not remain a bystander as the nation continues its weapons-buying binge.

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