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IDSA COMMENT

Defence Budget 2017-18: Beyond the Numbers

January 30, 2017

With the presentation of the annual budget for the next fiscal being just a few days away, there is no point in second guessing the size of the defence appropriation. Even so, it would be pretty safe to rule out any extraordinary hike in the allocation.

In last year’s medium term fiscal policy statement, the finance minister had mentioned that total defence expenditure, including the capital component, is estimated to be about 1.6 per cent of GDP in 2017-18 and 2018-19. Unless there is a huge spurt in GDP and reduced pressure from competing sectors allows sufficient elbow-room to the finance ministry, the defence budget is likely to grow by about 11 to 12 per cent over the Revised Estimate (RE) for the current fiscal, in keeping with the trend.

In that likely event, the same old issues that dominate the discourse on India’s defence budget are bound to resurface. Among them is the unrealistic demand that the defence budget be pegged at three per cent of GDP. Other issues include the idea of creating a non-lapsable pool of funds to conserve unutilised funds (especially under the revenue segment of the budget) which otherwise lapse at the end of the financial year in accordance with the government’s system of accounting. Further, the demand for ‘integration’ of the services headquarters with the ministry is bound to resurface with greater vigour. This is seen as a bulwark against the wily bureaucracy, which was recently uncharitably described as ‘feckless’ by a former naval chief.

The civilian bureaucracy, especially the bad boys of the finance division, are seen as the biggest hurdle in the swift processing of capital acquisition proposals and as responsible for derailing other demands, including one-rank-one-pension. Such a characterisation is grotesque, not least because it betrays a lack of dispassionate understanding of what ails the system and the tendency to discredit institutions.

Concerns will also be expressed about inefficient procurement procedures, inefficiency of the DRDO, Defence PSUs and ordnance factories, delay in introducing the strategic partnership model, the discriminatory treatment meted out to the private sector, and, above all, delay in appointment of the Chief of Defence Staff.

These issues, some of which are undoubtedly relevant, have gained greater legitimacy because of the Standing Committee on Defence joining the chorus. The counter-narrative is routinely ignored, if not deliberately suppressed.

Take, for example, the question of pegging the defence budget at three per cent of GDP. The defence and finance ministries have been of the view that the ‘co-relation of defence expenditure with GDP is just an indexation and has no bearing on defence preparedness’ or ‘to safeguard the interest of the country’. Even on practical considerations, the past trend and the various demands on finances, it is highly optimistic to expect that to happen. But these views were summarily rejected by the Standing Committee – and continue to be rejected by others – without pointing out why they are flawed and, more to the point, suggesting how this objective could be achieved.

Or, take, for example, the question of creating a non-lapsable pool of funds to conserve the unutilised allocation. The popular narrative is that this will solve many a problem but that it is not being accepted because the archaic ‘rules of business’ framed during the British Raj do not permit it. Nothing could be farther from the truth. First of all, unutilised balances are not held in cash. Even if a non-lapsable fund were to be created for rolling over these balances, the government will have to raise matching resources in the year in which these funds would be utilised. And, in any case, such an appropriation will require parliamentary approval.

All this can be found in various reports of the Standing Committee, along with what could be a startling revelation for some that, while the ministry of finance had agreed to the setting up of such a fund, ‘the Ministry of Defence, for reasons best known to them, asked us (the finance ministry) not to set it up’. This was more than a decade ago.

It makes little sense to borrow money only to hoard it, especially against the backdrop of repeated under-utilisation. More to the point, there are no ‘rules of business’ which come in the way. After all, we do have a non-lapsable pool of funds for the North Eastern Region. Yet, the narrative persists.

There is little discussion on how the integration of the service headquarters will pan out and what it will achieve. In fact, the underlying assumption in all this is that everything will fall into place once the civilian bureaucracy is replaced by the military bureaucracy since this will replace the perceived malady of ‘bureaucratic’ control of the armed forces with ‘political’ control.

For one thing, there is large scale delegation of administrative and financial powers down the line to the services, which undoubtedly need to be enhanced. Consequently, there is little interference in the day-to-day functioning of the armed forces by the MoD. There is little, if any, control that the MoD exercises especially in budgetary matters. It does not even have the time and the wherewithal to scrutinise the requirement of funds projected by the services and other departments.

That the armed forces do not get as much as they ask for is not because of the inability of the civilian bureaucracy to effectively plead the case before the finance ministry in the run up to the budget formulation, as many believe. It will be surprising if any ministry or department of the government gets whatever it asks for. Allocations depend on the ability of the government to raise enough resources and not bureaucratic machinations.

The post of Chief of Defence Staff, or permanent chief of the Chiefs of Staff Committee, is seen as a panacea for various ills besetting the defence establishment. He – and hopefully a she someday – might just be able to bring about greater jointness in planning and prioritisation of procurement, among other things, but cannot solve the real or perceived problem related to budgetary allocation.

With all the complexities of the procurement procedures, the MoD has been able to spend more than Rs. 5 lakh crore since 2002-03 on capital acquisitions, although around Rs. 50,000 crore was also under-spent during this period. This is not a small sum, but the point is whether the underutilisation is primarily, or largely, on account of procedural complexities.

It will be astonishing indeed if, after several revisions of the procurement procedure based on feedback from a cross-section of stakeholders, that the procurement procedure continues to be needlessly complex or even archaic. It is significant that the committee of experts set up by the government in 2015 did not recommend any drastic change in the basic architecture of the procurement procedure. There is always room for improvement though.

There is a need to go beyond these stale issues and have a more meaningful and dispassionate discussion on how to make the best use of the allocations made for defence. It also calls for taking steps that do not require widespread systemic changes, as these have a tendency to get mired in conflicting views. There is a need to respect institutions and individuals and not to carry out a campaign of vilification.

How about starting with instituting a system of outcome-oriented monitoring of important segments of the defence budget, the allocation for capital acquisition being one of them? Even the Standing Committee had recommended this last year. It will not take much effort to do so. It is also more likely to show results than a theoretical debate on micro-financial aspects of the defence budget. After all, in the words of Lao Tzu, the journey of a thousand miles has to begin with a single step.

Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.