Rationale for Performance Oriented Defence Budgeting

Chair: V. K. Misra
Discussants: Amit Cowshish and Sujeet Samaddar

India’s security comes with a huge price tag. In 2009-10, the defence budget reached Rs. 1,41,703 crores, representing nearly one-seventh of total central government expenditure and 2.35 per cent of the gross domestic product. Such a huge financial outlay raises questions as to how funds are allocated and what outcomes are being achieved. Does the defence budget provide the answers?

The budgeting system, in the form of Defence Services Estimates (DSE), follows ‘line-item’ budgeting. Total resources are provided in six demands for grants (catering to both the revenue and capital expenditures of the Defence Services), which in turn are subdivided into various revenue and capital items such a ‘pay and allowances’, ‘stores’, ‘works’, ‘aircraft and aero engines’, ‘naval fleet’, ‘heavy and medium vehicles’, among others. So the budget in essence does not provide information on expenditure on various capabilities or programmes that the country is acquiring to meet its security threats. Neither does the budget reflect the physical progress of various programmes on which massive investment is incurred. In other words, the intended outcome of the budget vis-à-vis security threats or the defence policy cannot be deduced from the existing system of budgeting.

To move towards a visible and outcome-oriented budget, the Ministry of Finance (MoF) since 2005 has issued guidelines emphasizing the link between financial budgets and actual and targeted performance of outlays. The guidelines task the central Ministries/Departments to articulate, among others, a list of major programmes/schemes and the goals and policy framework guiding them. The main objective of the exercise is to “establish one-to-one correspondence between the (financial) budget … and Outcome Budget…” However, the Ministry of Defence (MoD), along with 30 Ministries/Departments has been ‘exempted’ from preparing outcome budget. The exempted Ministries/Departments are however ‘requested’ to prepare outcome budget for ‘internal use’ and voluntarily decide the extent to which the general public can have access to it.

In the above context, the MoD has taken the initiative of formulating Defence Services Estimates, Vol. II (DSE, Vol. II), and making it mandatory for some of its institutions to prepare the outcome budget. The DSE, Vol. II, which currently is meant for “internal use” falls short of the parameters laid down by the MoF for preparing the outcome budget. It merely expands the item- or head-wise allocations made in DSE and, in addition, provides “Budget holder-wise summary sheets.” In no way does it relate the financial outlays with the intended outcomes. The major problem with the institutions that prepare outcome budgets are that their ‘outcomes’ are organisation specific and have ‘weak linkage’ with the overall plan of the MoD.

Arvind Kadyan highlights a number of gaps plaguing the implementation of outcome budgeting in defence. Foremost is the lack of programme-orientation in defence budget. He argues that the identification of major programmes by “High Level Budget Holders and Top Level Budget Holders in Service Headquarters, responsible for planning of budget” would go a long way in preparing outcome budget. The programme orientation however needs suitable changes in classification of heads of expenditure, reflecting all the inputs that go into specific programmes or sub-programmes. Among others, he argues that increased use of information technology can facilitate real-time “information required for monitoring, evaluation” and for “decision-making purposes.” He suggests that considering the “extra work” that would be generated in the initial phase of the implementation of the outcome budget there is a need for a professional body with the necessary wherewithal to carry out the job.

Kadyan strongly argues that Outcome budgeting is quite possible for the defence establishment, contrary to some perceptions that outcome of defence expenditure is not measurable and even if measurable its documentation may not be in the interest of the country’s security. These issues can be tracked by what he terms “attitudinal change” of concerned authorities. He says that all the information may not be placed in the public domain, as clearly articulated by the MoF. He suggests that “introduction of outcome budget is likely to be seen by the Services as an attempt to introduce a new mechanism to control budget utilisation.”

For effective implementation of outcome budgeting in defence, Kadyan argues that the MoD needs to follow a ‘comprehensive approach’ covering the entire defence budget. He suggests that a tri-service institution like the College of Defence Managements (CDM), Hyderabad should ideally be entrusted with the task of developing “an overall structure” for the purpose of implementation. The ‘Budget Holders’ in the Service Headquarters (SHQs) are then required to identify outcomes against the outlays, and prepare the outcome budget, keeping in view the overall defence policy of India. While executing the outcome budget, the Programme/sub-programme Directors under the Budget Holder would need enhanced delegation of financial powers. Once the outcome budgets at the stage of Budget Holders are prepared, their consolidation could be done by the Headquarters Integrated Defence Staff (HQ IDS). Further, an independent organisation needs to be created for monitoring and evaluation of various ongoing programmes.

Points raised in the discussion:

• The experience of civil ministries in outcome budgeting is insubstantial, and is of little use for mid-course correction.
• Outcome budgeting in defence in some countries like Australia is of “little help” to the services.
• Transparency in outcome budgeting needs to be viewed simultaneously with the security aspects.
• Information and Communication Technology (ICT) has immense potential for preparing outcome budget in defence.
• Planning, Programming and Budgeting System (PPBS) is increasingly being adopted by many counties.

Prepared by Laxman Kumar Behera, Associate Fellow at the Institute for Defence Studies and Analyses, New Delhi.