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Budget Utilisation and Accountability

Arvind Kadyan was on Deputation to Institute for Defence Studies and Analyses, New Delhi. Click here for detailed profile
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  • January 21, 2009

    Every year as India approaches the Budget session of Parliament, there are debates in various forums about the adequacy of Budget allocation to meet the modernization plan of the Services considering the threat perceptions/scenario. Due to the economic slowdown world-wide which is likely to affect the revenue collection of the national exchequer this year, the Government may face difficulty in meeting the increased demand from the Defence Forces. Further, we should not forget that electoral compulsions are also likely to play an important role in the coming budget. In such a situation, it is necessary for the Services to see whether budget allocation, particularly in the area of revenue expenditure, is being optimally utilized as well as identify areas where savings can be achieved.

    India’s Defence Budget has grown from Rs. 13,341 Crores in 1988-89 to Rs 1,05,600 Crores in 2008-09. Thus, during the last two decades, the defence budget has increased approximately eight times. Out of the total budget, Revenue Expenditure accounts for 54.54 per cent and Capital Expenditure for 45.46 per cent.

    Keeping in view the increasing budgetary allocations and the geographical spread of users, it has become essential to delegate more financial powers to the Services, particularly in the area of Revenue Expenditure, to ensure better fiscal management, optimum utilization of resources, and time bound implementation of schemes/projects, and improved serviceability of major weapon systems/platforms/equipment. A beginning in this direction was made by the Ministry of Defence (MoD) in 1975. However, a substantial delegation of financial powers was made in 2002 to the level of Services Head Quarters (SHQs) as well as to commands and formations. This was further revised in 2006. The delegation of financial powers is based on operational and functional requirements and not on ranks.

    After enhanced financial delegation in 2006, 46 per cent of the overall procurement budget is under delegated powers of Services and the rest is with the MoD. As a result, 80 to 85 per cent of procurement cases are finalised at SHQs or at lower formations and only 15 per cent of cases require referral to the Ministry. The Services have also been given more power for the import of stores and they have been allowed to conclude Rate contract for common usage items or stores which have a large turn over.

    The main objective of financial delegation was to give powers to various authorities in Services with matching responsibility. It was done to expedite processing of procurement cases and with a view to bringing better fiscal awareness among users (Services). It was also expected that delegation of powers to local authorities would help in achieving economy in procurement of stores/services. Further, it would improve serviceability/ maintainability of equipment as authorities can make purchases of spares according to their requirement if supplies were not being received from central sources.

    If one looks at the impact of financial delegation to lower authorities, there is no doubt that it has had a positive impact on the morale of the Services, particularly in field units or formations, leading to improved satisfaction level among the Services, given that they have some flexibility in procurement of items based on their requirements. Further, units or formations are able to buy stores that are considered essential by them i.e., stores required for providing aid to civil authorities, many of which are not available through central procurement agencies as these are not scaled items i.e. items which have been authorized to the establishment.

    The enhanced delegation of powers has an added advantage in terms of vendor development at the local level. But due to lack of transparency in the system progress on this front is slow as information regarding the requirements of formations is not available to vendors and an initiative to develop the local vendor base is lacking.

    There is regular demand from various authorities to further enhance the delegated financial powers as these are considered inadequate and hamper operational readiness due to delay in decision making, since the proposals are required to be sent to higher authorities for sanctions. There is also the factor of inflation, resulting in Competent Financial Authorities (CFAs) not being able to take procurement decisions. Thus the need for a further increase in financial powers cannot be denied. But at the same time it is also true that most of the CFAs are not able to ensure the uniform flow of expenditure since the phenomenon of ‘March Rush’ still continues. It is a bitter truth that a substantial portion of expenditure is incurred in the month of March. This shows lack of expenditure planning at the Command and lower formation/units level. In such a situation it is difficult to say whether value for money is being achieved.

    Further, there is an increasing trend to purchase Non Standard Pattern (NSP) items by unit/formations. This is not only resulting in increased inventory but also gives rise to maintenance problems, which should be taken into account while introducing new items. If these new items are needed for operational readiness, then the Authorities should take action to formulate a policy on provisioning of new items. The present ad-hoc purchases of NSP items in a large number of cases is being resorted only to utilize the budget and there is no attempt to assess the requirement for such items in the long term.

    Further, there have been instances of lack of co-ordination between Central purchase organizations and Field Authorities. As a result Field CFAs find it difficult to plan their procurement from local sources. This issue needs to be addressed by higher authorities.

    There have been a number of cases where CFAs below SHQs are not using delegated financial power as laid down in the Defence Procurement Manual (DPM). Oversight agencies have brought to attention cases of unfruitful expenditure at regular intervals. This is another area of concern.

    There have been instances when units or formations are allotted money without demand at the fag end of the year. On many occasions, funds are allotted without taking into account the actual needs of the unit to ensure full utilization of the budget allotted for the year. In such cases chances of wasteful expenditure cannot be ruled out. One of the reasons for the March Rush is that there is a fear that if the budget is not utilized to the full extent during the current year, formations may not get sufficient allocations for the following year.

    To ensure that enhanced delegation of financial powers leads to better fiscal management, it was proposed that clear accountability norms be established by delineating measurable performance parameters for each major area of expenditure, such as availability of major equipment/weapon system, maintainability and serviceability, training, etc. Identification of these quantifiable targets was to be done by the Services in six months time but very little progress in this direction has been made. In the absence of this, it is difficult to ensure optimal utilization of resources. The MoD therefore must insist on laying down performance parameters while considering new proposals for delegations.

    In addition, some small steps enumerated below would help in optimal utilization of financial resources at the command level:

    • Service officers working at unit/formation level may be exposed to financial rules and procedures at Young Officers (YO’S), Junior Command (JC), Company Commander (coy cdr) courses, Senior Officers (SO) or even capsule courses at command level.
    • Services should make use of Technology and put up the Priority Procurement Plans (PPPs) on their website so that vendors know the requirements in advance. Transparency will generate more competition and help in achieving the objective of value for money.
    • There should be an institutionalized system for exchange of information between units/formation regarding Rate and Quantity and make of the items purchased by them during the quarter.
    • Need for attitudinal change among CFAs and Integrated Financial Advisors (IFAs) to work as a team to achieve the best results.
    • Introduce Incentive Scheme for achieving savings in revenue expenditure/li>