Parrikar finds $3 billion lying forgotten in US account

Defence Minister dismisses prospect of joint patrolling by US and Indian navies

By Ajai Shukla

Business Standard, 5th March 16

In a disquieting comment on how the ministry of defence (MoD) manages its money, Defence Minister Manohar Parrikar revealed on Friday that he discovered India was paying the US Department of Defense (Pentagon) for new weaponry, even though $3 billion that New Delhi had earlier remitted was lying in an account in Washington.

New Delhi had placed the money in the Pentagon-managed account for weaponry it was buying under the Foreign Military Sales (FMS) programme. In this, the Pentagon procures equipment on behalf of foreign governments from US vendors like Boeing and Lockheed Martin.

“Because of ill-management, or lack of attention to this account, we had slightly less than $3 billion which is piled up in this account, which was not earning any interest. It was just lying there in the account”, Parrikar told a press conference in New Delhi.

He added that he drew on this account, saving money from this year’s capital budget, which was returned to the finance ministry.

“From somewhere near $3 billion, the account has come down to $1.7-1.8 billion. During last year, we must have paid about Rs 6,000 crore from this fund for our committed liabilities…. We have saved almost $700-800 million in foreign exchange”, he said.

Parrikar also claimed to have saved up to Rs 3,000 crore by tightening up payment norms to Indian vendors, including the defence public sector undertakings (DPSUs). He said payment had been made even to companies that had failed to deliver the contracted equipment.

Now, said Parrikar: “We are strictly monitoring the staged payment clauses, as per contracts. We are not allowing it to be loosely paid, even to DPSUs.”

The current year’s budget had allocated Rs 77,798 crore for capital expenditure; but the revised allocations brought that down to Rs 65,808 crore. Even if Parrikar saved 9,000 crore as he described, that still leaves Rs 3,000 crore underspent.

The coming year’s capital budget for the three services amounts to Rs 70,380 crore. Parrikar stated that this provides Rs 10,000 to 12,000 crore for new purchases, with the balance pre-committed to instalments on procurements concluded in earlier years.

He claimed that, since new contracts required an up-front payment of no more than 10-15 per cent, this amount adequately provided for the Rafale contract, expenditures on the mountain strike corps, and an estimated Rs 1,00,000 crore worth of new contracts likely to be concluded in the coming year.

The figures do not add up, though. With the Rafale priced at a minimum of Rs 63,000 crore, the new contracts add up to at least Rs 1,63,000 crore, for which the advance required is Rs 16,300 to 24,450 crores.

Parrikar also clarified that the government had instituted a new way of tabulating the defence budget, which would reflect several expenditures that have so far been kept invisible.

According to the new methodology, Parrikar announced that the coming year’s budget was Rs 3,40,922 crore, including, for the first time, defence pensions and allocations to the MoD.

“This amounts to 17.23 per cent of overall (government) expenditure of Rs 19,78,060 crore”, he announced.

Parrikar hopes this will clear the confusion, since the budget documents themselves reflected two different figures. In the budget summary, where pensions and MoD allocations were excluded as in the past, the defence allocation added up to Rs 2,49,099 crore, almost the same as the current year’s allocation of Rs 2,46,727 crore, and just 10.9 per cent higher than this year’s revised estimates of Rs 2,24,636 crore.

Adding pensions and MoD allocations to the budget makes for a more reassuring figure, and one that is founded on more honest accounting.

Separately, Parrikar rejected the notion of joint patrols in the Indo-Pacific, carried out by the US and Indian navies. There has been growing speculation, based on statements from senior US officials like the Pacific Command chief, Admiral Harry Harris; and the US envoy to New Delhi, Richard Verma.

Parrikar responded on Friday: “India does joint exercises with other countries, not joint operations. “The question of joint patrolling at this stage (with the US Navy) does not arise.”