Spending a big defence budget

By Ajai Shukla

Business Standard, 13th Sept 16

There is little public scrutiny of the defence budget, and most of that is reserved for the capital budget, the purchase of snazzy new weaponry and equipment, usually from foreign vendors. Meanwhile, little attention is paid to the revenue budget, the humdrum expenditure on salaries, pensions, stores, spare parts, fuel, ammunition, and myriad items needed to sustain the existing military. The figures make it clear that this emphasis is mistaken: of this year’s overall defence budget of Rs 3,40,922 crore (using a new, fuller accounting methodology), just Rs 86,340 crore were allocated for capital expenditure. In contrast, three-quarters of the allocation, a whopping Rs 2,54,582 crore, will go on revenue expenditure. This disproportionate allocation is not a peculiarly Indian problem, even if the skew in our case is especially worrisome. Governments and defence economists worldwide spend more time on right sizing and streamlining the revenue budget than they do on the more seductive and attention-grabbing arms acquisitions under the capital head.

On September 6, India’s defence ministry promulgated a sensible new policy --- termed Delegation of Financial Powers for Defence Services (DFPDS – 2016) --- that will streamline and improve the way the military spends its gigantic revenue budget. DFPDS – 2016 restores to military commanders at various levels --- brigade, division, corps, commands and army headquarters --- limited discretionary financial powers; and a far higher spending limit where a proposal has the concurrence of the civilian financial advisor associated with the concerned headquarters. For example, in buying information technology equipment like computers, a corps commander can spend up to Rs 5 lakhs per item at his own discretion; and a divisional commander can spend Rs 2 lakhs. But with the concurrence of the “Integrated Financial Advisor” (IFA) posted at the corps headquarters, their spending limit rises to Rs 2 crore and 1 crore respectively. Similarly, the new policy allocates to the military command chain spending limits for other expenditure heads like transport, engineer stores, etcetera.

Last year’s version of this policy, DFPDS – 2015, had blocked military commanders at every level from spending even a rupee on expenditure they deemed legitimate. For example, a corps commander who is entrusted with the lives of 40,000 soldiers, Rs 5,000 crore worth of military equipment, and the defence of some 200 kilometres of India’s border; was prevented by DFPDS – 2015 from ordering the expenditure of Rs 5 lakhs on IT equipment.

This was not just a status issue for the military, but also a major functional bottleneck. Every purchase sanctioned by the military’s 10,000 “competent financial authorities” needed consultation with an “integrated financial advisor” (IFA) from the defence ministry’s finance wing, of which there were just 70. To illustrate how this played out, consider purchases in the army’s 10 Corps, which is headquartered in Bhatinda, but has units and formations spread across Ganganagar, Suratgarh, Bikaner and a host of other places. Since 10 Corps has just one IFA, who is located in Bhatinda, every purchase proposal needed to be moved to Bhatinda on a file. The IFA there, snowed under with the numerous purchase demands of an entire army corps, would naturally take time processing them. Often sanctions would come when the purchase was no longer needed. Sometimes the financial year would be over and funds would have lapsed. And, most importantly, in dealing with an avalanche of routine, low-value purchase sanctions, the IFA would be left with no time to process high-priority, high-value procurements that might be essential for operational reasons.

It might be uncharitable to suggest that the defence accounts hierarchy --- a cadre called the Indian Defence Accounts Service (IDAS) --- deliberately engineered this situation by divesting the military hierarchy of financial powers in DFPDS – 2015. But it is a fact that the greater workload that DFPDS – 2015 placed on the IFAs provided the IDAS with the opportunity to demand an expansion of their cadre. Eventually, after the army chief protested strongly to the defence minister, DFPDS – 2015 was placed in abeyance on October 26, 2015; and the new policy has addressed the army’s concerns. But larger structural issues continue to block the expenditure of defence allocations, as is evident from the last year’s under-spending of over Rs 13,000 crore.

A central problem remains the government’s multiple finance divisions that impede, rather than assist, each other. The ministry of defence --- unique amongst all ministries --- has its own finance division (FD), headed by the Secretary Defence (Finance). The FD’s eight joint secretaries, an additional secretary, and a secretary make it bigger than some Union ministries. It oversees the entire defence budget, and is in turn responsible to the finance ministry.

Any defence ministry decision or proposal that has a financial effect must have the concurrence of the FD. After the executive wings of the defence ministry (army, navy, air force, etc.) raise a proposal, it comes to the FD for concurrence. Delays inevitably follow as the FD raises numerous queries on file and the executive departments answer them at length. The FD prides itself on maintaining parallel files, featuring these lengthy back-and-forths, which allows it to capture the way a ministry proposal evolves, and what each official has said at a particular point in time. From the military’s point of view, this is pure perversity; one officers posted in army headquarters complains: “We have standardized a check list of questions the bureaucrats might like answers to, but give even the most complete file to a bureaucrat and he will find a question to raise.” Only after the FD’s concurrence does a proposal go up for the defence minister’s approval.

The process gets even more complicated for expenditure proposals (whether capital or revenue) that are beyond the defence minister’s financial powers. Since these must go to the cabinet committee on security (CCS), the finance minister feels it necessary to comment on the proposal. Successive defence ministers have strongly argued that, after a matter has already been exhaustively dealt with the FD in MoD, there should be no need for the finance ministry to re-examine it afresh. Yet, the finance ministry increasingly feels an independent re-examination essential. This duplication of work routinely delays expenditure proposals, such as the finance ministry’s lengthy scrutiny of the need for a mountain strike corps.

The fundamental logic of these multiple structures and the convoluted processes they generate remains a distrust of the military, and the conviction that multi-layered scrutiny is needed to avoid the wasteful, and even corrupt expenditure of government funds that have already been allocated to defence. Nobody in the monitoring mechanisms is either responsible for the defence of India, nor accountable in any way for lapses due to delays in providing sanction. Until this dichotomy is resolved, and structures implemented to empower the key stakeholder --- the military --- ineffectual fixes will yield only limited results.