MoD joins parliamentary panel in slamming FinMin for defence funding shortfall

By Ajai Shukla

Business Standard, 11th March 17

After years of criticism from Parliament’s Standing Committee on Defence (hereafter “the Committee”) for defence funding shortfalls, and for surrendering thousands of crores of unspent money each year, the defence ministry (MoD) has squarely blamed the ministry of finance (MoF).

A series of reports tabled by the Committee on Thursday paints a worrying picture of a government that, year after year, forces the army, navy and air force to make do with one-third to half less then the money the services requested at the time the budget was being framed.

As evident from the chart, the services are first allocated a significantly smaller capital budget than demanded during the budget framing. Then, at the stage of revised estimates, that is often slashed further. Finally, by the time the year ends, the military is often prevented from spending even that lowered allocation.

Services demand, but do not get

Year	Service	Budget Estimate		Revised Estimate		Spent	Demand shortfall
		Projected	Allocated	Projected	Allocated
2013-14	Army	25,528	17,884	19,272	14,967	14,433	42%
	Navy	33,776	24,149	27,290	20,419	20,359	40%
	IAF	64,608	39,209	65,825	37,750	38,615	41%
2014-15	Army	41,936	26,534	23,833	21,934	18,587	55%
	Navy	28,253	23,833	22,903	18,507	22,270	20%
	IAF	62,408	33,711	38,948	33,711	32,796	48%
2015-16	Army	31,939	27,342	27,845	24,230	20,704	35%
	Navy	26,268	25,003	25,152	19,740	19,875	24%
	IAF	46,192	33,687	35,781	30,442	31,198	33%
2016-17	Army#	37,960	26,943	34,706	24,027	17,206*	35%**
	Navy	30,223	22,000	22,530	19,596	12,614*	35%**
	IAF	41,266	29,795	36,513	28,240	23,770*	30%**

#   :  Rationalized army budget heads, including expenses on Rashtriya Rifles, National Cadet Corps, etc

*    :  Includes expenditure up to end-December 2016

**  :  Shortfall compared with “Revised Estimates”, since expenditure figures are incomplete for the year. 

In the best case in the last four years, the navy in 2014-15 was allocated 80 per cent of what it demanded for capital expenditure. In the worst case, the army that year got just 45 per cent --- less than half of what it had demanded.

The figures in the chart are extrapolated from the Committee’s Report No. 31, entitled “Capital outlay on defence services, procurement policy and defence planning”. That is one of eight reports that the Committee released on Thursday.

The MoD is required to comment on the Committee’s reports, which are based on information provided by the MoD in writing and in personal depositions by ministry and service officials.

In its Report No 24, titled “Action taken by the Government on the Observations/ Recommendations contained in the Nineteenth Report…”, the Committee noted that the budget allocation of Rs 2,46,727 crore for 2015-16 was reduced by Rs 22,091 crore to Rs 2,24,636 crore. This included a reduction of 8,903 crore in the revenue budget and Rs 13,188 crore in the capital budget.

On Thursday, in its “action taken report” the MoD flatly blamed the MoF and pointed out that the MoD was “bound by budgetary ceilings conveyed by the [MoF]. Though reference was made to [MoF] for augmentation of ceilings conveyed by them, no positive response is received in this regard.”

Further, the MoD agrees with the Standing Committee that there was only a token increase in the next year’s budget. The allocation for 2016-17, amounting to Rs 2,49,099 crore, was an increase of only Rs 2,372 crore over BE 2015-16 --- just 0.96 per cent.

It was only because the RE was slashed by Rs 22,091 crore that the BE 2016-17 appeared to be an increase of 24,463 crore over RE 2015-16, a 10.89 per cent rise.

The MoD, “action taken reply” notes: “This Ministry is in agreement with Committee’s observation that the funds allocated are not adequate to meet the requirement of Services. This fact has also been brought to the notice of Ministry of Finance but no positive response is received in this regard.”

This has been the pattern for several years: when the defence budget is allocated in February, the government vows additional allocations to make good any shortfalls. But, when the revised estimates are published, quite the opposite happens instead: thousands of crores are slashed from the budget estimates.

Sharply criticizing the “miniscule” annual increase in defence spending, the Standing Committee noted: “the allocation does not account for the annual inflation and fall in the value of the Rupee…. [S]uch a MEAGER INCREASE IN THE BUDGET DOES NOT IN ANY WAY, FULFILL THE BASIC REQUIREMENTS OF THE FORCES, let along the modernization aspect (sic, capitals in original).”

In its “action taken reply”, the MoD indicates that it deals with the dire shortfall of funds by prioritising spending on the most critical requirements, while less urgent requirements are placed on the backburner.

“There is a continuous monitoring of the expenditure progress and prioritisation of the most urgent requirements. This helps to ensure that limited resources are devoted to the most critical requirements.”

Said the Standing Committee: “Defence Expenditure as percentage of Central Government Expenditure has NOSE DIVED from the level of 15.24 percent in 2000-2001 to 12.59 percent in BE 2016-17 thereby giving an impression that the Government is not paying attention in providing sufficient allocations to the Ministry of Defence. This is highly ALARMING and needs to be rectified (sic, capitals in original)”.

The MoD’s “action taken reply” notes: “It is agreed that in percentage terms there is a decreasing trend in Defence Expenditure vis-à-vis Central Government Expenditure. It may, however, be added that every year there has been increase in Defence Expenditure.”