#NotesForMrJaitley 6: underutilisation of defence funds is biggest concern

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#NotesForMrJaitley 6: underutilisation of defence funds is biggest concern

The Budget for 2016-17 is around the corner and all eyes are now on Finance Minister Arun Jaitley. Should the government spend more, or keep its wallet shut? The global economy wades through crashing commodity prices and unsure policy moves and shaky investors. In the midst of this India has to decide which course to take, to ensure jobs to millions of youth joining the workforce every year. We at Catch bring you a series with a focus on all sections of the population and their requirements from Mr Jaitley's Budget.

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The debate rages on about who should decide upon defence reforms in India - should it be a political decision, or should it be the prerogative of the military?

The question has come up repeatedly in the recent past, when it comes to urgent procurement needs, One Rank One Pension, the emphasis on indigenous production, the inefficiency of the Defence Research and Development Organisation and low funds, among other things. The forthcoming Union Budget 2016 may answer many of these questions.

In our latest #NotesForMrJaitley, we take up the defence sector and find that the under-utilisation of funds and unplanned expenditure are the biggest concerns.

Also read - #NotesForMrJaitley 1: how to make this year's budget more farmer friendly

2,46,727

crore rupees

  • Total amount allocated for defence in the Union Budget 2015.
  • This amount is almost double the food subsidy rolled out, - which caters to rice and food grain distribution to the poor at subsidised rates.
  • The defence allocation includes includes pay and allowances, funding to ordnance factories, the DRDO and the capital outlay for defence services.

1,04,159

crore rupees

  • India has 3.4 million military personnel, and this is the amount that goes towards paying their salaries.
  • This is followed by a capital expenditure of Rs 94,588 crore. Capital expenditure is money allocated to acquiring assets - land, aircraft, heavy and medium vehicles, defence rail network, naval dock yard and other construction.
  • Significantly, neither of these amounts includes pension and civil expenditure (housing, canteen stores, armed forces tribunal etc). These expenditures are not part of the 'official' defence budget.

54,500

crore rupees

  • Pension and retirement benefits budgeted to the Army, Navy and Air Force in 2015-16.
  • This amount is five times more than that for the Indira Awaas Yojana, which aims to provide housing to the rural poor.
  • The revised estimate (the third estimate for the year that can lead to reallocation of funds) for 2014-15 was Rs 50,000 crore.
  • After the recommendations of the Seventh Pay Commission and the One Rank One Pension (OROP), this expenditure is surely going to increase.

Also read - #NotesforMrJaitley 3: How to tackle the subsidy beast without harming the poor

18-20,000

crore rupees

  • The amount required to implement OROP.
  • OROP was a long-standing demand of the services. In February 2009, more than 300 retired soldiers of various ranks marched to Rashtrapati Bhavan and returned their medals. After six years, the Defence Ministry approved their demand.
  • The amount for OROP is double the funding of the Mid Day Meal, the feeding programme that provides free lunch to crores of children in lakhs of schools.
  • This leads to an important question - will OROP impact the capital outlay? "This certainly may have some impact on capital outlay, but there will surely be some increase," says Amit Cowshish, former financial advisor (acquisition), Ministry of Defence, and a distinguished fellow, Institute of Defence Studies and Analyses.
  • However, Cowshish points to a bigger problem, which is 'unspent funds'. For instance, Rs 94,587 crore was the capital outlay in Budget 2014, but the revised estimate stood at Rs 81,965 crore, or about 15% lower.

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  • Different arguments that should set the pitch for a wider discussion on the defence budget.
  • Cowshish says: "Though there is no systematic study to analyse why this happens (unspent funds), certain unrealistic projections by the Army, Navy and Air Force are responsible. They have a tendency to overpitch, have no idea how to augment resources, and many contracts don't get signed. Finally, the ministry reduces funding at the end of the year, as there is little utilisation of money."
  • However, Vice Admiral KK Nayyar, former vice-chief of the Indian Navy, begs to differ. "Capital outlay should definitely be increased to modernise defence ammunition and equipments. There should be a national consensus on how much we spent. The political class should determine how much proportion of the GDP it wants to allot to the defence services, so that they can plan accordingly. There is ad hocism in expenditure, and political decisions influence the financial structure. Armed forces should have a bigger role in the decision making," he says.

16,707

crore rupees

  • The total amount sanctioned for nine DRDO projects, which have faced an estimated cumulative delay of about 35 years.
  • This is three times the 2014-15 budget sanctioned for the Ministry of Tribal Affairs.
  • However, only about 30% of this budget was spent till January 2015.

It's certain that in the upcoming budget, the biggest challenge for the government will be to improve coordination and rationalise expenditure.

More in Catch - #NotesForMrJaitley 5: Don't listen to everything the babus say

#NotesforMrJaitley 4: five things he must focus on in the Health Budget

#NotesForMrJaitley 2: Let Raghuram Rajan clean up the bad loan mess

Sourjya  Bhowmick

Sourjya Bhowmick @sourjyabhowmick