Budget 2016: The Army and unspent funds: Why the FinMin must ask itself some tough questions

By Prakash Nanda

The Indian Army gets the lion’s share in every defence budget. In fact, it consumes more than half of the total resources allocated to the country’s military every year. Last financial year, it had got 53 percent of the total budgetary allocations. And given the fact that the Army is the largest of the three services, this trend will hold true in the forthcoming budget proposals, too.

Budget 2016: The Army and unspent funds: Why the FinMin must ask itself some tough questions


But the question is: Will that be still enough for the Army? In all probability the answer is ‘No’. And this answer is also based on the existing trend. As is well known, defence budgetary allocations for the services have two components: revenue and capital. Under the revenue head come maintenance and working expenses (including pay and allowances), expenditure on working and upkeep of the projects and this includes renewals/replacements and additions/improvements/extension of already sanctioned assets.

It may be noted here that out of this revenue head as much as 65 percent goes towards the salary and perks for one of the largest standing armies of the world that we have. May be this percentage will go up as the government is about to implement the Seventh Pay Commission recommendations. And if one adds other essential things for the Army personnel such as clothing, fuel and transportation, it is a Herculean task to manage with the remaining funds for ammunition, spares, stores and maintenance of assets.

No wonder why every passing year one witnesses an increasing gap between projected amount for the revenue head by the Army and the exact allocations in the budget. During the year 2010-11, the gap between the projected amount and allocated amount was Rs 5,465.49 crore; this increased to Rs 13,740.69 crore in 2011-12. Though the gap decreased during the year 2012-13 to Rs 6,534.59 crore, it again increased to Rs 12,236.18 crore during 2013-14 and as high as Rs 12,993.86 crore during 2014-15.

What about the capital head that covers all significant expenditures on acquiring new assets (including weapons systems), capacity-enhancing measures for the existing assets, and all charges for the construction and equipment of a new project as well as charges for intermediate maintenance of the work while not yet opened for service? In other words, capital head includes the expenditure on the modernisation of the Army as a whole.

Reportedly, the Army is on a modernisation drive, with around 680 procurement projects worth over Rs 200,000 crore for the current 12th Plan of 2012-17 (it may be noted that Our Defence Capability Plan covers 15 years time span). Out of these, 31 are said to be in priority; these include bullet-proof jackets, night-vision devices, ballistic helmets, new-generation assault rifles with interchangeable barrels, close-quarter battle carbines and light machine guns, tanks, howitzers, and artillery ammunition and missiles.

According to a recent news report, “Seventeen new contracts worth Rs 2,820 crore were signed for the Army in 2011-2012. The figure jumped to 29 contracts worth Rs 7,222 crore in 2012-2013. The tally stands at 17 contracts worth Rs 11,777 crore in the ongoing fiscal. Another 23 contracts, worth around Rs 12,000 crore, are in the pipeline. The important ones include the over Rs 2,000 crore deal for 15,000 3UBK Invar missiles for T-90S tanks and the Rs 1,200 crore one for two additional troops of the Israeli Heron spy drones. The really critical projects are still stuck in the long-winded procurement process.”

It may be noted here that our Defence capability Plan draws out a Long Term Integrated Perspective Plan (LTIPP), which, in turn, consists of five-year plans called Services Capital Acquisition Plan (SCAP). Annual Acquisition Plan (AAP) of each Service is a two year roll on plan for capital acquisitions and consists of the schemes included in SCAP. Every AAP draft has ‘Part A’ comprising of carry over schemes from AAP of the previous year and approved schemes and ‘Part B’ that talks of new proposals. And it so happens that more than 90 percent of the capital budget goes on committed liabilities, leaving little for fresh acquisitions.

Coming to the budgetary allocations on capital expenditure of the Army, it has been seen that there has been huge gap between the projected and allocated amount of Rs 4,382.20 crore, Rs 6,400.99 crore, Rs 8,996.80 crore, Rs 7,644.25 crore and Rs 15,402.55 crore for the years 2010-11, 2011-12, 2012-13, 2013-14 and 2014-15 respectively. In the 2015-16 budget, the decline was massive, nearly Rs 20,000 crore.

But what is worse is that the available funds under the capital-head are usually unspent and returned to the Ministry of Finance (MoF) by the Ministry of Defence (MoD). Available data suggests that the Army could not utilise its modernisation budget fully for the last seven years in a row except for the year 2007- 08. During the year 2008-09, it could not spend Rs 2,461.29 crore; in 2009-10, Rs 1,502.19 crore; in 2010-11, Rs 666.27 crore; in 2011-12, Rs 3,386.56 crore; in 2012-13, Rs 2,852.35 crore; and in 2013-14 Rs 2,900.55 crore. But here is the catch. Though the MoD has to be blamed for not planning properly and thus surrendering the funds, the main culprit happens to be the MoF.

As General Mrinal Suman, one of the leading authorities on defence expenditure, says, “One of the oddities of the Indian dispensation is that closer to the end of a financial year, efforts are made by MoF to withdraw unspent funds from all ministries to reduce fiscal deficit. As the Finance Division of MoD functions under the fiscal directions of MoF, it does not clear/concur any major expenditure unless given a green signal by MoF, thereby forcing MoD to surrender funds. Worse, MoD gets blamed for not spending the allotted funds.”

No wonder why the Parliamentary Standing Committee on Defence has pointed out that meagre funds for the Army, or our armed forces as a whole, cannot be justified through the standard answers like 'The allocations made to the Services are based upon the ceilings conveyed by the Ministry of Finance. In view of the shortfall in the allocations made by the Ministry of Finance as compared to the overall requirements projected by this Ministry (MoD), shortfalls are bound to arise in the allocations made to individual Services.”

If that is the case, why is there no system of carrying forward the unspent funds to the next financial year? Why are “surrendered funds” (which, in reality, is forced by the MoF) lapse and go to the kitty of MoF?

Will Finance Minister Arun Jaitley kindly answer these questions during his budget-speech?

The author is editor of Geopolitics, a military journal.

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Updated Date: Feb 23, 2016 16:23:31 IST

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