Defence budget: Surrendering funds has put brakes on India's military modernisation

The revelation by Defence Minister Mohan Parrikar on 4 March that he discovered India was paying the US Department of Defence for new weaponry, even though $3 billion which had earlier remitted was lying forgotten in a Pentagon account is not a small matter. Ministry of Defence had reportedly put the said money in a Pentagon account for weaponry that was to be bought under the Foreign Military Sales (FMS). It is not clear as to when the money was paid by India considering that procuring equipment through FMS has been on for past several years especially since US opened up FMS sales in immediate aftermath of the 9/11 terrorist attacks.

 Defence budget: Surrendering funds has put brakes on Indias military modernisation

A Rafale fighter aircraft. Reuters

$3 billion is not a small amount considering that INS Vikrant, India’s indigenously built aircraft carrier launched in August 2013 was at a cost of $7.7 billion. Moreover, $3 billion by today’s reckoning amounts to Rs 20,100 crore. Parrikar mentioned that this money lying with the US Department of Defense was not earning any interest – obviously nil for India but sure it would have earned interest for the US where the money was lying. Parrikar referred to the lapse as “because of ill-management or lack of attention to this account” and indicated that this $3 billion had “accumulated” over a period of time.

Parrikar further said that he drew on this account in the current year saving money from the capital budget, which Ministry of Defence returned to the finance ministry, adding that during 2015 this account has come down to $1.7-1.8 billion since Ministry of Defence must have paid nearly Rs 6,000 crore from this account for committed liabilities. He further said, “We have saved almost $700-800 million in foreign exchange." The Ministry of Defence and finance ministry can be happy about all this, but it should be very apparent that the armed forces have been made suckers all along and their modernisation remains major casualty. Even $1.7-1.8 billion remaining in the above account in not small; some Rs 11,390 to 12,062 crore.

A former Vice Chief of the Army while in service was told by his friend in Defence (Finance) that they are required to submit a quarterly report from the very beginning of the financial year (FY) as to how much of the defence funds they would be able to surrender at the end of the FY. That is why crores of rupees is surrendered year after year from the Defence Budget while the forces are holding equipment that is 50 percent obsolete. While there was big furore over Gen VK Singh’s, then Army Chief to prime minister Manmohan Singh on criticalities in the Army, public would be unaware that such letters have been written by many Service Chiefs including Chairman Chiefs of Staff Committee in the past. Yet despite criticalities, year after year crores of rupees from the defence allocations are surrendered every year. Isn’t it criminal that these $3 billion were lying with the US while our forces were starved for equipment? Besides, FMS route being the fastest, how could this amount be ‘forgotten’, or was this by design?

Talking of criticalities, take the example of bullet proof jackets in the army. Past several years one has heard about 1,86,000 being imported but nothing has materialized, mainly because the Ordnance Factory Board under DRDO has not been able to produce any worthwhile bullet proof jacket. Interestingly, a media report of 2015 revealed that many of our private companies are exporting bullet proof jackets and even helmets to more than 230 forces in over 100 countries including British, German, Spanish and French Armies, plus police forces stretching from Japan in the East to the US in the West. Why can’t Service Chiefs have the authority of making emergency purchases with troops continuously engaged in counter insurgency operations, and when Army Commander Northern Command purchases such bullet proof jackets under his Special Financial Powers, duly cleared by the IFA, why does the IFA object? When will we break the mafia.

Ironically, the Ministry of Defence surrendered Rs 6,000 crore (official figures) of the defence allocation on 31 March 2015. How much will be surrendered on 31 March 2016 is anybody’s guess considering that in January 2016, Ministry of Defence was struggling to exhaust its modernisation funds with almost 40 percent of its capital budget unspent; as much as Rs 37,355 crore of the capital modernisation budget of Rs 93,675 crore. Non-finalization of procurement of Rafale and BAEs M777 howitzers contributed towards this but these are recurring narratives every year.

When General Charles de Gaulle became president of France in 1959, France was militarily weak. What de Gaulle ensured was that the Defence Budget of France remained greater than 2 percent and touching 5 percent of the GDP, resulting in France emerging as a militarily strong nuclear power. That trend has continued with current French military expenditure standing at 5.4 percent of the GDP. In India, though the Long Term Integrated Procurement Plan (LTIPP) is based on a hypothetical 3 percent of GDP, defence allocations have never really touched that mark. Even post the Kargil Conflict and public exposure to massive equipment shortages in the Army, the one time high 1999-2000 Defence Budget allocation was made at 2.41% of the GDP. However, there has been a downslide since then, not to talk of the thousands of crores of Rupees that were surrendered by MoD annually by the UPA barring an odd year.

The just announced Defence Budget 2016-2017 is the lowest ever since the 1962 war. The ‘India First’ commitment of the present government is unquestionable but how is the Defence Budget allocated and how is the long term integrated procurement plan (LTIPP) chalked out in absence of a National Security Strategy, without defining National Security Objectives and without a Comprehensive Defence Review? This vital anomaly in India’s defence setup cannot be resolved unless the higher defence structures of India are remodeled and military professional brought into the MoD and the defence industrial complex.

The Parliament’s Standing Committee on Defence had noted in April 2015 that “such under-spending leads to a situation where the preparation of Defence Forces are nowhere near the target”. The Committee called for a “non-lapsable and roll-on allocation” fund for 5-10 years for defence equipment. Such a non-lapsable fund, administered by experts with strict controls on timelines, would reduce bureaucratic hurdles and be more attuned to practical realities. Even during UPA I, Jaswant Singh as defence minister had recommended that the unspent funds of defence budget must be allowed go into the next financial year.

The Parliament’s Standing Committee on Defence recommendation for a “non-lapsable and roll-on allocation” fund for 5-10 years for defence equipment must be followed through by the government. There is also the vital need to clear the quagmire of the previous regime by addressing the issues mentioned above.

The author is a retired Lt Gen of the Indian Army.

Updated Date: Mar 07, 2016 17:05:37 IST