Sunday, 12 March 2017

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-Ă -vis Central Government Expenditure. It may, however, be added that every year there has been increase in Defence Expenditure.”


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