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10 Questions the Standing Committee on Defence needs to ask MoD
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Amit Cowshish | Date:17 Feb , 2017 0 Comments
Amit Cowshish
is a former Financial Advisor (Acquisition), Ministry of Defence and presently a Distinguished Fellow with the Indian Institute for Defence Studies and Analyses.

Restructuring of the demands for grant of various ministries, including the Ministry of Defence (MoD) last year, and further tinkering with the MoD’s demands this year is inexplicable, to say the least. These changes neither present “a holistic picture of budgetary allocations” nor facilitate “effective expenditure monitoring”. Such an outcome-oriented monitoring was the stated objective of the exercise in the first place.1 Following up on this, the Standing Committee on Defence (SCoD) had also recommended last year a switching over to outcome-oriented budgeting for specific projects, programmes and schemes for capital acquisitions.2

The way MoD’s demands for grant for the next fiscal are structured is unlikely to facilitate outcome-oriented monitoring in the manner suggested by SCoD. If, for example, allocations continue to be made under budget heads like ‘Aircraft and Aero-engine’ and ‘Other Equipments’, as is the case this year also, there will be no clarity at the end of the year as to which specific acquisition contracts the MoD intended to sign during the year and what was the budgetary provision made for them. Consequently, the focus of the ministry will continue to be on ensuring utilisation of funds whichever way it can be done rather than on specific projects. In fact, expenditure on several other objects, such as procurement of ammunition, maintenance of in-use equipment and infrastructure development must also be brought under the purview of outcome-oriented monitoring.

This then is the first question that needs to be asked: how close is the MoD to adopting outcome-oriented monitoring of expenditure on revenue and capital procurements which account for nearly one-third of the defence budget? Only such a monitoring will bring in greater efficiency in the management of budgetary outlays. But this is not the only question that needs to be asked. There are at least nine other questions that have a direct bearing on the efficacious utilisation of the defence outlay in general and for the next fiscal in particular.

To begin with, it is not clear what has been achieved by restructuring the ministry’s demands last year and by the further tinkering with it this year? While the benefit of the exercise is yet to manifest itself, it has led to a strange situation where, for example, the outlay for the National Cadet Corps (NCC) forms a part of the Army’s demand for grant while the outlay for Jammu & Kashmir Light Infantry (JAKLI) – an infantry regiment of the Army – continues to figure in the demand for MoD (Miscellaneous).

Two, it would be useful to get the details of all capital acquisitions contracts the MoD had planned to sign during 2016-17 for which provision had been made, and those that did not go through. It is the latter which need closer examination to see why these contracts did not materialise, with a special focus on those which got stuck either because of paucity of funds or took an inordinately long time after the completion of contract negotiations.

Three, the Standing Committee should ask the ministry to provide information on the current status of all cases of acquisition in which Acceptance of Necessity (AoN)3 has been granted. This will help identify the stage(s) at which the procurement process often gets derailed and, more importantly, which cases are lagging behind the prescribed time frame.4 The committee needs to prod MoD to institute a system for having a detailed analysis carried out by an independent agency of the contracts planned, but not signed, during a given year as well as the progress made in respect of each case in which the AoN has been accorded. That should help pinpoint the problems, take corrective actions, and assign responsibility.

Four, the Committee could help clear the air about ‘Make in India’ in defence. There is lack of clarity on the current ‘policy’ and how it is different from the way things were being done earlier. Foreign companies and governments, in particular the United States, want to participate in ‘Make in India’ but cannot figure out how to do it. It would be interesting to ask where the strategic partnership model, defence technology fund5 and other such initiatives being contemplated by MoD fit into the scheme of things and what is the roadmap for reaping the benefits of ‘Make in India’ in defence.

Five, the ‘Make’ procedure adopted by MoD in 2006 for indigenous design, development and manufacture of prototypes of futuristic equipment with funding by the ministry has not yielded the desired result. Not a single development contract has been signed thus far. The Technology Perspective and Capability Roadmap, released by MoD in 2013,6 to enable private industry to gear up for meeting the future requirements of the armed forces has not helped. A new list of 23 projects has been released in 2016.7

The questions that need to be asked in this regard are: (a) why no development contract has been signed so far? (b) what has been the feedback from the industry regarding the usefulness of the new list of 23 projects; and (c) which ‘Make’ projects are planned to be processed in 2017-18? The last question assumes significance in view of the fact that only a sum of Rs 44.63 crore has been allocated for providing assistance for prototype development under the Make procedure for 2017-18, down from Rs 183.79 crore allocated in the revised estimates for 2016-17, creating the impression that MoD does not expect many projects to take off during 2017-18, as the ‘Make’ procedure entails reimbursement of a substantial part of the development cost.

Six, the Comptroller & Auditor General of India (C&AG) had highlighted a grim picture of the war wastage reserves (WWR) in a report submitted to parliament in 2015.8 The situation would certainly have improved since then but it will do no harm to get a progress report from MoD not just on the stock of ammunition but also in respect of other parameters related to defence preparedness such as the serviceability level of equipment, weapon systems and other platforms. This may take time as MoD will need to evolve a reportable matrix that reflects defence preparedness in terms of measurable outcomes, but it must be done. The ministry needs to be encouraged to evolve the matrix, if it does not already exist, and make it a standard practice to report the state of defence preparedness to the committee every year.

Seven, there is a view that defence planning is hamstrung because there is not even an indication of the likely allocation for defence in the coming years, much less any long-term assurance of funds. While it is true that there is no ‘assurance’ of funds, it would not be correct to say that there is not even an indication of funds likely to be available in the subsequent years. For instance, last year, the finance minister had indicated that the total defence expenditure, including the capital component, is estimated to be about 1.6 per cent of GDP in 2017-18 and 2018-19.

SCoD needs to ask whether the requirement projected by MoD to the Ministry of Finance was in accordance with this estimate and, if not, why. Such a question is necessary to infuse a sense of realism in the defence planning process. Plans based on unrealistic assumptions about the availability of funds are bound to run into difficulty. This issue is independent of the debate over the adequacy of defence outlays. While on the subject, one may also point out that there is a need to re-evaluate the methodology adopted by MoD for preparing the budget estimates.

Eight, the rising cost of manpower requires special attention. More than 50 per cent of the total defence outlay will be spent on pay and pensions in 2017-18. This has been the case in the past as well. The allocated amount may, in fact, prove to be quite inadequate next year. Unless the defence budget is increased substantially, rising manpower costs will choke funds for meeting operational requirements. It is of the utmost importance that the Standing Committee asks MoD what plan it has to deal with this situation.

Nine, systematic defence planning was adopted by MoD in the 1960s but it was only in 1980 that the defence plan was made co-terminus with the sixth national five-year plan (1980-85). Over the years, MoD has evolved a three-tiered system of planning. The 15-year Long Term Integrated Perspective Plan (2002-17) and the 12th Defence Five-year Plan (2012-17) expire on 31 March 2017 and are due for revision. The Annual Acquisition Plan will also need to be in place before the next fiscal begins. With the dismantling of central planning and the Niti Aayog indicating that it would also foray into defence,9 it is necessary to raise questions about the future of defence planning and the role Niti Aayog will play in it.

The objective of asking these question should be to elicit information that generates a wider and well-informed debate on, and facilitates the result-oriented monitoring of, the MoD’s handling of matters related to the defence budget. It would be counter-productive to use this exercise only to berate officials, summarily reject their viewpoint and dispense non-pragmatic prescriptions for the management of defence outlays.

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1.Union Budget 2016-17, Concordance Tables to the Expenditure Budget Vol-2, p. 1

2.Standing Committee on Defence (Sixteenth Lok Sabha), Twenty Second report, May 2016, p. 59

3.AoN is in-principle approval for a procurement proposal that paves the way for the tendering process to start.

4.Ministry of Defence,Defence Procurement Procedure 2016, Annexure I to Appendix C, p. 53

5.The strategic partnership model was recommended by the committee of experts set up by MoD in 2015. The report can be accessed at http://mod.nic.in/writereaddata/Reportddp.pdf. Chapter VII in DPP 2016 is reserved for setting out the scheme. As for the technology fund, it was announced by the finance minister in his budget speech in 2014 (para 143) but it is yet to become operational.

6.http://mod.gov.in/writereaddata/TPCR13.pdf

7.Defence ministry lists out 23 projects for private industry,” Economic Times, 2 May 2016; “The Complete List of 23 Make in India Projects for Domestic Private Firms, Aviation Post, 3 May 2016,

8.C&AG Report No. 19 of 2015: Ammunition Management in Army

9.Niti Aayog to go beyond traditional areas of planning,” Deccan Herald, 23 November 2016

Courtesy: http://www.idsa.in/idsacomments/10-questions-the-standing-committee-on-defence-needs-to-ask-mod_acowshish_130217

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