Tuesday, 7 February 2017

Déjà vu on the defence budget

Equipment procurement continues to be crowded out by steadily rising manpower costs

The defence allocations, presented as part of the Union Budget on February 1, highlighted the drawbacks that plague our defence planning. Once again, the military emerges as an over-manned, poorly equipped, early twentieth century force; with a bloated salary bill that leaves little for modernising a vast inventory of obsolescent equipment. The depressing surrender of ~ Rs 7,000 crore of capital budget underlines again our structural incapability to spend even the inadequate allocations we lament. The discussions on the budget make it evident that the political and strategic elite and the public remain largely oblivious to the continuing and dangerous hollowing out of the last resort of the state.

Admittedly, there are difficulties in analysing and comparing defence budgets. These partly stem from this government’s laudable initiatives to simplify accounting and to bring into the defence budget expenditures on military pensions and various defence bodies that were earlier inexplicably excluded. Consequently, comparing the last three defence budgets requires allocations under disparate heads to be extrapolated and tabulated in a common format (the most recent one), so comparisons are made on an apples-to-apples basis.



A
B
C
D
E
F
G
H
I
J

Year
Salary bill
Pension bill
Total personnel costs
(A + B)
Non-salary revenue allocation
Capital budget**
Non-personnel allocation (D + E)
Total allocation to service (C + F)
Share of personnel costs
Share of capital costs
Share of running costs

Army






















1
2014-15 (Actual)
61639
54348
115987
32216*
13246
45462
161449
72%
8%
20%
2
2015-16 Actual
65352
54116
119468
34823*
20602
55425
174893
68%
12%
20%
3
2016-17 (RE)
78298
75682
153980
36637*
23709
60346
214326
72%
11%
17%
4
2017-18 (BE)
83732
77106
160838
37295*
25176
62471
223309
72%
11%
17%













Navy^






















5
2014-15 (Actual)
5779
2296
8075
7891
22269
30160
38235
21%
58%
21%
6
2015-16 (Actual)
6190
2311
8501
8802
19875
28677
37178
23%
53%
24%
7
2016-17 (RE)
8009
3489
11498
9804
19596
29400
40898
28%
48%
24%
8
2017-18 (BE)
8571
3304
11875
9923
19348
29271
41146
29%
47%
24%













IAF






















9
2014-15 (Actual)
10533
3766
14299
9209
32796
42005
56304
25%
58%
17%
10
2015-16 (Actual)
11287
3774
15061
9734
31198
40932
55993
27%
56%
17%
11
2016-17 (RE)
13613
6422
20035
10204
28211
38415
58450
34%
48%
18%
12
2017-18 (BE)
14619
5296
19915
10183
33556
43739
63654
31%
53%
16%













*    Excludes budget for Border Roads Organisation, but includes for Rashtriya Rifles and National Cadet Corps
**  Capital budget for services only, excludes allocations for DRDO and Ordnance Factories
^    Excludes budget for Coast Guard, but includes for Joint Staff

Using a methodology, where allocations under disparate heads are extrapolated and tabulated in a common format, so that comparisons are made on an apples-to-apples basis, the chart disaggregates the budget allocations to the three armed services: the army, the navy and the air force. The coming year’s allocations to the services amount to ~ Rs 328,000 crore ($ 48.82 billion), or 91 per cent of the total defence budget of ~ Rs 359,854 crore ($ 53.56 billion). The remaining 9 per cent, which is off the chart, includes spending on the Defence R&D Organisation, the Ordnance Factory Board and the defence ministry --- including the Border Roads Organisation, Coast Guard and, mystifyingly, the Jammu & Kashmir Light Infantry (JAK LI), a regular infantry group. Next year, as part of its continuing effort towards defence budget transparency, the government could consider merging Coast Guard allocations as a sub-head in the navy’s budget, and JAK LI allocations into the army’s budget.

Extrapolating current calculations backwards, defence allocations have dwindled from 2.29 per cent of GDP (2013-14, Actual), to 2.28 (2014-15, Actual), to 2.15 (2015-16, Actual), to 2.29 (2016-17, Revised Estimates), to a low of 2.14 per cent in the latest budget. As a percentage of government spending, defence has remained largely constant at 16.4 per cent (2013-14), 17.1 (2014-15), 16.4 (2015-16), 17.1 (2016-17 RE) and 16.8 per cent in the coming year.

The central problem in defence spending, which is evident from the last three columns (H, I and J) of the chart, is the crowding out of equipment procurement by steadily rising manpower costs. An inexorably expanding army, rising salaries due to the Seventh Central Pay Commission (7th CPC), and raised pensions due to One Rank, One Pension (OROP) are consuming money at the cost of badly needed capital procurement of bulletproof jackets, rifles, artillery, submarines, warships and fighter aircraft. In 2015-16, when only 8 per cent of the army’s budget was buying new kit, the government boosted the army’s capital allocations by ~ Rs 7,500 crore, following that with a ~ Rs 3,000 crore increase in 2016-17 and now ~ 1,500 crore next year. Even so, a salary and pensions bill that consumes an eye-popping 72 per cent of the army’s overall budget, leaves no more than 11 per cent for new equipment.

Even the navy and air force, which traditionally spent more than half their budgets on new equipment, have been pegged down by the 7th CPC and OROP. In the coming year, the navy will spend just 47 per cent of its money on capital procurement, despite a serious shortage of capital warships. Only the air force will spend more than half its budget on modernisation, thanks to a Rs 5,000 crore infusion to pay for last year’s purchase of 36 Rafale fighters. It should worry planners that an army engaged 24x7x365 on an active Line of Control, in counter-insurgency operations and in staggeringly hostile terrain conditions, makes do with a substantially lower modernisation budget than an air force that faces less immediate challenges.

Nor is this likely to change, going by the 14th Finance Commission recommendations that focus mainly on meeting manpower expenses. “[Ministry of Finance] projections have provided for an increase in defence revenue expenditure (including salaries) of 30 per cent in 2016-17 which will incorporate the [7th] Pay Commission impact, with a stable growth rate of 20 per cent per annum in the remaining years”, says the Commission’s report, which made recommendations on the disbursement of central government finances from 2015-2020.

It is noteworthy that finance ministry bureaucrats justify the inadequate capital allocations with the argument that the military is unable to spend its allocated capital budget anyway. This is technically correct: most years the defence ministry returns several thousand crores of unspent capital rupees, or transfers them to the revenue head. But the well-known reason is that finance ministry officials impose an informal slowdown in according approvals as the year draws to a close, causing funds to lapse, and the deficit to appear in a rosier light.

The military, the victim in this game, can only watch helplessly since any significant expenditure requires ministry or cabinet sanction. Individual services can sanction expenditures only up to Rs 150 crore, while the defence minister can spend Rs 500 crore; the finance minister up to Rs 1,000 crore; and cabinet sanction is needed for any procurement larger than that. Unclogging the system and preventing the services from being held hostage by tortuous approvals requires the military’s financial powers to be urgently and significantly raised. Separately, accountability must be fixed for delays in finalising procurement proposals. Technology provides for this; radio frequency identity tags (RFIDs), affixed to each procurement file, could identify how much time it has spent in each office up the approvals chain --- which routinely extends to months. For years, the defence ministry has blithely ignored blatant violations of its own approvals timelines. This must end.

At a broader level, the military --- especially the army --- needs to be co-opted into a concerted process of reducing manpower to free resources for equipment acquisition. The generals must be given ironclad assurances that manpower cost savings would be added onto the modernisation budget. A culture of realistic long-term planning must be promoted by providing funding assurances well into the future, so that key planning documents, like the 15-year Long Term Integrated Perspective Plan, are anchored in financial realities rather than remaining empty wish-lists that slip back at the end of each financial year.

8 comments:

victor raj said...

Atleast we could stop recruiting.
We need to reduce around 20 lakhs military personnel(including para military). What are 20 lakhs horsemen going to do against a nuclear missile. Modernize our military, reduce total military personnel by half and spend that money on buying equipments.

Anonymous said...

very nice article, but sadly the future of MOD looks bleak. I don't expect the situation to significantly improve in the next 2 years after which a new govt will take over and it will be business as usual. we must cut back on the manpower as we have a heavily bloated army and a very small navy, such a skewed pattern you won't see in any other country. Instead of retiring 10-15% of army we are adding a white elephant called MSC. add to it the massive addition of all CAPF's and paramilitary we will left with the largest uniformed forces with worst equipment's making them sitting ducks.The govt wasted a lot of time in OROP, 7th CPC and MSC which consumed lion's share of the funding. deals like Rafale also will eat up large shares moving forward and with deals with Russia in the pipeline it is unlikely that the next 2 years will see large contacts. contracts signing for P75i, FICV, SSN, IAC2, MMRCA etc will all spill over to the next decade. the only solution is to make a new department of defence acquisition under PMO (like space and nuclear) which will get direct oversight and quick decisions. we must do away with the nonsensical DAC and AON which means nothing till law and finance ministry give their nods. Give PM and NSA direct control and then things will change.

Prabhat Singh said...

There is an ongoing drive to reduce number of personnel in armies around the world, including PLA. Why isn't this being done in India?

What kind of arrangements do you think can act as replacement for the reduced strength of the army?

Anonymous said...

Ajai:
Question for you
1) What kind of food are the Jawans served? Is it not nutritious enough?
2) Who eats first? Jawan or Officer?

Dalip Bhati said...

We must not harp time and again on amount of money spent on salary as human resources are the most important of all assets and in this regard if we cut down or try reduce the expenditure on this account by reorganising the war or peace establishment tables it will have a detrimental effect on functioning -- yes their a number of people and forums who have an interest for a few PVSM or padma shri's but effectiveness of armed forces will come down -- simple solution is increase the BUDGET lest we falter again before our enemies

Sid Thorat said...

It's interesting, everyone wanted orop, if goverment gave it now , no money for capital stuff....unless government cuts on development budget, but then the old Establishment media will yell "fascism" so, chill and let government decide

Alok Asthana said...

Don't reduce even one man. The money saved would, in any case, not come to Army. Will go to clean up Ganges or for the next Yoga session. So, don't make that mistake.

Anonymous said...

Ant budget needs to be analysed from over all context.
A person writing about rural development will complain the same thing,
The only way we can afford to operate the armed forces could be
1. Localise maximum equipment, this not only reduce capital expenditure, but also the maintenance cost.
2. Ensure a higher percentage of retiring armed forces members (at a young age) are taken into other govt departments ( some examples like police, state transport, industrial/airport security ) this will ensure pension bills are under check. Of course you can be rest assured depts like police will become more disciplined !