Mr Amit Cowshish is a former Financial Advisor (Acquisition), Ministry of Defence and former Distinguished Fellow, Manohar Parrikar Institute for Defence Studies and Analyses, New Delhi. Click here for Detailed Profile
“In three words I can sum up everything I've learned about life: it goes on.” – Robert Frost
In its most candid form, the fundamental message is that the growth in the allocation for defence, as indeed for other sectors, may not always be consistent with the past trend or as per the long-term growth rates indicated by the Ministry of Finance.
It has been a week since the Finance Minister unveiled the union budget for 2013-14, which provides for only a modest 5.31 per cent increase over the last year’s allocation for defence. It will be surprising if this has taken anybody by surprise. The writing had been on the wall for quite some time and everyone saw it coming. Much has already been said – and will continue to be said – about its impact on operational preparedness and the modernization of the armed forces. But the budget also has an underlying message that should not be missed. To be sure, some of the defence budgets of the past also had the same message but it was largely overlooked.
In its most candid form, the fundamental message is that the growth in the allocation for defence, as indeed for other sectors, may not always be consistent with the past trend or as per the long-term growth rates indicated by the Ministry of Finance. The occasional troughs cannot be helped as borne out by the experience of the last 10 years. During this period, the growth in the allocations at the Budget Estimates (BE) stage has ranged from a rather embarrassing 0.46 per cent in 2002-03 to 34.10 per cent in 2009-10 (primarily because of the implementation of the recommendations of the Sixth Pay Commission). This is not to say that the average annual growth has been as per the expectations of the Ministry and that there is no case for higher allocations. But the government has to have more money in its hands to be able to make higher allocations. If the hand is tight, so will be the allocations. This harsh reality cannot be wished away. The big question, therefore, is whether defence planning, such as it is, has any in-built mechanism to adapt to this harsh reality. The answer will clearly be in the negative. In fact, there is a palpable disconnect between defence planning and financial resources.
This view is also borne out by past experience. For the 10th Defence Plan (2002-07), the Ministry of Finance had indicated in broad terms how much money could possibly be made available, but the size of the plan drawn up by the Ministry of Defence did not conform to this. For the 11th Defence Plan (2007-12) also the Ministry of Finance had indicated the growth rates, separately under the revenue and capital segments, but the plan formulated by the Ministry of Defence went much beyond these. The Ministry of Finance was approached a second time during the 11th plan period to indicate the revised growth rates after the implementation of the recommendations of the Sixth Pay Commission. The Ministry of Finance obliged by indicating the revised growth rates but the revised defence plan also did not conform to the indicated growth rates. For the 12th Defence Plan (2012-17), the Ministry of Defence itself decided the growth rates to be assumed for preparing the plan. However, the indications are that, once again, the final plan, approved by the Defence Acquisition Council on April 2, 1012, did not conform to the growth rates decided by the ministry itself.
The five-year defence plans emanate from the 15-year Long Term Integrated Perspective Plan (LTIPP). The LTIPP for 2012-27, which was also approved by the Defence Acquisition Council along with the 12th five-year plan, is understood to be based on the assumption that the allocation for defence would equal three per cent of the gross domestic product (GDP) during this entire period. This has never happened at least in the past two decades and there was no formal or informal commitment to that effect from the Ministry of Finance.
At least in theory, the annual requirement of funds is projected on the basis of the programmes and activities envisaged in these plans. But if the plans are themselves based on unrealistic assumptions about availability of funds, problems are bound to arise. The fact that there is no standardized methodology for costing various activities and programmes adds to the problem, resulting, as it often does, in the actual expenditure on those activities and programmes being much more (or, at times, much less) than the estimate taken into account while working out the requirement of funds for the year. This is one of the reasons for excess expenditure or underutilization under some budget heads.
There are no quick-fix solutions for this problem. In fact, this is one of the biggest challenges in planning. On the one hand, the defence plans must spell out the requirement of manpower, force levels and all other assets based on the threat perception. On the other, it remains a wish list if adequate funds are not available to achieve these targets. Repeated assurances to make additional funds available to meet the legitimate requirements of the Services do not help the cause of good planning. It is not as if these assurances have never been fulfilled. Additional funds are indeed made available from time to time but this is generally done at the revised estimates (RE) stage towards the end of the financial year to take care of likely excess expenditure under some budget heads, such as pay and allowances. Once in the recent past, additional funds were also provided to the Army at the RE stage to buy stores, but it became a challenge to spend the funds as it was too late a stage to ensure the utilization of funds before the close of the financial year.
The general tendency is to deal with these difficult situations by invoking the mantra of prioritization. A simple dictionary meaning of prioritization would be to arrange or take up things in the order of their declining importance or priority. You can do it in a small setup such as a household or even a corporate entity where decision-making is centralized and authority to spend is not delegated on a large scale. But for a huge organization like defence, prioritization at a short notice is very difficult, if not impossible. There are numerous spending authorities at every level of the hierarchy in defence who incur expenditure. They have to take action much in advance of the date by which the goods and services are required. This is necessary to ensure procedural propriety but makes it difficult to roll back the action already initiated to incur the expenditure at short notice. If the Ministry of Defence has been able to tide over fiscal difficulties from time to time by invoking the mantra of prioritization, it is only because no assessment is made of how the expenditure was ‘prioritized’ at short notice and what were the consequences of such prioritization on defence preparedness and modernization.
To be fair to the Standing Committee on Defence, it has been asking such questions and some truthful answers have been given by the Ministry of Defence in the past. But these questions mostly relate to the impact of the budgetary allocations being less than the projection and the answers relate to the areas which are likely to be impacted by it. The issue either rests at that or ends up with the Standing Committee commenting on the lack of defence preparedness, delay in acquisition of equipment and weapons system, operational voids in holdings of war-waging reserves, and so on. The Ministry of Defence cannot, on its own, deal with problems arising from inadequacy of funds. The Ministry of Finance, on its part, cannot help if enough money is not available to meet the requirements of defence and other sectors. It is much like a Greek tragedy in which all characters are righteous in their own way.
This is not a plea against prioritization but to suggest that this mantra is best invoked while formulating the plans and not when faced with a crisis either because of inadequate allocation at the BE stage or reduction of allocation at the RE stage. For management of such crises, contingency plans must be formulated in advance while working out the annual requirement of funds. In the existing scheme of things, no alternative plan is prepared to manage with whatever funds are made available. It is necessary to have such a plan because experience shows that the allocation is always less than the requirement projected by the Ministry of Defence. It is generally left to the Services to manage with the available funds whichever way they chose to. The Ministry of Defence does not often go into it. This perhaps explains the fact that, for the year 2013-14, the allocation for pay and allowances in the Navy’s budget is approximately INR 500 crore less than the allocation for 2012-13. This allocation would have been made on the recommendation of the Naval Headquarters. Since there has not been any reduction in the manpower, it can only mean two things: either the allocation for 2012-13 was higher than the requirement or the allocation made in 2013-14 is less than the requirement. Either way, it is indicative of problems related to planning.
All this boils down to the need for dynamic planning. In a very broad sense, it implies that:
(a) All planning must be based on realistic assumptions regarding availability of funds and have clearly defined objectives.
(b) Alternative annual plans should be drawn up in advance to cope with the situation if the allocation in a particular year is less than the rate of growth assumed for long and short term plans.
(c) The Ministry of Defence must be associated at all stages of planning.
(d) Domain experts from outside the system should be consulted while formulating the plans.
(e) Implementation of the plan should be continuously monitored. And,
(f) There should be an annual review of the progress made towards achieving the objectives of the plan and the result of the review should be place in the public domain.
This may call for creating an appropriate structure, such as a Defence Planning Board, and evolving systems and procedures that will facilitate such planning.
The choice is between continuing with the status quo and finding a long-term solution to the problem. It is true that life may just go on, drawing comfort from the status quo, but it does not have to be that way. One can change the course of life, even if it takes long, provided the need is recognized and the mind is willing.
Amit Cowshish is Former Financial Advisor (Acquisition) & Additional Secretary and Member, Defence Procurement Board, Ministry of Defence .
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
A Message from the Defence Budget 2013-14
More from the author
“In three words I can sum up everything I've learned about life: it goes on.” – Robert Frost
In its most candid form, the fundamental message is that the growth in the allocation for defence, as indeed for other sectors, may not always be consistent with the past trend or as per the long-term growth rates indicated by the Ministry of Finance.
It has been a week since the Finance Minister unveiled the union budget for 2013-14, which provides for only a modest 5.31 per cent increase over the last year’s allocation for defence. It will be surprising if this has taken anybody by surprise. The writing had been on the wall for quite some time and everyone saw it coming. Much has already been said – and will continue to be said – about its impact on operational preparedness and the modernization of the armed forces. But the budget also has an underlying message that should not be missed. To be sure, some of the defence budgets of the past also had the same message but it was largely overlooked.
In its most candid form, the fundamental message is that the growth in the allocation for defence, as indeed for other sectors, may not always be consistent with the past trend or as per the long-term growth rates indicated by the Ministry of Finance. The occasional troughs cannot be helped as borne out by the experience of the last 10 years. During this period, the growth in the allocations at the Budget Estimates (BE) stage has ranged from a rather embarrassing 0.46 per cent in 2002-03 to 34.10 per cent in 2009-10 (primarily because of the implementation of the recommendations of the Sixth Pay Commission). This is not to say that the average annual growth has been as per the expectations of the Ministry and that there is no case for higher allocations. But the government has to have more money in its hands to be able to make higher allocations. If the hand is tight, so will be the allocations. This harsh reality cannot be wished away. The big question, therefore, is whether defence planning, such as it is, has any in-built mechanism to adapt to this harsh reality. The answer will clearly be in the negative. In fact, there is a palpable disconnect between defence planning and financial resources.
This view is also borne out by past experience. For the 10th Defence Plan (2002-07), the Ministry of Finance had indicated in broad terms how much money could possibly be made available, but the size of the plan drawn up by the Ministry of Defence did not conform to this. For the 11th Defence Plan (2007-12) also the Ministry of Finance had indicated the growth rates, separately under the revenue and capital segments, but the plan formulated by the Ministry of Defence went much beyond these. The Ministry of Finance was approached a second time during the 11th plan period to indicate the revised growth rates after the implementation of the recommendations of the Sixth Pay Commission. The Ministry of Finance obliged by indicating the revised growth rates but the revised defence plan also did not conform to the indicated growth rates. For the 12th Defence Plan (2012-17), the Ministry of Defence itself decided the growth rates to be assumed for preparing the plan. However, the indications are that, once again, the final plan, approved by the Defence Acquisition Council on April 2, 1012, did not conform to the growth rates decided by the ministry itself.
The five-year defence plans emanate from the 15-year Long Term Integrated Perspective Plan (LTIPP). The LTIPP for 2012-27, which was also approved by the Defence Acquisition Council along with the 12th five-year plan, is understood to be based on the assumption that the allocation for defence would equal three per cent of the gross domestic product (GDP) during this entire period. This has never happened at least in the past two decades and there was no formal or informal commitment to that effect from the Ministry of Finance.
At least in theory, the annual requirement of funds is projected on the basis of the programmes and activities envisaged in these plans. But if the plans are themselves based on unrealistic assumptions about availability of funds, problems are bound to arise. The fact that there is no standardized methodology for costing various activities and programmes adds to the problem, resulting, as it often does, in the actual expenditure on those activities and programmes being much more (or, at times, much less) than the estimate taken into account while working out the requirement of funds for the year. This is one of the reasons for excess expenditure or underutilization under some budget heads.
There are no quick-fix solutions for this problem. In fact, this is one of the biggest challenges in planning. On the one hand, the defence plans must spell out the requirement of manpower, force levels and all other assets based on the threat perception. On the other, it remains a wish list if adequate funds are not available to achieve these targets. Repeated assurances to make additional funds available to meet the legitimate requirements of the Services do not help the cause of good planning. It is not as if these assurances have never been fulfilled. Additional funds are indeed made available from time to time but this is generally done at the revised estimates (RE) stage towards the end of the financial year to take care of likely excess expenditure under some budget heads, such as pay and allowances. Once in the recent past, additional funds were also provided to the Army at the RE stage to buy stores, but it became a challenge to spend the funds as it was too late a stage to ensure the utilization of funds before the close of the financial year.
The general tendency is to deal with these difficult situations by invoking the mantra of prioritization. A simple dictionary meaning of prioritization would be to arrange or take up things in the order of their declining importance or priority. You can do it in a small setup such as a household or even a corporate entity where decision-making is centralized and authority to spend is not delegated on a large scale. But for a huge organization like defence, prioritization at a short notice is very difficult, if not impossible. There are numerous spending authorities at every level of the hierarchy in defence who incur expenditure. They have to take action much in advance of the date by which the goods and services are required. This is necessary to ensure procedural propriety but makes it difficult to roll back the action already initiated to incur the expenditure at short notice. If the Ministry of Defence has been able to tide over fiscal difficulties from time to time by invoking the mantra of prioritization, it is only because no assessment is made of how the expenditure was ‘prioritized’ at short notice and what were the consequences of such prioritization on defence preparedness and modernization.
To be fair to the Standing Committee on Defence, it has been asking such questions and some truthful answers have been given by the Ministry of Defence in the past. But these questions mostly relate to the impact of the budgetary allocations being less than the projection and the answers relate to the areas which are likely to be impacted by it. The issue either rests at that or ends up with the Standing Committee commenting on the lack of defence preparedness, delay in acquisition of equipment and weapons system, operational voids in holdings of war-waging reserves, and so on. The Ministry of Defence cannot, on its own, deal with problems arising from inadequacy of funds. The Ministry of Finance, on its part, cannot help if enough money is not available to meet the requirements of defence and other sectors. It is much like a Greek tragedy in which all characters are righteous in their own way.
This is not a plea against prioritization but to suggest that this mantra is best invoked while formulating the plans and not when faced with a crisis either because of inadequate allocation at the BE stage or reduction of allocation at the RE stage. For management of such crises, contingency plans must be formulated in advance while working out the annual requirement of funds. In the existing scheme of things, no alternative plan is prepared to manage with whatever funds are made available. It is necessary to have such a plan because experience shows that the allocation is always less than the requirement projected by the Ministry of Defence. It is generally left to the Services to manage with the available funds whichever way they chose to. The Ministry of Defence does not often go into it. This perhaps explains the fact that, for the year 2013-14, the allocation for pay and allowances in the Navy’s budget is approximately INR 500 crore less than the allocation for 2012-13. This allocation would have been made on the recommendation of the Naval Headquarters. Since there has not been any reduction in the manpower, it can only mean two things: either the allocation for 2012-13 was higher than the requirement or the allocation made in 2013-14 is less than the requirement. Either way, it is indicative of problems related to planning.
All this boils down to the need for dynamic planning. In a very broad sense, it implies that:
(a) All planning must be based on realistic assumptions regarding availability of funds and have clearly defined objectives.
(b) Alternative annual plans should be drawn up in advance to cope with the situation if the allocation in a particular year is less than the rate of growth assumed for long and short term plans.
(c) The Ministry of Defence must be associated at all stages of planning.
(d) Domain experts from outside the system should be consulted while formulating the plans.
(e) Implementation of the plan should be continuously monitored. And,
(f) There should be an annual review of the progress made towards achieving the objectives of the plan and the result of the review should be place in the public domain.
This may call for creating an appropriate structure, such as a Defence Planning Board, and evolving systems and procedures that will facilitate such planning.
The choice is between continuing with the status quo and finding a long-term solution to the problem. It is true that life may just go on, drawing comfort from the status quo, but it does not have to be that way. One can change the course of life, even if it takes long, provided the need is recognized and the mind is willing.
Amit Cowshish is Former Financial Advisor (Acquisition) & Additional Secretary and Member, Defence Procurement Board, Ministry of Defence .
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India.
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