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
The Defence Minister made two significant points while addressing naval commanders’ conference on 24th June 2014. One, while ruling out a quantum jump in the defence budget, he underlined the need for making a significant amount of the nation’s resources available for defence, notwithstanding various pressures.1
Two, he talked about the slow pace of acquisition of defence equipment as the key concern, adding that the effort of the government would be to expedite the process of acquisition.
These are unexceptional statements of intent. The challenge would be to meet these objectives.
Rightsizing The Defence Budget
How does one determine the right amount to be allocated for defence? There are two ways of looking at it. First, a certain percentage of the gross domestic product (GDP) could be fixed as the benchmark for an ideal defence budget. Three percent is what the strategic community has been advocating for long.
There is no empirical basis for this. The Defence Minister rightly pointed out at the conference, “Let us not get into percentages and let us look at the absolute quantum. As the base of the economy expands, even a lesser percentage may increase the amount. Whatever amounts are necessary, our endeavour in due course is to make them available.”
Fixing a certain percentage of GDP cannot be a reliable method of determining the ideal defence budget as it will be subject to vagaries of the economy and totally unrelated to the actual requirement during a given year.
This brings us back to the same question. Should the amount projected by Ministry of Defence (MoD) every year be viewed as the ideal size of the defence budget? It is tempting to answer this in the affirmative but there are several factors which undermine credibility of the annual projections. MoD’s inability to utilize the capital budget year after year adds to the loss of credibility.
The absence of jointness and synergy in planning the annual activities and lack of a standard procedure (including the important aspect of costing of activities and programmes) for working out the projections are two major factors. There are several others, all of which could be clubbed together under the rubric of defence planning and outcome budgeting. Therefore, a long term strategy has to be adopted to deal with the root cause of the problem – absence of pragmatic defence planning.
It may sound somewhat inane to suggest it at a time when the government wants to give a fresh look at the role and functions of the planning commission, but it will do no harm if the recommendation made by the Defence Expenditure Review Committee in 2009 to set up a Defence Planning Board is also given a fresh look, keeping side such issues as who would head it.
This still does not answer the question as to what will be the right amount to be allocated for defence. It is a difficult question to answer in terms of figures. It is only through comprehensive planning and a more robust process of outcome-oriented budgeting that those figures can be arrived at.
There is a need for greater pragmatism in planning and more professionalism in budgeting. For the year 2013-14, the gap between the projection and allocation under the revenue and capital segments of the defence budgets was INR 29,340 crore and INR 47,330 crore respectively.2 Although the actual expenditure for the year is not yet available, at the revised estimate stage, capital budget was reduced by INR 7,800 crore, of which approximately INR 6,500 crore was reduced under the capital acquisition segment.
An internal exercise by MoD as to the reasons for over projection/ underutilization of the capital budget and the impact of the huge gap between the projection and allocation for revenue expenditure could provide significant insights into what needs to be done to make sure that the projections for capital expenditure are realistic. It will also help in focussing on the areas of revenue expenditure which are getting neglected because of the tight allocations under the revenue segment. This diagnosis is important to decide upon the remedy.
Meanwhile, there seems to be no alternative to being content with whatever the Ministry of Finance in its wisdom considers adequate allocation for defence.
Expediting the Acquisition Process
The second significant point made by the Defence Minister at the naval commanders’ conference was regarding the need for expediting the acquisition process. The challenge is to make out how to do that.
Though it has been a hot topic of discussion, there is little clarity, much less consensus, on what needs to be done. Feeble efforts made in the past by the Capital Acquisition Wing, and later by one of the Service Headquarters, to have an empirical study done to identify the actual roadblocks ran into mysterious difficulties. But there is no alternative to it. In-house efforts at identifying the problems end up in offering explanations for acts of omission and commission causing delays and, regrettably, a never ending blame game.
An accurate diagnosis of the condition is a pre-requisite for an effective prescription. The acquisition-related condition suggests several areas for potential pathological examination.
To begin with, there is a need to examine what effect absence of a clearly articulated procurement policy has on defence procurement. Will such a policy not serve as a binding guideline for decision- making by all stakeholders rather than their interpreting the intent of the unstated policy according to their personal sense of propriety?
This has to be followed by an examination of the strategy to achieve the objectives of the policy. Release of the Technology Perspective and Capability Roadmap (TPCR) was supposed to be a part of such a strategy. Has it served its purpose? Do projects undertaken in a mission mode (as most of the infrastructure projects of the Indian navy indeed are) show better results than the isolated transactional mode in which acquisition programmes are undertaken?
The third area of examination is the organizational structure created in 2001 to deal with capital acquisitions. Is it functioning the way it was supposed to? More than a decade after it was set up, it does not have a Management Information Cell that was envisaged when it was formed. Does it have any impact on decision making? Recommendations made by a committee set up by MoD several years back to revamp the existing structure of the Capital Acquisition Wing needs to be salvaged.
The fourth area is the stages in the capital acquisition process. One cannot miss the derisive chuckle from the audience at the seminars when someone mentions that an acquisition proposal has to pass through eleven stages before its metamorphoses into a contract. An objective examination would reveal if there is a problem with any of these eleven stages, which could then be done away with.
The fifth area is the processes associated with each stage. Why do field trials or contract negotiations, for example, take long? Have the processes associated with these stages become melancholic? If so, what is the exact nature of melancholy?
The sixth area is the trickiest. It has to do with decision-making. Does every procurement proposal throw up its own peculiar problems? If so, whether there is general aversion to taking risky decisions to get over those problems? If so, why is it so?
These are some of the areas of examination that come to mind immediately. From World Bank to our very own Planning Commission, organizations engaged in planning and procurement have professional studies carried out to identify the problems and then fixing them.
Nothing stops MoD from doing exactly that.
Views expressed are of the author and do not necessarily reflect the views of the IDSA or of the Government of India
1. 'Jaitley assures Navy all help', the Times of India, June 25, 2014.
2. Twentieth Report of the Standing Committee on Defence (2012-13) Fifteenth Lok Sabha
Takeaways from Defence Minister’s address at Naval Commanders’ Conference
More from the author
The Defence Minister made two significant points while addressing naval commanders’ conference on 24th June 2014. One, while ruling out a quantum jump in the defence budget, he underlined the need for making a significant amount of the nation’s resources available for defence, notwithstanding various pressures.1
Two, he talked about the slow pace of acquisition of defence equipment as the key concern, adding that the effort of the government would be to expedite the process of acquisition.
These are unexceptional statements of intent. The challenge would be to meet these objectives.
Rightsizing The Defence Budget
How does one determine the right amount to be allocated for defence? There are two ways of looking at it. First, a certain percentage of the gross domestic product (GDP) could be fixed as the benchmark for an ideal defence budget. Three percent is what the strategic community has been advocating for long.
There is no empirical basis for this. The Defence Minister rightly pointed out at the conference, “Let us not get into percentages and let us look at the absolute quantum. As the base of the economy expands, even a lesser percentage may increase the amount. Whatever amounts are necessary, our endeavour in due course is to make them available.”
Fixing a certain percentage of GDP cannot be a reliable method of determining the ideal defence budget as it will be subject to vagaries of the economy and totally unrelated to the actual requirement during a given year.
This brings us back to the same question. Should the amount projected by Ministry of Defence (MoD) every year be viewed as the ideal size of the defence budget? It is tempting to answer this in the affirmative but there are several factors which undermine credibility of the annual projections. MoD’s inability to utilize the capital budget year after year adds to the loss of credibility.
The absence of jointness and synergy in planning the annual activities and lack of a standard procedure (including the important aspect of costing of activities and programmes) for working out the projections are two major factors. There are several others, all of which could be clubbed together under the rubric of defence planning and outcome budgeting. Therefore, a long term strategy has to be adopted to deal with the root cause of the problem – absence of pragmatic defence planning.
It may sound somewhat inane to suggest it at a time when the government wants to give a fresh look at the role and functions of the planning commission, but it will do no harm if the recommendation made by the Defence Expenditure Review Committee in 2009 to set up a Defence Planning Board is also given a fresh look, keeping side such issues as who would head it.
This still does not answer the question as to what will be the right amount to be allocated for defence. It is a difficult question to answer in terms of figures. It is only through comprehensive planning and a more robust process of outcome-oriented budgeting that those figures can be arrived at.
There is a need for greater pragmatism in planning and more professionalism in budgeting. For the year 2013-14, the gap between the projection and allocation under the revenue and capital segments of the defence budgets was INR 29,340 crore and INR 47,330 crore respectively.2 Although the actual expenditure for the year is not yet available, at the revised estimate stage, capital budget was reduced by INR 7,800 crore, of which approximately INR 6,500 crore was reduced under the capital acquisition segment.
An internal exercise by MoD as to the reasons for over projection/ underutilization of the capital budget and the impact of the huge gap between the projection and allocation for revenue expenditure could provide significant insights into what needs to be done to make sure that the projections for capital expenditure are realistic. It will also help in focussing on the areas of revenue expenditure which are getting neglected because of the tight allocations under the revenue segment. This diagnosis is important to decide upon the remedy.
Meanwhile, there seems to be no alternative to being content with whatever the Ministry of Finance in its wisdom considers adequate allocation for defence.
Expediting the Acquisition Process
The second significant point made by the Defence Minister at the naval commanders’ conference was regarding the need for expediting the acquisition process. The challenge is to make out how to do that.
Though it has been a hot topic of discussion, there is little clarity, much less consensus, on what needs to be done. Feeble efforts made in the past by the Capital Acquisition Wing, and later by one of the Service Headquarters, to have an empirical study done to identify the actual roadblocks ran into mysterious difficulties. But there is no alternative to it. In-house efforts at identifying the problems end up in offering explanations for acts of omission and commission causing delays and, regrettably, a never ending blame game.
An accurate diagnosis of the condition is a pre-requisite for an effective prescription. The acquisition-related condition suggests several areas for potential pathological examination.
To begin with, there is a need to examine what effect absence of a clearly articulated procurement policy has on defence procurement. Will such a policy not serve as a binding guideline for decision- making by all stakeholders rather than their interpreting the intent of the unstated policy according to their personal sense of propriety?
This has to be followed by an examination of the strategy to achieve the objectives of the policy. Release of the Technology Perspective and Capability Roadmap (TPCR) was supposed to be a part of such a strategy. Has it served its purpose? Do projects undertaken in a mission mode (as most of the infrastructure projects of the Indian navy indeed are) show better results than the isolated transactional mode in which acquisition programmes are undertaken?
The third area of examination is the organizational structure created in 2001 to deal with capital acquisitions. Is it functioning the way it was supposed to? More than a decade after it was set up, it does not have a Management Information Cell that was envisaged when it was formed. Does it have any impact on decision making? Recommendations made by a committee set up by MoD several years back to revamp the existing structure of the Capital Acquisition Wing needs to be salvaged.
The fourth area is the stages in the capital acquisition process. One cannot miss the derisive chuckle from the audience at the seminars when someone mentions that an acquisition proposal has to pass through eleven stages before its metamorphoses into a contract. An objective examination would reveal if there is a problem with any of these eleven stages, which could then be done away with.
The fifth area is the processes associated with each stage. Why do field trials or contract negotiations, for example, take long? Have the processes associated with these stages become melancholic? If so, what is the exact nature of melancholy?
The sixth area is the trickiest. It has to do with decision-making. Does every procurement proposal throw up its own peculiar problems? If so, whether there is general aversion to taking risky decisions to get over those problems? If so, why is it so?
These are some of the areas of examination that come to mind immediately. From World Bank to our very own Planning Commission, organizations engaged in planning and procurement have professional studies carried out to identify the problems and then fixing them.
Nothing stops MoD from doing exactly that.
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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