My op-ed in Mint: Clearing the decks for defence modernisation

Defence budgeting and procurement processes need a overhaul

That the procurement process is holding back defence modernisation is relatively well-known. In today’s op-ed in Mint, Sushant and I throw more light on another aspect: only a small fraction of India’s defence budget is available for modernisation.

Excerpts:

Putting resources to better use.
Effective use of money by the Armed Forces needs an overhaul of the budgeting and procurement processes

Illustration: Malay Karmakar/MintAs expected, the defence budget for 2008-09 has crossed the Rs1 trillion mark. After adjusting for inflation, this constitutes an increase of only 5%. For the first time since the early 1960s, India’s defence outlay has declined to less than 2% of the gross domestic product (GDP)—a sign of the chasm between the rhetoric and reality on national security…

India’s transformation into a middle-income country requires its Armed Forces to be more capital-intensive. Yet only around 10% of the defence budget is actually available for modernization, compared with around 30-40% in developed countries.

…nearly two-thirds of the amount for capital acquisitions from foreign suppliers, too, is pledged for assured and received deliveries. Payments for major defence purchases from foreign vendors are spread over a number of years. This year, India will pay instalments for earlier purchases such as the Sukhoi aircraft, the Gorshkov aircraft carrier, T-90 tanks, Talwar-class frigates, Scorpene submarines and for many other smaller contracts. Thus, only Rs8,000-9,000 crore ($2 billion) is available for new acquisitions this year.

The initial down payment on new acquisitions is generally around one-fourth of the total cost. So, the defence ministry can theoretically sign contracts worth $8 billion for new equipment this year. Capital allocations for coming years will then have to cater for instalments of these acquisitions. Despite returning more than Rs4,200 crore, the ministry will be asking for additional capital allocations this year; it justifiably believes that allocations already made will be largely used up by earlier contracts.

Defence modernization is based on a long-term integrated procurement plan (LTIPP) of the defence services. LTIPP for 2007-22, spanning the 11th, 12th and 13th Plans, is scheduled to be approved by the Defence Acquisition Council by October 2009. Going by the past record, it doesn’t signify much. The 10th defence plan was never approved by the finance ministry, and two years into the 11th Plan, it also hasn’t been approved so far. Instead, the finance minister has agreed to an annual increase of 10% during the 11th Plan. [Mint]

Asking Manmohan Singh the right questions

The onward march of communal socialism

The UPA’s most unfortunate strategy of earmarking government expenditure along community lines continues apace. The latest in this juggernaut is the Prime Minister’s 15-point programme for the welfare of minorities. It contains, among other things, measures to allocate greater resources for the teaching of Urdu, for modernising Madrasa education, for quotas in the rural employment guarantee programmes, preferential bank loans, government jobs and why, even a quota for upgrading of slums. That’s not just an assault on good economic sense. It’s a naked assault on secularism.

Prevention and control of communal riots is an excellent policy goal. But it is a national policy goal. To place it as a ‘minority welfare measure’ is not only an affront to justice. It is counterproductive to the cause of communal harmony, as earmarking justice—in the same style as jobs, loans and slum upgrading—will deepen the suspicion that it won’t be even-handed.

One person challenged Prime Minister Manmohan Singh on this patently anti-secular socialist policy:

“The New 15-Point Programme that focuses on earmarking certain outlays of various developmental schemes and programmes of the Government of India amongst the eligible beneficiaries, based on their minority status, should be reviewed in the interest of maintaining the social fabric of the nation.”

“Such discrimination, amongst the eligible beneficiaries, for flow of funds based on minority status, will not help the cause in taking people of India together on the path of development,” he said.

(He asked) the Prime Minister how was “religion important” for a government strategy on inclusive growth.

Wondering “what has gone wrong in the previous plans” that such an approach should be adopted, (he) said “poverty has no religion” and only poverty should determine allocations in the Plan. [IE]

That person was Chief Minister Narendra Modi of Gujarat. The prime minister waffled in response. And Montek Singh Ahluwalia, the deputy chairman of the Planning Commission, didn’t even realise the irony of what he said in defence of the 15-point programme:

Ahluwalia later said “one of the instruments being used is to make special efforts to focus on districts where there is high concentration of minorities” and these programmes “do not involve discrimination in favour of minorities as such.” [IE]

What’s the difference, Montek?