Re­form de­fence bud­get­ing

Both al­lo­ca­tions as well as ex­pen­di­ture flows need at­ten­tion

Business Standard - - OPINION -

Re­cent re­ports that Hin­dus­tan Aero­nau­tics Ltd (HAL) was forced to take a bank loan of ~781 crore to pay its em­ploy­ees’ De­cem­ber salaries re­flect the gov­ern­ment’s strange ap­proach to de­fence bud­get­ing and spend­ing. As this news­pa­per re­ported, the gov­ern­ment cur­rently owes HAL ~15,700 crore for prod­ucts and ser­vices al­ready de­liv­ered, of which ~7,000 crore is out­stand­ing from the pre­ced­ing year. With more bills likely to arise over the com­ing three months and no money to pay them, out­stand­ing dues will swell to ~20,000 crore by the end of the fi­nan­cial year. HAL has asked the de­fence min­istry to make some pay­ments so that on­go­ing de­vel­op­ment projects, man­u­fac­ture and the main­te­nance of the In­dian Air Force’s (IAF’s) air­craft fleet are not se­verely im­pacted. But, given the gov­ern­ment’s fi­nan­cial pres­sure with an elec­tion loom­ing, HAL does not ex­pect re­lief in the re­vised Bud­get es­ti­mates. Nor is HAL the only de­fence pub­lic sec­tor un­der­tak­ing (DPSU) that finds it­self in these straits. The mil­i­tary also owes Bharat Elec­tron­ics Ltd (BEL) thou­sands of crores in un­paid bills. It was one thing to de­fer pay­ments when HAL and BEL were wholly owned de­fence min­istry en­ter­prises. But, after their part-dis­in­vest­ment, there are also in­ter­ests of pri­vate share­hold­ers, which will be ad­versely af­fected by non-pay­ment of bills.

Things have come to this pass for a sim­ple rea­son: The gov­ern­ment has not al­lo­cated the cap­i­tal bud­get needed for pay­ments that were fall­ing due this year. The navy pro­jected to the de­fence min­istry a cap­i­tal re­quire­ment of ~30,358 crore, but was al­lo­cated only ~19,083 crore, a short­fall of 37 per cent. The army asked for ~37,122 crore, but was given ~21,338 crore, short by 43 per cent. The IAF, with in­stal­ments due for the Rafale fighter and Apache and Chi­nook he­li­copters, asked for a whop­ping ~72,482 crore but was al­lo­cated ~33,100 crore, short by 54 per cent. Fur­ther, of the amount al­lo­cated for cap­i­tal ex­pen­di­ture, about 90 per cent was pre-com­mit­ted to­wards in­stal­ments on pre­vi­ous years’ pur­chases. In the cir­cum­stances, it was al­most in­evitable the mil­i­tary would be left short of money.

Fram­ing any bud­get is a com­pet­i­tive ex­er­cise in re­source al­lo­ca­tion. It is for the Union Cab­i­net to de­cide how much it can spare for de­fence from press­ing com­pet­i­tive re­quire­ments like ed­u­ca­tion and health care. This year, 16.6 per cent of cen­tral gov­ern­ment ex­pen­di­ture went to de­fence. Next, this amount must be di­vided be­tween the three ser­vices. Over­see­ing re­al­is­tic bud­get­ing is one task of the De­fence Plan­ning Com­mit­tee (DPC), es­tab­lished in April with fan­fare un­der the Na­tional Se­cu­rity Ad­vi­sor. It is not clear how the DPC could fail to an­tic­i­pate the cur­rent cri­sis in HAL. Be­yond al­lo­ca­tion, there are other is­sues as well. In sev­eral pre­vi­ous years, in­clud­ing twice in the first three years of this gov­ern­ment, thou­sands of crores of mil­i­tary cap­i­tal bud­get al­lo­ca­tion lapsed be­cause it could not be spent in time. This needs to change, given the feast-or-famine na­ture of pro­cure­ment spend­ing, where one year could see lit­tle ex­pen­di­ture be­cause of hitches in fi­nal­is­ing some con­tracts, while the sub­se­quent year sees a glut of con­tracts, with mul­ti­ple pay­ments fall­ing due. Suc­ces­sive gov­ern­ments have promised to in­sti­tute a “roll-on cap­i­tal fund” — to in­su­late against the lumpy na­ture of de­fence cap­i­tal ex­pen­di­ture and smoothen the cash flows — but none has done so.

Newspapers in English

Newspapers from India

© PressReader. All rights reserved.