Parliamentary Committee on Declining Defence Budget

Raising serious questions over the declining fund allocation for defence, Standing Committee on Defence has asked for fresh look at the creation of ‘Non-lapsable Defence Capital Fund Account’ for capital acquisition

Issue: 6 / 2017By Rohit Srivastava

In its latest report, Parliamentary Committee on defence criticised government for decline in allocation for defence acquisition. Committee under the chairmanship of Major General B.C. Khanduri (Retd) in its Action Taken Report (36th report) on the recommendation of its earlier report, laid in the Parliament on December 19, said there is decline in budgetary allocation for the capital acquisition.

“The Committee observe that from 2012-13 onwards, the ‘Capital’ component of the budgetary allocation has decreased in comparison to ‘Revenue’ component of the Budget. The overall ‘Revenue’ to ‘Capital Ratio’ of the budgetary allocation stands at 61:39, 61:39, 63:37, 65:35 and 68:32 for 2012-13, 2013-14, 2014-15, 2015-16 and 2016-17 (RE), respectively,” the report said.

The revenue component of the budget caters to salary, pension, establishment expenses, ordnance, transportation, maintenance and other obligatory expenses and the capital component provides for land acquisition, construction works, new weapons systems, etc.

Expressing its deep anguish over the ratio which is affecting the modernisation of forces, Committee in its recommendation said, “Ministry of Defence should look into this aspect and overhaul their planning and budgeting mechanism to ensure a prudent and equitable distribution of funds to ‘Revenue’ and ‘Capital’ heads.”

Ministry in its response to the recommendation had said that “revenue outlay expenditure follows a pattern due to its inherent characteristics, capital outlay fluctuates depending on milestone payments, new accruals etc., which may not necessarily increase every year.”

Committee after examining the Demands for Grants observed that the “capital expenditure has never remained under control and the allocated funds under Capital Head are never fully utilised.”

According to the report, “In Budget Estimate (BE) 2016-17, under capital head, Army was allocated 26,935.81 crore at BE stage and 24,017.86 crore at Revenue Estimate (RE) stage but was able to spend only 17,198.92 crore upto December, 2016. The allocation for capital acquisition for Navy which was 21,041.22 crore during BE 2016-17 was reduced to 18,742.17 crore at RE stage, but expenditure upto December, 2016 was 12,167.23 crore. The allocation for capital acquisition for Air Force which was 29,795.42 crore during BE 2016-17 was reduced to 28,239.86 crore at RE stage, but expenditure upto December, 2016 was 23,770.25 crore.”

Ministry of Defence, responding to the query on reasons for reduction in budget allocation at RE stage for last financial year, said that the Ministry of Finance (MoF) did not grant additional allocations due to slow pace of expenditure.

Blaming the underutilisation of funds to the loopholes in the planning and budgetary exercise of the MoD, which lead to reduction in allocation of the funds by MoF, Committee, has asked ministry to “rectified the deficiencies/anomalies in their budgetary planning and expenditure and took foolproof measures to ensure maximum utilisation of the funds.”

‘Details of Budget Estimates (BE), Revised Estimated (RE), Modified Appropriation (MA-Final Grant) and Actual Expenditure under Capital Head during the last five years is given in table:

Capital Allocation

YearBE ProjectedBE alloctedREMA (Final Grant)Actual Exp.

Talking about how the cuts made by the MoF at the RE stage affects expenditure by MoD, the reports said that the cuts leads to shifting of large payment to next financial year.

“It may also be added that bulk of Capital expenditure comprises of Capital Acquisition which includes Committed Liabilities and New Schemes. Committed Liabilities being milestone payments may not fructify due to slippages in achieving project milestones by the vendor or delay in delivery of product/equipment,” it said.

Rapping the MoD for passing the onus of underutilisation to MoF cuts or delayed delivery, the committee said, “There appears to be no self-introspection by the Ministry of Defence in regard to underutilisation of funds.”

To overcome these problems, the committee had recommended ‘Roll on’ and ‘Non-Lapsable’ allocation for defence modernization but the ministry did not favoured the proposal as substantial amounts was not available as surplus for rolling over.

According to the report, MoD has reviewed its position and has accepted the usefulness of roll over fund for capital purchase.“A proposal for obtaining ‘in-principle’ approval of Ministry of Finance on creation of Nonlapsable Capital Fund Account has been sent on February 9, 2017 by the Ministry of Defence after obtaining approval of Hon’ble Raksha Mantri and response from the Ministry of Finance is awaited,” report said.

But the proposal is not cutting favour with MoF which accepts the advantages of ‘roll on’ fund but feels that the problem can also “be addressed through normal budgetary mechanism.”

Disagreeing with the MoF, Committee said, “Defence procurement and acquisition is a complicated process involving long gestation periods and funds allocated for capital acquisition in a particular financial year are not necessarily consumed in that year and ultimately have to be surrendered by the Ministry of Defence.”

Committee has asked Finance Ministry to have a fresh look at the matter.