Arms acquisitions languish without funds or coordination

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    AVERAGE INDIAN EXORCIST Senior Member

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    By Ajai Shukla
    Business Standard, 1st Feb 14


    India’s cumbersome arms procurement procedures and a plodding ministry of defence (MoD) bureaucracy have long been blamed for shortfalls in combat capability. Now there is another, more worrying, reason --- a growing crisis of funds, magnified by the lack of tri-service coordination.

    Slowing economic growth and a weak rupee have left insufficient money for the military’s ambitious modernisation programme. With no tri-service chief to coordinate and prioritise the needs of the army, air force and navy, their 15-year “Long Term Integrated Perspective Plan” is just an unaffordable wish list.

    So dire is the funding shortfall, say senior ministry officials, that negotiations with vendors are dragged on simply because there is insufficient money for new contracts. The capital budget (meant for new equipment) goes almost entirely on previous years’ purchases, for which instalments are paid over 5-10 years. This year only Rs 2,955 crore of the military’s capital budget of Rs 73,444 crore was available for new purchases.

    Meanwhile, revenue expenditure rises as the army grows in size, even as pay commissions increase the cost of manpower. Last month, Rs 7,870 crore was transferred from the already stressed capital account to meet the burgeoning revenue expenditure.

    In these circumstances, major acquisitions languish. These include the planned purchase from BAE Systems of 145 M777 light guns for a mountain strike corps (MSC) on the Himalayan border. With no order forthcoming, BAE Systems has halted its M777 assembly line in the USA; the contract cost has risen from $647 million to a potential $885 million. Instead of raising the MSC in five years as planned, it will now be raised in eight years to spread its Rs 64,700 crore cost.

    Also stuck in the pipeline are contracts with US company, Boeing --- for 22 AH-64 Apache attack helicopters and 12 CH-47F Chinook multi-mission helicopters, together worth some $2 billion; and a billion-dollar repeat order for four P-8I maritime aircraft to supplement the eight already bought. Delay is inevitable in the purchase of another ten C-17 Globemaster III, worth $4 billion; as also in the $3 billion purchase of Honeywell engines to extend the service life of the IAF’s hundred-odd Jaguar fighters.

    Seemingly impossible now is a contract for 126 Rafale medium multi-role combat aircraft (MMRCA). The IAF would need to fork out Rs 15,000 crore as the 15 per cent signing amount, even at the lower end of the Rafale’s estimated price band of $16-20 billion.

    Meanwhile, the weaponry bought this financial year --- like the December 27 purchase of six C-130J Super Hercules transport aircraft for a billion dollars --- will swell the “committed liabilities” for coming years, leaving a diminishing percentage for new purchases. If the Hercules are delivered over four years, the MoD would need to pre-commit four annual instalments of Rs 1,560 crore each.

    The proportion of pre-committed instalments has risen each year (see Fig 1 below). In 2010-11, the capital budget allocated Rs 17,278 crore for new contracts and Rs 28,408 for “committed liabilities”, or instalments due. In 2011-12, there was Rs 9,467 for new contracts, while Rs 32,995 crore went on committed liabilities. Last year, the money for new contracts dropped to Rs 5,520 crore, with Rs 54,840 crore pre-allocated for instalments. This year, there is just Rs 2,955 crore for new contracts, while Rs 64,680 crore is pre-committed. Next year, without a sharp hike in the defence budget, there may be nothing for new contracts.

    This crisis has been predictable in the absence of a tri-service commander to coordinate army, air force and navy spending. Each year, budgetary figures show no correlation between planning and expenditure (see Fig 2 below). In 2011-12, the military asked for a capital allocation of Rs 88,680 crore; the government allocated far less, and the military eventually spent just 59 per cent of what it had projected. Last year, capital expenditure was just 63 per cent of the Rs 93,828 crore the military had asked for. This year the military will spend a mere 58 per cent of the projected requirement of Rs 1,23,911 crore.

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