Defence purchases to be hit as funds go for overheads

Discussion in 'Defence & Strategic Issues' started by Neo, Jan 17, 2015.

  1. Neo

    Neo Senior Member Senior Member

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    Defence purchases to be hit as funds go for overheads


    The finance ministry has cut around Rs13,000 crore out of the Rs 94,588 crore allocated to the defence ministry in the Union Budget last July.

    A defence ministry official, who has knowledge of the revised budgetary allocation which was finalised in December last, told the FE, “We are re-appropriating Rs 13,000 crore from the armed forces’ capital outlays towards revenue expenditure.”

    What this means is that the finance ministry has decided to take away some funds meant for buying weapons and equipment to pay off the salaries and recurring maintenance expenses, which has grown beyond manageable limits. In July, finance minister Arun Jaitley had allocated Rs 1,34,412 crore towards revenue expenditure of the defence ministry.

    The capital budget for the Indian Navy and the Air Force have been cut between Rs 4,000 crore to Rs 5,000 crore, which means that no new defence acquisition contract may be signed this fiscal, including the much-awaited deal for 126 Medium Multi-Role Combat Aircraft (MMRCA) ‘Rafale’ from the French firm Dassault Aviation. Also, sources revealed that the Indian Navy which is currently in talks with the US-based Sikorsky for 16 helicopters has been asked to go slow as there are no funds for new acquisitions.

    Even the Indian Army is faced with a nearly Rs 4,000- crore cut in its capital budget this fiscal, forcing it to bring down its more than 100 proposals for weapons and equipment acquisition to 20 important ones, of which seven critical ones are being fast-tracked by the government.

    The Chief of Army General Dalbir Singh, at his annual press conference earlier this week, said the force has “over 100 projects for weapons and equipment, but has identified 20 important ones, of which seven critical ones are being fast-tracked.”

    The army chief listed seven critical acquisitions, including the already-cleared mounted-guns systems, which would be the first that India would buy if this procurement goes through. Defence Acquisition Council (DAC) headed by defence minister Manohar Parrikar has given the nod for the purchase of 814 mounted artillery guns at a cost of Rs 15,700 crore.

    The others on the list, all of which have already been approved by the government, are the 8,000-odd Spike third-generation anti-tank guided missiles to be bought from Israel; 131 light utility helicopters that will be a ‘Make in India’ project now; upgradation of the entire fleet of battle tanks and infantry combat vehicles; assault rifles for the infantrymen; bullet-proof jackets and helmets, again for infantrymen; and night-vision devices for the mechanised forces and the infantry.

    A December 2014 report on the Budgetary Demands for Grants for 2014-15, submitted by the parliamentary standing committee on defence, noted that “growth in the budget is not sufficient for the projects and modernization” of the forces. The committee was headed by BJP MP Maj Gen (retd) BC Khanduri.

    “The committee perceives it to be a grim and unacceptable situation, which is affecting all the services of defence forces considerably. The committee desires that the ministry should raise the bar and gradually increase defence expenditure to the level of three per cent of the GDP so that modernization of the armed forces can become a reality and not remain a mirage,” the report said.

    It also noted that as money for high-value acquisitions like the MMRCA is not available under the current allocation, additional funds will be sought. It has to be seen if the defence ministry makes the additional demand this fiscal or in the next, beginning April 2015.

    http://www.financialexpress.com/arti...erheads/30973/
     
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  3. Neo

    Neo Senior Member Senior Member

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    That is a grim situation and as I see it, India will have to increase the defence expenditure to 3% of the GDP to meet the urgent requirements. Even then it will take years to modernise the armed forces.
     
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  4. ezsasa

    ezsasa Senior Member Senior Member

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    Not necessary, reallocation of unused funds usually happens in the last quarter in every organisation. In this case monies have been shifted to building additional cantonment residential quarters and relevant infrastructure I think.

    To keep in context that modi's annual budget discussion have started a month ahead the usual , means this is a smart move by Parrikar.

    If reallocation does not happen this money would simply be wasted in the current fiscal.
     
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  5. Neo

    Neo Senior Member Senior Member

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    This is not impression I got after reading the article which states:

    'What this means is that the finance ministry has decided to take away some funds meant for buying weapons and equipment to pay off the salaries and recurring maintenance expenses, which has grown beyond manageable limits.'
     
  6. ezsasa

    ezsasa Senior Member Senior Member

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    Let me try to explain:

    procurement in india goes thru a process I.e RFI-->RFP-->shortlist-->trails-->selection-->negotiation-->procurement-->payment

    Most payment terms start with partial Payment towards start of procurement process. We all know that these big ticket items take years to compete the whole procurement cycle. Taking into consideration this new government has DAC meetings almost every month and have cleared almost 20 billion usd deals in the last 6 months. Earlier govt used to have the Same DAC meetings once in 6-7 months. It is safe to say this govt would have planned out properly.

    If there are no planned payments to be made it does not make sense to waste the money by not spending. If they do not use the amount it becomes an additional burden next year.

    Your assumption would have been right if they returned these 2.5 bln usd to the govt. They haven't. They chose to spend it elsewhere within the armed forces.

    If your assumptions are based on the excerpt you mentioned from the article . Unfortunately now a days journalism is at its lowest in india, they are printing their understanding which is not always close to the truth.

    Hope I have clarified.
     
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  7. grampiguy

    grampiguy Regular Member

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    MoD is trying very hard to bring the war wastage reserve back to its designated position. In addition, there are many revenue side consumptions which took a hit during AKA's tenure, they are now being fulfilled. There was an estimate that about 12,000 crore would remain unused on account of non-completion of major capital acquisition deals. So its an early attempt to stave off any chance of return of money to MoF. A smart move indeed!!!
     

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