Budget 2018: India needs defence acquisition regulator

An independent regulator will force all decision-making entities to agree on a plan that is in line with the requirements of the armed forces and the finances of the country

As Budget 2018 approaches, the first order of business for those in defence will be to examine the allocations made. Once again, there will be debates around the appropriateness of defence spending, if amounts allocated are reasonable, if a higher spend is warranted even though we know it goes towards revenue expenditure, and, most importantly, if we have enough money to buy the equipment we need to ensure that our armed forces are combat ready. In light of increased security threats and the observations made in the recently tabled Parliamentary Standing Committee Reports on Defence (Reports 35 and 36), it will be interesting to see what Budget 2018 will have in store for the defence sector.

A close examination of Reports 35 and 36 of 2017 will reveal one fact for certain — that what ails defence procurement in India is not just inadequate funds, but poor communication between the trifecta of defence procurement, namely, the Ministry of Defence (MoD), the Ministry of Finance (MoF) and the armed forces. It is not for the first time that the Standing Committee reports (see Reports 22 and 22 of 2016) have rapped the knuckles of both Ministries for continuously passing the buck around for poor planning, poor inter-ministerial communication, delays in acquisitions, and the overall inadequacy in ensuring that our armed forces are combat ready.

The reports highlight inadequate budget allocations made by MoF, the perpetual delays in capital acquisitions, and the constant tug of war between the two ministries. The reports conclude unequivocally that India is not combat ready, our armed forces are sadly under-equipped and our procurement planning is grossly inadequate. These are serious matters to be considered and responsibilities must be assigned in order to solve the problem. Ironically the biggest problem seems to be just that. 

The first dispute is on budget allocations. The MoD states that it “took up the matter of reduced allocations with Ministry of Finance, but no positive outcome has been received”.  In response to this, the Standing Committee notes that “… the slow pace of expenditure has been cited by the Ministry of Finance as the reason for reducing allocations/not granting additional funds”. The fault here seems to lie with MoF, to the extent that the Standing Committee has stated that it is “unhappy with the customary nature of the reply of the Ministry [of Finance]”.

The second dispute is on underspending. The MoD blames the MoF for delays and underspending stating that “… there were many proposals pending in the Ministry of Finance for approval. Therefore, the Army has not been able to spend the money on the projects planned”. On the other hand, the Standing Committee notes that “… persistent failure to utilise the allocated funds has contributed to reduction in Ministry’s budget allocations by the Ministry of Finance”. This squarely places the onus on MoD.

The third dispute is on poor planning resulting in delays in acquisitions. The Committee has not minced words when it comes to pointing out that the MoD’s reply conveniently attributes underutilisation of funds “… to either cuts imposed by the Ministry of Finance or delay in delivery of product/equipment by the vendor. There appears to be no self-introspection by the [MoD] in regard to underutilisation of funds”. The Committee has also gone to the extent of suggesting that the “underutilisation of funds … by the three Services pinpoints to the fact that the institutional mechanisms put in place for financial planning and monitoring utilisation of funds is not effective”.

One thing is evident: there is a rather convoluted communication pattern that largely involves passing the blame. The solution may not be perfect, but an independent regulator to undertake defence acquisitions may well be the only way to go. 

At Odds What ails defence procurement in India is not just inadequate funds, but poor communication between the MoD, MoF and the armed forces

The genesis of this recommendation lies in the recently approved Strategic Partnership policy that suggests the setting up of an independent regulator to oversee the implementation of the policy. However, this recommendation finds no place in Chapter VII of the Defence Procurement Policy 2016, which is unfortunate. The only mention of any new organisational structure is that of an “institutional and administrative mechanism for effective implementation of the Strategic Partnerships…” — a far cry from what is required.

An independent regulator will force all decision making entities including MoD, MoF, armed forces and Cabinet Committee on Security to decide on an acquisition plan that is in line with the current and future requirements of the armed forces and in line with the finances of the country. The incumbent government has been questioned on its defence expenditure and security policies. If the government is able to rally the respective Ministries and armed forces to agree to the setting up of an independent regulator for defence acquisitions, it would be one of the most significant initiatives undertaken by any government in defence. One can only hope that this announcement is made in the upcoming Union Budget.

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Soundararajan is senior fellow & Palkar senior research associate at Pahle India Foundation