Jun 21, 2016
(Representative image) The third largest wing of the army accounted for about 1 lakh, or 10 per cent of combatants, and employed about 15,000 civilians at the time of the study.
Defence auditor has repeatedly found that revenue component of defence budget accounts for wasteful expenditure due to outdated processes, lackadaisical mindset.
The tail that wags the dog
Despite multiple reports warning of wasteful revenue expenditure crowding out capital spends, little has been done to correct the imbalance in India's stressed defence budget
AK Saxena spent most of May 30, his last day in office, writing letters. Saxena, who retired as Additional Controller General of Defence Accounts (CGDA) on that day after 33 years of service, wrote letters to the prime minister, defence minister, finance minister and a slew of other top functionaries in the government lamenting the state of affairs in the country's defence establishment. He pointed out that widespread mismanagement, wasteful expenditure and lack of transparency is eating away large amounts of public money allocated to defence annually.
In his letters, Saxena said that he had submitted some 20 system studies over the past seven years. "The findings and recommendations contained in all these studies have huge potential to achieve economy, efficiency and effectiveness worth several lakhs of crores of rupees," he wrote, adding no action had been taken on them.
India maintains the third largest defence force in terms of personnel and was ranked sixth in military spending globally last year, according to the Stockholm International Peace Research Institute. The country's defence expenditure in 2015 was $51.3 billion, which was 3.1 per cent of the global military spend.
This year, finance minister Arun Jaitley earmarked Rs 3.4 lakh crore ($52.2 billion at an exchange rate of Rs 65 per dollar) for the defence ministry of which Rs 2.49 lakh crore was exclusively budgeted for defence forces and allied services and does not include pension liabilities. The acceptance of one-rank-one-pension alone will add Rs 7,500 crore to the pension bill from next year.
Two-thirds of the budget is spent on revenue expenses; 46 per cent will be spent on paying salaries and pensions alone in 2016-17. "The defence pension and the salary component of the armed forces have been increased by 52 per cent and 14 per cent, respectively. These two heads of expenditure have not only cornered the entire growth of the MoD's overall budget but also eaten into the other heads of expenditure including the all-important capital expenditure," analyst Laxman Behera of the Institute for Defence Studies and Analyses wrote in a post-Budget paper dissecting defence allocation.
Apart from the rising salary bill, the revenue component of the budget also suffers from much wasteful expenditure due to outdated processes, lackadaisical mindset and rampant corruption.
ET reviewed several of the letters written by Saxena and the system study reports, submitted over the past seven years but not made public. When contacted, Saxena told ET that nobody had even debated the findings in the reports. In March, the defence ministry set up an 11-member committee headed by retired Lt General DB Shekatkar to suggest ways to rationalise military expenditure, especially control the ballooning manpower cost.
An army spokesperson assured ET over phone that it would respond to ET's questions but did not reply to a detailed questionnaire sent to it last week.
Saxena estimates implementing the recommendations over the years could have saved 30-40 per cent of revenue expenditure. "The financial savings and force rationalisation would have been enough to raise an entire mountain division with the existing budget and personnel," he said referring to the government's announcement to raise new forces.
For instance, a 2010-11 study of the flabby Corps of Electrical and Mechanical Engineers (EME), which is the third-largest organisation of the army accounting for about 10 per cent of its combatants, revealed that rationalisation and redeployment of manpower alone could save about Rs 1,000 crore annually.
Similarly, the defence forces have their own infrastructure for distributing fuel. It is a common practice by army units to use jerrycans and barrels to carry fuel. "The distribution of substantial quantity of petrol and diesel from supply depots to user vehicles through barrels and jerrycans is not only out-moded, it poses risk of diversion and misappropriation enroute also," the audit report said.
It said unlike in the past, oil companies have a countrywide fuel distribution network now and they ensure supply within 5 km of human settlement anywhere in the country. "It would be advisable to entrust bulk of the distribution activities to the oil PSUs, with gradual elimination of ASC from the distribution activities." The ASC or Army Services Corps is responsible for distribution of fuel, oil and lubricants to army, air force, navy and other paramilitary forces.
The study recommended the setting up of an integrated transportation command with an online portal to manage travel and logistics. It envisaged elimination of most of the ASC by shifting to civilian infrastructure and estimated savings to be around Rs 3,000 crore annually.
An officer in the army said on condition of anonymity that the army's tooth-to-tail ratio is skewed and has been a matter of discussion within the organisation. Chief of the Army Staff General Dalbir Singh is reported to have ordered an internal study to recommend ways to improve the ratio.
"We have a long tail and not enough teeth," the officer told ET. What he meant is that support divisions like logistics and ordinance of the army consume a lot of financial and other resources that could be saved and redirected to the fighting force such as infantry and armoured wings. The officer said that many accounting processes and lack of independent auditing leave a lot of room for corruption and leakages as pointed out in the CGDA reports.
While large-scale corruption in procurement of high-profile items such as howitzers and helicopters often grab headlines, even small leakages add up to a lot. In 2010-11, for instance, the CGDA found leakage of Rs 103 crore in a quick audit of procurement under special financial powers delegated to army commanders.
An audit last year into travel expense reimbursement to air force personnel detected about 3,500 fake claims, including those by 400 officers up to the level of air commodore. The audit by the DehraDun-based principal controller of defence accounts found rampant use of bogus and forged tickets and hotel bills to claims refunds. The fraud was estimated to have cost Rs 350 crore in five years. The air force did not answer specific questions sent to it.
Asked about the report, former additional CGDA Saxena said he had suggested creating a travel portal exclusively for the defence services to eliminate cash purchases of tickets. "We had developed a portal called PCDA (Travel) in consultation with IRCTC and CRIS in 2008. It was introduced after a successful pilot but even now just about 20 per cent of the defence services are covered by it," he said.
IDSA's Behera writes that India can least afford to have a defence budget that is all about pay and pension. He argued that continuous expansion of forces is not only unnecessary (given the changing nature of war) but also difficult to sustain due to the fiscal pressure. "Continuing with the business-as-usual approach is not an option any more as that would mean erosion of the existing military capability."
Public assets create private revenue
One of most upmarket shopping complexes in Delhi is located opposite the prime minister's official residence, 7 Race Course road. Located inside the Willingdon Camp of the Indian air force (IAF), the Santushti Complex hosts several topend boutiques selling fabrics to furniture and is frequented by well-heeled residents of the capital and foreign tourists.
Last month, the Controller General of Defence Accounts (CGDA) found that though the complex is built on defence land with public funds and is treated as a regimental complex, it is in fact a commercial venture. Alleging that the complex is maintained for the benefit of the rich and powerful and not for defence personnel, the report says the IAF is keeping control of the land "in an unauthorised manner without perhaps informing the ministry of defence". It said though the complex generates huge amounts of revenue, only half of it is being deposited with the proper authorities.
The IAF dismissed the allegations as baseless. In an emailed reply to ET's questions, an IAF spokesperson said, "In compliance of the directions of the Government of India, Ministry of Defence, the (Santushti) Complex is being administered as per the guidelines laid down, including collection, accounting and depositing of the revenues in the Government treasury, as prescribed."
The authority to decide as to who will exercise the administrative control over the Santushti Shopping Complex is within the purview of the defence ministry. The competent authority has decided that the IAF will exercise the administrative control over the shopping complex and the same is being effectively executed in due compliance of the guidelines, the spokesperson said.
The report, which goes deep into the operation of regimental funds operated by defence units across the country, says public funds are being used for creating infrastructure to generate private revenues and they are masked as 'regimental funds'. The incomes go unreported to any authority even though their source is public assets.
One army officer who is authorised to operate regimental funds of his unit told ET that though there are prescribed limits for sanction, no prior permission is required to use the money. "There is no procedure or fool-proof accounting practices followed," he said, admitting that the risk of misuse is quite high.
Regimental funds are supposed to be used for soldiers' welfare such as helping war widows or setting up clinics or educational institutions for former and serving soldiers. The officer said most units have modest amounts in their regimental accounts but some units are wealthy.
The financial advisor of defence services in the ministry recently held a meeting over the issue following which the CGDA wrote to the Central Board of Direct Taxes (CBDT) asking the department to get comprehensive information on regimental funds from the three forces.
"We are not aware as to whether some independent certification by an independent agency is being done for certifying that regimental income has been spent for the welfare of serving and retired defence service officials," additional CGDA AK Saxena wrote to the CBDT chairman Atulesh Jindal on May 30.
When contacted, Saxena told ET that it is very difficult to estimate how much funds are lying in regimental accounts because the CGDA was never given the information. He, however, estimates that it will be thousands of crores.
The CGDA says when public revenue is partly or wholly diverted to regimental accounts, it becomes private income. "The first illegality is conversion of public revenue into private income and its diversion into private regimental accounts. The second is non-reporting of this to tax agencies as per annual or periodical returns, as prescribed for private incomes," the report says.
"There are four things that defence officers are very touchy about — procurement, batman, financial powers and regimental funds," a defence analyst, who did not want to be quoted, told ET. A batman, a British-era term, is a soldier attached to an officer as a servant, or 'sahayak'. The practice now exists only in the army but recent reports have suggested that it may be discontinued fully.
Blunt teeth and body flab take huge toll
How much time does it take to overhaul a truck engine? Tata Motors, whose trucks are widely used by Indian defence services, takes less than two days. The Electronics and Mechanical Engineers Corps (EME) of the India army, which is responsible for repair and maintenance of army equipment, weapon systems and vehicles, takes more than a month in man hours to overhaul one engine of the same truck, a system study by the Controller General of Defence Accounts (CGDA) in 2010-11 showed.
The overhaul of a truck in army workshops costs nearly Rs 2 lakh while buying a refurbished engine from Tata directly costs half that. An overhauled engine bought off the shelf has a 2-year warranty while the one overhauled in army workshops has none.
The EME-overhauled engine ran for about 25,000 km while a company overhauled engine ran for 2 lakh km. The study shows that the bloated EME division is a huge drain on the financial and human resources of the army.
The third largest wing of the army accounted for about 1 lakh, or 10 per cent of combatants, and employed about 15,000 civilians at the time of the study. The EME Corps takes care of repair and maintenance work of all equipment such as weapon systems and radars and vehicles. One key reason for the long time taken by EME is the complicated system of procuring spare parts. The components are purchased from manufacturers and stored centrally in Delhi and then dispatched to various workshops across the country.
One of the main responsibilities of EME is repair and overhaul of weapon systems such as tanks. When the CGDA looked into the overhaul of T-72 tanks, the mainstay of the Armoured Corps of the army, it found that the overhaul of at least 900 tanks was pending. The army at the time had about 2,200 T-72 tanks. Tanks that arrived at the army base workshop in Delhi took up to 10 months to overhaul against the prescribed norm of 154 days.
An army officer told ET that the situation is not very different even today. He said though due-for-overhaul does not mean that a tank cannot move or fire, it functions suboptimally and the risk of breaking down is high.
A detailed questionnaire sent to the army remained unanswered at the time of going to press.
As availability of spares is a constraint, EME always fixes targets on the lower side than what is operationally required. "The deficiencies in target fixation exercise have huge security implications as army is saddled with very large number of weapon systems which may not be operational or unreliable because of overhaul not being done in time," the report said.
Six different committees were set up between 1991 and 2004 to suggest reforms to the EME wing. Though some of the recommendations were implemented, key recommendations such as using civilian repair infrastructure for vehicles, including trucks, that would have reduced costs considerably remain largely on paper.
The CGDA report had recommended that the manpower deployed on repair and overhaul of such vehicles in EME should be assessed and a substantial number released by outsourcing the job to the vehicle makers themselves. It said about 37 per cent of EME's combatants are mechanics and drivers. Reducing the positions by 50 per cent, or 18,000 personnel, would save Rs 450 crore annually. It said buying overhauled engines from vehicle makers alone would save Rs 200 crore.
Fuel demand soars on shoddy management
Three years ago when oil prices soared, the ministry of defence reportedly asked the armed forces to reduce fuel consumption by 20-40 per cent. At the time, the forces' annual fuel bill was over Rs 7,000 crore. Several defence experts questioned the move then.
A study conducted by the Controller General of Defence Accounts (CGDA) in the previous year, however, had revealed deficiencies in the way the armed forces purchased, stored and used fuel. The study said there was no justification in the Army Services Corps continuing to manage the distribution of fuels when state-run oil companies such as IOC, HP and BPCL had a nationwide network of oil distribution network in place.
It pointed out the skewed manner in which the army assesses even the demand for fuel. Its fleet of vehicles such as trucks and four-wheelers, for instance, are assigned the maximum distance they can travel per litre of fuel. Each unit then calculates its likely annual requirement according to its fleet. In some cases the fuel efficiency norm was as low as 1.5 km per litre (kpl).
"For instance one vehicle with distance restriction of 18,000 km in a year with kpl of 10 would consume 1,800 litres. Similar vehicle(s) with similar distance restrictions, but with kpl of 2 would consume 9,000 liters of fuel i.e. 5 times the normal scale of consumption," the study said pointing out that no manufacturer would accept that their vehicles were so fuel inefficient.
Despite a sharp drop in prices, the defence ministry estimates the fuel bill of the armed forces this year at Rs 6,800 crore.
Dodgy deals cast shadow on financial powers
In 2011, when the CGDA conducted a quick audit of special financial powers delegated to army commanders, it found rampant irregularities in the way funds were used and reported losses of Rs 103 crore in a dozen cases of procurement.
While it looked at 55 cases of procurement, it could not assess the losses in most because the army was reluctant to part with information. Items where losses could not be estimated included bullet proof jackets, avalanche rescue equipment and satellite phones.
It also found that when the value of the purchases exceeded the financial powers, the orders were split to show them as within limits. It said in some cases such as bullet proof jackets, holographic vision and passive night vision devices, IED detection devices and binoculars, the items were procured by the command headquarters from unregistered firms raising quality concerns and suspicions of overpricing.
Last year, the government issued orders increasing financial powers of all competent financial authorities (meaning officers at every level who can clear funds) which was a long-standing demand to meet emergency requirements. It, however, made it mandatory to have the concurrence of financial advisors (ministry's accountants) in every sanction. The order was withdrawn within months reportedly after protests from the army.
An army officer who enjoys such sanctioning powers told ET that there are not enough financial advisors to meet the demand. He said these funds are meant for emergency situations and it is difficult if financial advisors are not readily available to stamp their approval.
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