Procurement Delays May Have Led to Low Defense Budget in India

Non-finalization of big ticket defense projects in the current fiscal and under-utilization of defense acquisition funds during the previous fiscal may have led to a hike of just 4.8 per cent in the defense allocation in the Indian budget for 2016-17.

Under the Indian procurement system, the Finance Ministry has to allocate funds for every project, big or small after obtaining all necessary clearances including that of the all-important cabinet committee on security.

Since no major procurement project has reached this stage in fiscal 2015-16, this could be the reason for the modest hike in defense budget. The defence budget has two major components, the allocation for capital expenditure and the allocation for recurring expenditure.  A spike in the former over the previous year means funds have been earmarked for weapons and other procurement.

The total allocation for defense procurement amounts to INR 2.58 lakh crore (US$37 billion) after deducting the military pension from the entire defense budget of 3.40 lakh crore (US$49.7 billion), Economic Times news daily reported Monday.

The defense ministry has not been able to use the allocated funds in the previous year.  Last year’s budget was INR 2.46 lakh crore (US$36 billion). The allocations are also not spent fully by the government because of its still evolving defense procurement procedure (DPP).

Arms acquisition proposals worth Rs 1.5 lakh crore (US$22 billion) were cleared by the NDA government since it assumed office in May 2014.

81schemes have fully matured. Moreover, another 66 schemes worth around Rs 2 lakh crore (US$29.2 billion) have been accorded AoN (acceptance of necessity or preliminary approvals) over the last two years.

“Of the 314 cases which have not yet fructified, 86 schemes worth Rs 1.5 lakh crore (US $22 billion) are now close to the final stages of approval,” Defense Minister Manohar Parrikar had said in a media briefing after the DAC meeting.

He has also directed the concerned authorities to clear them in the next four five months.

While the government has worked on the pace to clear new defence acquisition proposals, the follow-through has been slow to inking of actual contracts.