Outcome Budget for Defence: Problems and Prospects

Outcome budgets have emerged as the toast in financial administration under the Union Government, as evident recently in the Hon’ble Prime Minister’s interactive session with the secretaries to the Government of India. While the Finance Ministry’s guidelines have been there since 2005, the new political initiative emphasis is likely to give an impetus to the outcome budgets by many ministries. However, the defence sector is yet to reap the dividends of outcome budget.

Contemporary literature is not unanimous about the utility of outcome budgets and there are several sets of competing perspectives. According to one view, defence should be kept out of outcome budget since there are issues of secrecy, sensitivities and operational preparedness. National security, according to this view, should not be subjected to public scrutiny since it may jeopardize vital security issues in numerous ways. Proponents of this hypothesis give little space for demands of transparency and ‘value for money’ in the administration of huge public money! The alternative view is that when all other sectors are open to public scrutiny, why not defence? It emphasizes upon the need to look beyond ‘defence as holy cow’ approach and instead adopt an approach where there is a larger accountability for the penny being spent and institutional transparency established through a system of checks and balances.

Yet another view treats defence as something that cannot be measured in terms of economic goals like outcomes. It cannot be compared to sectors like rural development where there are measurable mileposts like jobs being created through MNREGA or roads being added in terms of kilometers under the PMGSY. This is contradicted by the alternative view which sees defence as a huge sector having many sub-sectors that can be assessed in terms of outcomes. Moreover, outcomes need not be always assessed in terms of tangible and physical milestones. There can be variable modes of outcomes in defence sector such as combat preparedness, training, life cycle costing, teeth to tail ratio etc.

Perhaps, sensing this, the Departmentally Related Standing Committee of the Parliament (DRSC) on Defence has been encouraging the Ministry of Defence to consider opening up of non-sensitive sectors despite the fact that all the eight demands for grants in Ministry of Defence remain exempted from the Guidelines on the Outcome Budget issued by Ministry of Finance ever since its inception. A cue is taken from the Guidelines itself which says that ‘even the Ministries / Departments and other authorities ‘exempted’ from the preparation of outcome budget and placing it in public domain are requested to carry out this exercise for internal use and voluntarily decide to place it in public domain fully or partially’. A good beginning has already been initiated wherein the MoD has assured the DRSC to consider outcome budget for married accommodation project (MAP), NCC and naval dockyards.

However, there are many reasons that call for encouraging and institutionalizing the fledgling domain of outcome budget in defence. First, Defence sector accounts for huge revenue expenditure, which, if properly monitored, can facilitate in curbing avoidable and wasteful expenditure and contribute to fiscal deficit management. To give one representative example, the CAG’s Appropriation Accounts has been mentioning the military farms suffering from losses year after year; popping up the debate if we really need military farms or in-source the milk products at cheaper rates from market. Highlighting such issues, the VK Misra-led Defence Expenditure Review Committee (DERC) had made several recommendations that deserve consideration at policy level. Second, several big ticket capital projects like LCA, MBT Arjun etc have undergone time and cost escalation due to delays in their project development cycles (PDCs). The investments being very huge, ways and means need to be there to optimize the public investments simply because Government has scarcity of resources. Third, Indian defence budget is highly transparent; a fact substantiated in the Transparency International’s indices. A series of policy pronouncements like defence procurement procedure (DPP), defence procurement manual (DPM) and defence production policy have established new benchmarks in defence budget management. It is only logical to develop quantifiable deliverables and physical outcomes to get the best value of money. Fourth, India does not have the luxury of liberal financial allocation for the defence sector. The defence budget is hovering around 1.76 percent of the GDP and 12.78 percent of the Central Government expenditure and is likely to remain there based on the recommendations of the 13^th Finance Commission. There is, therefore, no escape from prudent defence budget management in order to get the best value of every penny being spent.

An essential prerequisite of outcome budget is to have an oversight mechanism. Fortunately, the DRSC on Defence has been quite active and acts as the best oversight mechanism on various issues related to defence management. Honourable members of the Committee have been quite sensitive to outcome budget as reflected in their qualitative and thoughtful reflections. Perhaps, it is time to give more teeth to outcome budget endeavours in the defence sector.

The author, a PhD, is in Indian Defence Accounts Service. Views expressed are personal.