By Amit Cowshish
Reviewing the progress of Phase-II of the Project Seabird, Defence Minister Rajnath Singh said on June 24 that its execution would not suffer for want of funds. Additional funds, he assured, would be provided, if needed.As an expression of intent, the statement is unexceptionable, but the fiscal reality could trump the intent.
Project Seabird is the recondite appellation for the project involving development of a naval base at the bucolic locales of Karwar in Karnataka, giving Indian Navy a strategic advantage in the Indian Ocean, especially vis-à-vis Pakistan.
The base has been under development for more than a decade and already houses several platforms, including the aircraft carrier INS Vikramaditya. Tipped to be the largest of its kind, the fully developed base will be able to accommodate 32 warships and submarines.
And while like most other naval projects, Project Seabird is one of the well managed projects with steady, albeit modest, budgetary allocations and an efficient project management setup, it would be naïve to expect unbridled flow of funds, as the defence minister’s statement suggests. Successive governments have struggled to meet the services’ requirements.
For the current financial year (2021-22), for example, the Indian Navy had asked for Rs70,920.78 crore for capital expenditure, which includes the requirement for the Project Seabird and other infrastructure development projects like the Married Accommodation Project, apart from acquisition of land.
What has been actually allocated instead is a sum of Rs 37,667.23 crore, or just 53 per cent of the requirement. For revenue expenditure also, the allocation falls short of the projected requirement by Rs 9,817.28 crore.
The current year’s capital budget includes Rs 3,987 crore for naval dockyards and projects like Seabird. This is less than last year’s allocation of Rs 4,180 crore whichwas reduced to Rs3,652 croreat the Revised Estimate (RE) stage due to unspecified, but easily guessable, reasons. There is no guarantee that there would be no similar reduction this year to deal with the fiscal crisis.
This is not a one-off financial quagmire, exacerbated by the slowdown of the Indian -indeed the global- economy. The gap between the requirement of funds projected by the services and the actual budgetary allocation has been steadily widening. The total shortfall for revenue and capital expenditure of the armed forces has increased to Rs 1,25,480 crore in FY 2021-22 from Rs 23,014 crore just a decade back in 2010-11.
That the other two services and organisations like Coast Guard, Border Roads and Defence Research and Development Organisation also face similar resource crunch cannot be much of a consolation for the Indian Navy.
The shortfall in allocation has an adverse impact on acquisition of defence materiel critical for modernisation of the armed forces, building up of the war wastage reserves (WWR), and execution of infrastructure projects, apart from several other operational activities planned by the services. This has been repeatedly acknowledged by the Ministry of Defence (MoD) officials appearing before the Standing Committee on Defence (SCoD).
Ultimately it always goes down to the wire, with the services seeking additional funds from the Ministry of Finance (MoF) during the year. Undoubtedly, additional funds have been allocated in recent years by the MoF. In FY 2020-21, for example, additional allocation of Rs 20,776 crore was made at the RE stagebut, to put it in perspective, this was almost one-third of the requirement of Rs 61,198 crore projected by the MoD for capital expenditure.This was no exception; it has been the norm.
Sometimes the MoD officials offer the exceptionable argument that in reality there is no dearth of funds, and the actual allocation is based on realistic assessment of the services’ capacity to utilise the funds. This is disingenuous.
For the past few years, the services have been utilising the entire budgetary allocation, though earlier there was occasional underutilisation. But more importantly, if the actual capacity of the services is less than the demand projected by them, it requires explanation why the demand is not moderated by the MoD before projecting it to the MoF and why huge additional requirements are routinely projected at the RE stage.
The fact is that the capital budget is hardly sufficient to meet the committed liabilities. A few years back, MoD had to even withhold payment to the state-owned Hindustan Aeronautics Limited to tide over the financial difficulties. Even the SCoD cautioned MoD against the likely consequences of defaulting on the committed liabilities.
Assurances such as the one given by the defence minister lack credibility at a time when the government is struggling to put the economy back on the rails and considering such fanciful measures as creation of a non-lapsable pool of funds for modernisation of the armed forces, which would also cater to the Married Accommodation Project.
There is no shame in acknowledging fiscal constraints and planning the expenditure accordingly. A financially viable plan for modernisation, infrastructure development, ensuring serviceability of the in-service equipment, and building up the WWR has a better chance of producing results than a plan based on impractical expectations of unrestricted availability and flow of funds.
(The author is former Financial Advisor (Acquisition), Ministry of Defence. Views expressed are personal and do not reflect the official position or policy of Financial Express Online.)