The Finance Minister's dream budget has come as a dampener to the defence services. Against double digit expectations, the defence budget is up merely by 7.23 percent to Rs. 89,000 crore. This is insignificant due to inflation, rise in salaries and swelling ammunitions cost. Add to it the sustained double digit hike in the Chinese defence budget this year (almost 15 percent) and the situation becomes dim. While there is nothing wrong in bargaining for more to overcome budgetary constraints, the immediate challenge before the services is to manage the available resources in the best possible manner.

The first area for fiscal introspection is underutilization of budget and the tendency to surrender funds. In fact, except for the financial year 2004-05, funds were mostly surrendered. For example, between 1999-04, Rs. 32,740 crore meant for capital expenditure lapsed due to non-fructification of defence modernization efforts. This year also, around 1000 crore meant for capital expenditure remained unspent. Parliament's Standing Committee on Defence has been, in fact, critical of this tendency. If, therefore, the Finance Minister has not been generous this time, he could not be faulted. There is urgent need for better synchronization between the services on the one hand and the MoD including Defence Finance on the other. The defence budget needs to be scientifically forecasted, monitored and controlled. Tools such as financial information system and triennial reviews of commitments/ obligations instead of present biannual reviews could ensure effective monitoring of the defence funds.

Optimum utilization of the budget also requires a reorientation of the capital expenditure. Presently, each service projects its own requirements unmindful of the needs of the sister services. Often, this leads to bargaining and pressure situations. Then, there are previous contractual commitments. Very little funds are left in every budget to drive fresh thinking on modernization. Hence, there is a need to focus on intra-service and inter-service prioritization of acquisitions and projects. Joint planning and budgeting processes need to be institutionalized and strengthened to ensure optimal and effective use of available resources. The Group of Ministers' Report on National Security that had recommended a long term defence perspective plan (LTDPP) through a rigorous process of intra-service and inter-service prioritization deserves a sympathetic consideration. Other initiatives like timely approval of five year defence plans, formulation of a priority procurement plan and long term fund commitments from the Ministry of Finance can ensure better fiscal management of the defence budget.

Bringing down the revenue expenditure would be another step that will leave more funds under capital head. Though the revenue head in the present defence budget has come down by 1.5 percent compared to last year's budget, this has taken place because of a higher capital outlay (Rs. 37,458 crore). The truth is that revenue expenditure accounts for almost three fifth of the defence budget and is rising (by around 3000 crore this year). Part of the reason is that the Army is still manpower intensive. While all over the world manpower is being reduced, the tendency in Indian Army is otherwise. There is enormous space for bringing down this manpower and reduce revenue expenditure.

Budget funds could also be best utilized through new macro control mechanisms such as zero based budgeting, programme budgeting and performance budgeting. There is also space for improved inventory management and control. Availability of online updated real - time inventory information relating to various equipments needs to be ensured by the services. Purchase of new items, wherever possible, should be done on the basis of rate contract prescribed by Directorate General of Supplies and Disposal (DGS&D). Even though the rates are often high than the prevailing market rates, this would ensure speedier decision making and procurement on advantageous terms.

Actually, to streamline the defence revenue expenditure, the government has come out with comprehensive delegation of financial powers at all levels. The competent financial authority (CFA) at every level shall benefit from on-the-spot advice of the integrated financial advisors (IFAs). Unfortunately, the IFA system has not boiled down to all levels. The IFAs are 'necessary evil' for expenditure management and should be institutionalized and strengthened. In addition, the IFAs can suggest their CFA for local resource mobilization and revenue generation given the fact that defence forces have huge assets and properties that can be put to good use without compromising canons of national security or combat capability of the services.

The present defence budget must have come as a disappointment to modernization plans and objectives of the defence forces. But let us not forget, Rs. 89,000 crore is not a mean amount. Before asking for more, all tools of modern financial management must be applied in executing this huge amount. Comprehensive budgetary reforms are required as a permanent solution to get the best value for money.

(The Views expressed are Author's Own)