What Nirmala Sitharaman Can Do to Revamp the Opaque Defence Ministry

An overview of all defence scams and scandals can be traced to opacity and secrecy. Within the confines of confidentiality and secrecy, there is a need to inject transparency through disclosure and deterrence.

New defence minister Nirmala Sitharaman. Credit: PTI

New defence minister Nirmala Sitharaman. Credit: PTI

A new full-time defence minister – Nirmala Sitharaman – has been given charge at a time when the government has decided to implement several of the recommendations of the Shekhatkar Committee. I will not touch upon them since I haven’t gone through the report (it is not available yet in the public domain), and it would be presumptuous on my part to comment on it. Instead, I’ll list issues I’m familiar with that are often missed by committees as either insignificant or plain uncomfortable, or for going beyond the terms of reference.

An overview of all scams and scandals in the Ministry of Defence (MoD) would suggest that their origin can be traced to opacity and secrecy, shrouded in an obfuscating mix of technicalities and procedures. Opacity, born of secrecy, breeds manipulations. Much hullaballoo is made in the name of secrecy in today’s time, when the world, thanks to technology, knows what other nations (especially their perceived enemies) are acquiring. The services qualitative requirements (SQRs), field evaluation trials (FETs) and the porous system we have in place where selective (but crucial) information is conveniently leaked while officially remaining a secret can be largely redressed through a process of transparency. How the move towards growing openness and transparency can be calibrated and determined, and when and what can be uploaded, shall be a challenge that will need meticulous working out, including elaborate discussion within the MoD. But transparency is doubtless the answer to getting rid of scams and scandals in defence procurement.

This is not to say that all issues can – and should – be put on the Internet. But the possibility of sharing information among important stakeholders in the services intranet could be explored. Sunlight is the best disinfectant available and must be leveraged. Even ex post scrutiny of performance will put the fear of punitive action in public servants’ minds, perhaps leading them to desist from going through with their questionable ideas. Yet, within the confines of confidentiality and secrecy, there is a need to inject transparency through disclosure and deterrence. Given that most revenue non-salary procurements need to be done through e-procurement, as per subject orders, it is imperative that supply orders or contract agreements are generated in auto mode on a real-time basis and access to the same is made available to all stakeholders – such as a higher competent financial authority and an internal audit team. In such a scenario, the internal audit team will be enabled to do concurrent audits, facilitating payouts as soon as goods materialise and invoices are preferred to the paying authority.

Incurring expenditure on capital items through revenue procedure (CBRP), which has been going on for about a decade, is a very questionable – even reprehensible – practice and must be stopped. The comptroller and auditor general has already flagged this issue. To me, the ideal thing is to merge the Defence Procurement Manual (DPM) and the Defence Procurement Procedure (DPP) into one procedure, the DPP, and with the need for trial for established capital/revenue procurement items eliminated. It will put in place the same rigour for revenue items as for capital acquisition – something completely missing on CBRP items.

Leakage of government revenue

Putting in place a mechanism to ensure that revenue generated through the commercial utilisation of defence land or buildings is credited to the government and to stopping the leakage of government revenue often escapes attention of the ministry. Given the size and resources of the organisations, the revenue is huge. Sadly, the bulk of the revenue generated through commercial utilisation of defence land is siphoned off to non-public/regimental funds, with a pittance credited to government accounts. What galls is the ingenious ways adopted: splitting the license fee into two – administrative charges (rebate) and license fee – the bulk (rebate) going to the non-public fund/regimental fund and a minuscule percentage (license fee) to the public exchequer. The Public Accounts Committee’s scathing observations on the loss of government revenue in 2013-14, directing the ministry to formulate policy within six months to realise government dues from the commercial utilisation of defence land, seem to have had no effect yet, even after four years. A rough estimate would point toward diversion of thousands of crore in the last few decades – possibly more, if indexed to present money value.

There is nothing wrong with considering rents and the lease of defence land, wherever there is an excess, for semi-defence/government/community use like technology parks, industrial areas etc., with appropriate earnings through user charges or lease rent. The prospect of categorising cantonments and making them cost-neutral centres, and also enabling them to become smart cantonments, must also be considered. Further, there is a need to mandate the use of alternate sources of non-conventional energy (including solar energy) as an alternative to the conventional energy consumption within the armed forces. The need for an energy audit wing in the services to review and suggest ways for lower consumption of energy cannot be overstated. Considering the vast availability of defence land, the use of solar energy in a large way would help align with government commitments towards efforts to reduce climate change.

With heavy capital expenditure being incurred by the ministry in the last ten years, the burden of maintenance for the systems acquired is going to weigh heavily on the finances of the ministry in the years to come. There a doubtless need to articulate a proactive policy for maintenance of inducted weapon systems, both Indian and foreign, keeping in view the Make in India policy initiated by the government. In this regard, there is a need to look at measures to streamline the process with respect to policies for maintenance (through Indian-deemed original equipment manufacturers or through foreign manufacturers or government-nominated agencies); develop a benchmark for cost of maintenance; and agree on escalation percentages with foreign vendors to bring down the repair and maintenance costs, as these vendors clearly seem to be taking advantage of monopolistic situations. An analysis could also be made to explore possibilities of opening these monopolistic items to Indian industry with an assured order to kick-start indigenous production of spares. The escalation percentage for annual maintenance cost of repair in dollar/rouble terms would need revisiting depending on the ratio of indigenous/foreign components and the dollar/rupee exchange rate, in view of the changed geopolitical dynamics.

In view of the increasing use of technology and higher life expectancy, there is a need to review possibilities of enhancing the retirement age at various levels to increase utilisation of manpower for a greater number of years. Considering the low age of retirement for jawans and officers, increasing the age by 2-4 years would be a great saving in the form of delayed payment of retirement benefits. Exploitation of trained and disciplined human resources discharged from the services early and rehabilitating them to utilise their competence in appropriate positions in civilian employ in the MoD for mutual benefits is one of the salient challenges confronting the services today. It will not only reduce the burden on pension liabilities but would also help in placement of personnel in a familiar ecosystem. Also, given the burgeoning pension burden that has already touched about 24% of the total defence budget in FY 2017-18, there is a need for the armed forces to join the National Pension Scheme (NPS) that has already been introduced for all civilian employees from January 2004. A separate NPS for the armed forces can be worked out, taking into account all elements of entitlements peculiar to the services. While on this subject of enhancement of retirement age, I must flag that it is rather surprising that the prime minister’s directive issued 14 months ago under Rule 12 of the Transaction of Business Rules, 1961 to increase the retirement age from 60 to 65 for CHS doctors hasn’t been invoked for Armed Force Medical Services doctors yet.

Ordnance factory and DRDO orders

On DPSUs  and ordnance factories, it is wise to tackle the root problems and address concerns. This is what needs to be done: tighten the standard estimates in DPSUs and ordnance factories, which is the matrix and an important cost determinant to set the tone for efficiency in a production organisation; timely revision of percentage of unavoidable authorised rejections as and when technological advancements happen on shop floors, to move towards greater efficiency and timely production; e-procurement; and backward integration with vendors through trust and open examination of vendors’ cost sheets to ensure quality of product(s), timely delivery, economy of expenditure and creating necessary synergy for harnessing future technology. Before apportioning the blame on ordnance factories for less production or delayed materialisation of items, it’s only fair and important to threadbare examine the reasons for the delay – year after year, in the last many years/decades – in the placement of indent, especially in its processing and approval in the MoD. Often indents are placed months after the production year has begun leaving no time for the ordnance factories to materialise the raw material required for production of the items, let alone produce them. This is not to overlook the frequent changes made by the services. These issues need serious and immediate attention.

The Defence Research and Development Organisation’s (DRDO’s) development processes and services’ requirements need syncing through joint ownership and accountability from the very beginning and till the goal/mission fructifies to create a convivial ecosystem for seamless jointness. Realistic project development costs (PDCs) need working out much as the flip side of time and cost overruns have to be capped through strict monitoring and adequate deterrence (financial and technical) to emphasise the importance of timely completion of tasks undertaken. Every instance of a delay in PDC needs to be owned conjointly and explained, deliberated by the DRDO and the concerned service. While the role of the DRDO ought to be exploited to the fullest by the services to achieve objectives of translating ‘Make-in-India’ into a reality, it is also absolutely essential for the DRDO to focus on critical core areas by ridding its deadweight avoirdupois that has procreated 50-odd labs/centres/institutes to fatten itself over the past decades. In the spirit of earning bang for tax-payers’ buck, the need to shun conspicuous consumption, to embed accountability by hugging Fiscal Responsibility and Budget Management principles to ensure transparent fiscal management in revenue items like travel and office contingencies, better coordination between them and the three services/other departments of the MoD, cannot be over emphasised.

There is a need to delegate more and more powers to cut down on time without any value addition and make every layer responsible for their decisions. While the DFPDS-2016 has set the tone with higher delegation, it has also suggested greater accountability through more transparency by leveraging technology, duly aided by concurrent audit that will, throw up instances of bad/poor decision-making to act as deterrence on malfeasance/misfeasance and consequential mismanagement of public funds. Going forward, more innovative and non-intrusive ways of Internal Control Risk Management (ICRM) framework and oversight mechanism will need to be injected into this dynamic equilibrium/system.

And this is where the role of the Defence Accounts Department (DAD) assumes greater significance. Far from the public gaze and little known outside the ken of defence ministry, the DAD quietly audits defence services’ ledgers in the nature of internal check on defence receipts and expenditure. Helmed by the Controller General of Defence Accounts (CGDA), a Secretary-rank officer, it carries out internal audit of expenditure of army, navy, air force, ordnance factories, border roads, coast guard, CSD, and the DRDO, through a crisscrossing network of offices spread across the country.

Speaking from personal experience, more than 35 years ago, it was this mechanism that provided me insight into how cyclones are “manufactured” in trans-Himalayan belt or how road-rollers are “eaten away by white ants” and many such others, each as incredulous as the other. Yet, today internal audit remains fuzzy and wrapped-in – an everyman-for-himself and Devil-take-the-hindmost audit-auditee game – rather galling in times of transparency and legislative focus on outputs and outcomes. Doubtless there is a need to shift paradigm, to converge financial propriety, computerised accounting techniques, administrative mandate for good governance, and to refine skill-sets to make it a pulsating tool for concurrent corrective mechanism done transparently.

Yet beyond this audit function, the DAD is an important cog in the defence financial advisory system. The more the delegation, the more pivotal their role gets, and more the need for transparency. Sadly, all efforts made towards transparency have been flagrantly given a go-by. With no transfer policy in place for IDAS officers despite it being in the works the past two years, networking and nepotism are rife. This is indeed portentous especially in times of higher delegation and devolution of financial powers, when wrong selection of personnel manning these posts of integrated financial advisors can play havoc with the system and become the nurseries of future scams. Needless to say, invocation of an arm’s length system, long overdue, is extremely dire.

Budgetary outlays being an estimate of the likely expenditure for the financial years, there is always the likelihood that as the year rolls out, certain needs for spending funds on certain items budgeted for, are either less or found not necessary. The focus hence should be on the quality of expenditure through diligent scrutiny and not on the need to expend the funds on grounds that the budgetary outlays have to be spent since non-spending leads to lapse of funds – a sure sign of management failure, as is the common perception. Care has also to be taken to move out of the colonial mindset and the many relics of the past to make the organisations pulsating realistic set-ups, which, while reposing faith on incumbents to act in national interest as public servants, abhors invasion of market economy values into a regimental order. In short, outcome-oriented qualitative expenditure with clear deliverables (tangible and non-tangible) ought to take centre-stage rather than the quantitative utilization of budgetary outlays.

I’m aware that I’ll be accused of dissimulation if I do not highlight one other serious weakness of the MoD (as with other ministries): often there is much to be desired in the selection of the right personnel for senior posts. Defence is an extremely vast and an entirely different ecosystem with mixed and varied personnel drawn from very diverse services and backgrounds, and with (to just highlight a few) protocols and shibboleth exclusively its own vis-à-vis other ministries. This, by no means, is to understate the importance of and diminish the role and importance of other ecosystems. The first, even foremost, (naturally) is the familiarity with the subject of defence with all that it entails, and necessarily first-hand experience with the men and material. Unlike other ministries, technicalities are aplenty, the acronyms befuddling, and the vocabularies used arcane (or exotic depending on your familiarity) and nuanced for a novitiate. Dealing with huge public funds (about 17-18% of the union government’s budgetary outlay) as it were, also calls for integrity well beyond the financial – intellectual – because of the humongous spends on modernisation of services’ equipment/platforms spread over years, with likelihood of multiple cascades and with potential to ripple around.

While it would be invidious on my part to point fingers at the questionable acts of any personnel or organisation as an important stakeholder in the procurement process, I would merely allegorically allude to the fact that the distribution of opportunity has typically become an insider trade. Or how else can one explain the egregious “wrongs” perpetrated in the AgustaWestland procurement case when the Defence Acquisition Council (DAC) headed by the RM and with the three services chiefs, defence secretary, financial advisor defence services, DG (acquisition) and CISC as members, blundered through in their judgment – especially in the face of finance ministry’s serious reservations – to recommend the case for cabinet approval? Warped motivations and a sleight of hand of and the grime of corruption is all over the place – haemorrhaging quietly for years on end. Therein lies the nub.

Initiating reforms as suggested above could be done individually at the department/services level (bottom-up approach) or as a complete programme through a formal empowered mandate of the government (top-down approach). Given our national ethos and proclivity, even at the cost of sounding banal, I’ll like to stress that the quantum/levels of discretion must be highlighted to the implementers to minimise distortions. It would necessitate creating favourable conditions on the demand side (awareness, trainings, competence-building) as well as on supply side (e-recordkeeping, openness and transparency) to discourage abuse of discretion. The idea is to harness the ‘power’ of discretion by controlling and channelizing it in the direction the MoD intends taking with emphasis on Make in India, more indigenisation, need for innovation through strategic partnership, and holistic and ingenious recalibration of financial resources tempered with transparency. That would lend balance and pragmatism; it will require going into these aspects as also other co-related issues that are likely to surface on deeper scrutiny and analysis.

Sudhansu Mohanty worked as Controller General of Defence Accounts and then as Financial Adviser, Defence Services before retiring on May 31, 2016.