Defence Economics and India

In India, defence  economics has never been given any importance. It will not be incorrect to say  that defence economics as a discipline is alien to Indian policy makers. Its practice  is limited to accounting and audit of defence expenditure. No exercise has ever  been undertaken to improve the process of decision making to obtain best value  for money.

There are a number of reasons, both historical and cultural,  for the total neglect of defence economics in India. Primarily, there is total  lack of a culture of cost-consciousness. Cost and affordability have never been  analysed to ascertain the most prudent option. Thrust has been towards managing  within the given budget rather than identify more cost-effective alternatives. For  example, the services formulate parameters of equipment sought in total  oblivion as regards their cost. They want the best; cost and  affordability notwithstanding.

Additionally, defence has generally been considered a holy  cow with secrecy shrouding its functioning. Public interest has been limited to  a few high profile procurements that have come under scrutiny. There are no independent  think tanks to create public awareness  and mould public opinion.

In India, Defence Accounts  Department (DAD) provides financial services cover to the Ministry of Defence  (MoD). See box. Functions performed by DAD can be grouped as follows:

•Preparation of budgetary projections and monitoring  expenditure. 
•Examination of proposals received from the services to  ascertain their compliance with financial rules and regulations. Executives  have to obtain financial concurrence before incurring any expenditure.     
•Carrying out of post-audit of all transactions to identify  infirmities, if any.

It will be seen that DAD  officials are not tasked to perform any advisory function as regards initiation  of measures to affect savings. Their functioning is totally passive in nature.  Executives ask them if a proposed transaction would be in order and proceed as  per their advice. DAD only enforces financial discipline. It does not provide any  dynamic defence economic advice. There are three main reasons for this  inadequacy: 
•As rendering of defence economic advice is not a part of  their mandate, they are neither equipped nor trained for it. 
•Only a small number of them possess any academic  qualification in economics (or related discipline) as it is not essential for  entry into DAD cadre. 
•Most of them fail to acquire domain expertise due to  frequent transfers to totally unrelated work-areas.

Many DAD functionaries are frank enough to state that their job and functioning  is limited to interpreting financial regulations and ensuring their compliance.  The present Financial Advisor to the Ministry of Defence has realised this  deficiency and has initiated a number of studies of myriad issues.

As can be seen, MoD is  totally bereft of any economic advice whatsoever. A major holistic exercise needs  to be undertaken to evolve methodology for meaningful application of defence  economics to various stages of defence planning to help initiate measures to save  national resources. Some of the major issues with considerable economic  implications that merit immediate attention of the Indian policy makers are as follows:

•Functional Issues.
•Adoption of  scientifically evolved ‘Coefficient of Core Consumption’ model to reduce  expenditure on non-core functions. Eschew counting heads in trying to achieve elusive  ideal ‘teeth to tail ratio’.    
•Exit unrelated fields  like military farms.   
•Resort to innovative  measures like outsourcing of non-core functions.   
•Streamline procedures and  processes for speedy decision making. 

Structural Issues.
•Integration of facilities  of the three services.   
•Creation of a potent and  viable pool of reservists. Making short service commission attractive for  increased intake of young officers.   
•Enlarging the size and scope  of the Territorial Army.   
•Restructuring based on  infusion of technology and changing threat perception.   
•Utilisation of highly skilled  and trained ex-servicemen pool for economic growth and societal betterment.  

Equipment.
•Making procurement purely  need based as per realistic parameters.   
•Transparent evaluationas per previously declared matrix and based on life  cycle cost concept. Maintenance support outsourced to the manufacturer.    
•Exploring joint development  and joint production of equipment by following consortium approach to defray  costs.   
•Exploiting competence of  private sector by promoting effective public-private partnership. Acquisition  of proficiency in systems integration.   
•Application of dual use  technology and utilisation of commercially available equipment.   
•Effective use of offsets for technology jump and boosting  exports.