The government has “recalibrated” the management of an account, which was used to pay money to the US under Foreign Military Sales route, after a review showed that nearly USD 2.3 billion had piled up without earning any interest, Defence Minister Manohar Parrikar today said.
The minister also said that the Defence Budget for the next fiscal, “nearly Rs 2.59 lakh crore” sans the pension allocation, was adequate and as per the ministry’s requirement.
India and the US have now fine tuned the FMS procedure whereby rather than raising bills case-wise every quarter, all the funds against various cases have been pooled together in a corpus.
The corpus had been created in September last year, defence sources said.
A statement released by the ministry said that as and when funds are required to be paid per case, fullfilment of contractual liabilities, the said amount is being withdrawn from the corpus.
“Consequent to this creation of the corpus in consultation with the US government, no payments have been made in the last two quarters of the financial year 2015-16, against cases which necessitated payments, against the said contracts.
“Instead, payment is being effected from the corpus of 2.3 billion US dollars. It is hoped that no payments shall be required to be made till the amount of 2.3 billion US dollars is depleted and there is a necessity for us to replenish certain amount as required,” the ministry said.
It said that this has happened through “scrupulous and holistic financial management”.
Consequently, while the US government will continue to meet their contractual obligations, there will be no additional burden on the Indian government on this account.
It enables utilisation of scarce funds on other projects and hedges the country against adverse exchange rates, the ministry said.
Earlier in the day, Parrikar, who had put the corpus figure at about USD 3 billion, countered reports that the ministry has failed to utilise about Rs 11,000 crore from the capital budget of 2015-16. He said the country has actually saved money.
He said that even though the provision of capital acquisition in the budget was around Rs 77,000 crore, the actual anticipated spending will be around Rs 66,000 crore.
“We have taken measures by which Rs 11,000 crore saving appears there,” Parrikar said, briefing reporters about the defence budget for the next fiscal.
The minister said this was the “first time” that Defence
Ministry took stock of Foreign Military Sales under which defence equipment is bought from the US via a government-to- government route.
“We pay to the government in an account which is held by the US or managed by the government of US from where the payments, as per the contract, is made to private companies.
“Unluckily, because of ill management or lack of attention to the provision of this account, we had slightly less than USD 3 billion dollars (USD 2.3 bn) which had piled up in this account and was not earning any interest,” Parrikar said.
He added that somewhere around May and June last year, the ministry held a “review” and realised that “unnecessarily money is lying with the US government without appropriate contractual obligation being carried out”.
“And we are transferring the money without actually taking stock of the balance. So, it was a government of India account with the American government for FMS. I am happy to tell you that we have recalibrated the full management of the account,” he said.
Parrikar said the amount in the account has now come down to around “USD 1.7-1.8 billion”. Explaining how so much money got accumulated, he said the money is sent in stages as per the contract schedule.
“At times, for some reason the schedule gets disturbed. Sometimes, the amount is calibrated based on rough calculations and the actual expenditure is slightly less. Sometimes, it goes up but most of the time it is less.
“Suppose the issue is over and all payments have been made. Then we realise that about 2 lakh dollars are lying in that particular account.
“Secondly, is there is a disruption of staged payment… actual consumption is less. In nutshell, money got accumulated, disbursal was less. There was a delay in payment and we are now using it for clearing,” he said.
Parrikar said that last year, the ministry paid about Rs 5,000-6,000 crore from this fund for the country’s committed liability for supply against the US government’s direct military sales route.
“Money has been paid, but the government is saving from its budget Rs 5,000-6,000 crore which we paid. We have saved USD 700-800 million precious foreign exchange that has been utilised from the fund which was lying there because of lack of management. We have now started managing it,” he said.
Parrikar said that even though an expenditure was
incurred, money did not leave its coffers.
“The money was already in someone else’s pocket. We have only asked him to pay on our behalf,” he said, adding that another Rs 2,000-3,000 crore was saved because the ministry is now strictly monitoring staged payment clauses.
“We are not allowing it to be loosely paid even to defence PSUs. So, these payments of committed liability have slipped,” he said.
Talking about the budget for the next fiscal, he said there is Rs 70,000 crore for defence acquisition even though the actual capital budget is over Rs 86,000 crore. The spending through the capital route is over a period of time, he said.
As per new contracts being signed, nearly 10-15 per cent of the amount has to be paid at the onset, he added.
Parrikar explained that for the nearly Rs 1.20 lakh crore worth of contracts signed since the NDA government took over, it would have paid a maximum of Rs 17,000 crore.
“Acquisition funds provided is as per calibrated purchases which are going to be done. For the first time in Defence Ministry, we have carried out an extensive review of the next 10 years’ cash flow position vis-a-vis the requirement of the military,” he said.
Replying to a query on the Mountain Strike Corps, which was cleared by the Cabinet Committee on Security (CCS) in September, 2013, Parrikar said, “Whatever arrangements need to be made, have been done.”
Asked about large sums to be spent on salaries and pensions in the wake of the expected decision on the Seventh Pay Commission, Parrikar said the “expenditure is inevitable”.
He added that the government was keen on rationalising the strength of the army through a process undertaken by the force itself.
“We have asked army to undertake the exercise,” he said.
Parrikar said another way of cutting down expenditure was to use simulators for training pilots and drivers.