Parrikar finds $3 bn lying forgotten in US account
New Delhi had placed the money in the Pentagon-managed account for weaponry it was buying under the Foreign Military Sales (FMS) programme
Ajai Shukla | New Delhi March 5, 2016 Last Updated at 17:45 IST
http://www.business-standard.com/article/economy-policy/parrikar-finds-3-bn-lying-forgotten-in-us-account-116030500049_1.html
In a disquieting comment on how the ministry of defence(MoD) manages its money, Defence Minister Manohar Parrikar revealed on Friday that he discovered India was paying the US Department of Defense (Pentagon) for new weaponry, even though $3 billion which had been earlier remitted was lying in an account in Washington.
New Delhi had placed the money in the Pentagon-managed account for weaponry it was buying under theForeign Military Sales (FMS) programme. In this, the Pentagon procures equipment on behalf of foreign governments from US vendors like Boeing and Lockheed Martin.
"Because of ill-management, or lack of attention to this account, we had slightly less than $3 billion which is piled up in this account, which was not earning any interest. It was just lying there in the account," Parrikar said at a press conference here. Parrikar added that he drew on this account, saving money from this year's capital budget, which was returned to the finance ministry. "From somewhere near $3 billion, the account has come down to $1.7-1.8 billion. During last year, we must have paid nearly Rs 6,000 crore from this fund for our committed liabilities…. We have saved almost $700-800 million in foreign exchange", he said.
He also claimed to have saved up to Rs 3,000 crore by tightening up payment norms to Indian vendors, including the defence public sector undertakings (DPSUs). He said payment had been made even to companies that failed to deliver the contracted equipment.
Now, said Parrikar: "We are strictly monitoring the staged payment clauses, according to contracts. We are not allowing it to be loosely paid, even to DPSUs." The current year's budget had allocated Rs 77,798 crore for capital expenditure; but the revised allocations brought that down to Rs 65,808 crore. Even if Parrikar saved Rs 9,000 crore, it still leaves Rs 3,000 crore underspent.
The coming year's capital budget for the three services amounts to Rs 70,380 crore. Parrikar stated that this provides Rs 10,000 to 12,000 crore for new purchases, with the balance pre-committed to instalments on procurements concluded in earlier years.
He claimed, since new contracts required an up-front payment of no more than 10-15 per cent, this amount adequately provided for the Rafale contract, expenditures on the mountain strike corps, and an estimated Rs 1 lakh crore worth of new contracts likely to be concluded in the coming year.
The figures do not add up, though. With the Rafale priced at a minimum of Rs 63,000 crore, the new contracts add up to at least Rs 1.63 lakh crore, for which the advance required is between Rs 16,300 to 24,450 crores.
Parrikar also clarified that the government had instituted a new way of tabulating the defence budget, which would reflect several expenditures that have so far been kept invisible.
According to the new methodology, he announced that the coming year's budget was Rs 3,40,922 crore, including, for the first time, defence pensions and allocations to the MoD. "This amounts to 17.23 per cent of the overall (government) expenditure of Rs 19,78,060 crore", he announced.
He hopes this will clear the confusion, since the budget documents themselves reflected two different figures. In the budget summary, where pensions and MoD allocations were excluded as in the past, the defence allocation added up to Rs 2,49,099 crore, almost the same as the current year's allocation of Rs 2,46,727 crore, just 10.9 per cent higher than this year's revised estimates of Rs 2,24,636 crore.
Adding pensions and MoD allocations to the budget makes for a more reassuring figure, and one that is founded on more honest accounting.
Separately, Parrikar rejected the notion of joint patrols in the Indo-Pacific, carried out by the US and Indian navies. There has been growing speculations, based on statements from senior US officials like the Pacific Command chief, Admiral Harry Harris; and the US envoy to New Delhi, Richard Verma.
Parrikar responded on Friday, "India does joint exercises with other countries, not joint operations. The question of joint patrolling at this stage (with the US Navy) does not arise."
This account is used by the department to procure equipment on behalf of foreign government from US-based vendors such as Lockheed Martin and Boeing
Defence Minister Manohar Parrikar revealed on Friday that he had found $3 billion (around Rs 20,169.75 crore) which was lying forgotten in a US account. Parrikar said that he had discovered India was paying the US Department of Defence (Pentagon) for new weapons despite $3 billion which had been paid earlier was lying in an account in Washington, according to a report by Business Standard.
Here's how Manohar Parrikar managed to find over Rs 20,000 crore in unused defence funds
The money had been placed in the account managed by the US Defence department for weaponry it was going to buy through the Foreign Military Sales (FMS) programme. This account is used by the department to procure equipment on behalf of foreign government from US-based vendors such as Lockheed Martin and Boeing.
Parrikar in the report said that due to ill-management, or lack of attention to this account, the country had slightly less than $3 billion which is piled up in the account and has not been earning interest. He added that he saved money from this year's capital budget as he had drawn on this account.
The account had come down to $1.7-1.8 billion (Rs 11,429.5 crore - Rs 12,101.9 crore) from somewhere near $3 billion, he further added. This he said must have been as they had paid nearly Rs 6,000 crore from the fund for our committed liabilities. He added that they must have saved almost $700-800 million (Rs 4,706.3 crore - Rs 5,378.6 crore) in foreign exchange.
Parrikar said that he had saved up to Rs 3,000 crore by tightening up payment norms to Indian vendors, which include defence public sector undertakings (DPSUs), he said in the report. Payments had been made even to companies that had failed to deliver the contracted equipment, he added.
India's Defence Ministry is strictly monitoring the staged payment clauses, according to contracts. Parrikar said that they are not allowing it to be loosely paid, even to DPSUs.
The revised allocations have been brought down to Rs 65,808 crore, from this year's allocation of Rs 77,798 crore for capital expenditure. The report added that even if Parrikar saved Rs 9,000 crore, it still leaves Rs 3,000 crore unspent.
The coming year's capital budget for three services amounts to Rs 70,380 crore. He had stated that this provides Rs 10,000 crore – Rs 12,000 crore for new purchases, with the balance pre-committed to instalments on procurements concluded in earlier years.
He further said in the report that since new contracts require an up-front payment of no more than 10-15%, this amount adequately provided for the Rafale contract, expenditures on the mountain strike corps and an estimated Rs 1 lakh crore worth of new contracts which are expected to be concluded by the end of the coming year.
However, this claim does not add up as the Rafale deal which is priced at a minimum of Rs 63,000 crore, the new contracts add up to at least Rs 1.63 lakh crore, for which the advance required is between Rs 16,300 crore to Rs 24,450 crore said the Business Standard report.
Parrikar also said that government has instituted a new way of tabulating the defence budget, which would reflect several expenditures that have so far been kept invisible.
This new methodology includes for the first time defence pensions and allocations to the Ministry of Defence. This amounts to 17.23% of the overall government expenditure, he said.
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