EXECUTIVE SUMMARY
REPORT OF THE COMMITTEE ON  REVIEW OF FINANCIAL
POWERS DELEGATED TO THE SERVICES 

1.    General.  Based on the PMO†s Directive to consider higher delegation of financial powers to the Defence Services, a Committee was set up by MoD under FA (DS) to review the financial powers of the three Services and IDS, last reviewed in Apr 2002.   The Committee was tasked to examine the adequacy of delegated powers, suggest measures for improving the existing system and consider whether the Service HQs on the Capital Side are well equipped to take over some acquisition work from the Acquisition Wing. The review has been completed and projections of all major Budget Holders like the MGO, COM, AOM taken into account while finalizing the recommendations.

2.    Trend of Defence Budget  since 2002.   The overall Defence Budget has grown from Rs 55,662 Crs in FY 2002-03 to Rs 89,000 Crs in BE 2006-07, a substantial increase of Rs 33,338 Crs (62.5%). A summary of the Revenue and Capital budget for the three Services and for Revenue Stores budget during the above period is given in Appendix „A†. It would be seen there from that the increase in the Revenue Stores Budget is of the order of 16 % with reference to FY 2002-03. However, if we take into account the fact that the provision for `A† vehicles supplied ex DGOF, which was included in the Revenue Budget in FY 2002-03 but transferred to Capital Budget wef 2004-05 onwards, the net increase in the  Revenue Stores Budget is of the order of 25%.

 (a)   Procurement Budget Utilisation.  The proposed delegation of financial powers vis-à-vis existing delegation, highlighting the percentage of budget utilisation by the Services and MoD before and after enhancement of powers, with break-up for major procurements from Trade, Defence PSUs/OFs and Imports is given at Appendix `B†.  It would be seen there from that the enhancement of procurement powers would result in 46 % of the overall procurement budget getting utilized under the delegated powers of the Services and balance 54 % by MoD, as against existing 30% utilisation by Service CFAs and 70 % by MoD.   Consequently, the number of low and medium value cases handled by the Services and lower echelons will go up from 82% to 85% and only about 15% high value procurements and majority of PAC / Single tender cases would still be referred to MoD.

(b)    Enhancement. Substantial enhancement of financial powers of Services CFAs at all levels is recommended, linked with the Sub Head, detailed head-wise budgetary allocations with a mandate for concomitant improvement in efficiency and op preparedness. The ratio of Revenue Stores budget between the three Services is 52:15:33 for the Army, Navy and Air Force respectively. This aspect has also been kept in mind while proposing financial powers for the High Level Budget Holders (HLBHs) in the Services.  Powers at a glance for HLBHs are shown in Appendix „C†.

(c)     Decentralisation.   Decentralisation of powers is recommended not only to Service HQrs, but down the line to the field functionaries, to facilitate the operating levels to function smoothly within their budget allocations.
 
(d)   Special Operational Powers.  Powers exercisable during War, Hostilities and Special Operations without consultation of IFA, which were delegated to the PSOs / Commanders-in-Chief in the Navy in April 2002, have been now provided for the Army and IAF, to be invoked on issue of a Govt Notification declaring a state of ops.

(e)   Dispensation for Field CFAs.   Certain enhancement of financial powers has been considered for the CFAs to whom IFA cover has not been provided as in far flung and operational areas and for handling emergencies.

(f)    Scaled Items.  Enhancement of powers by 50-100% for the Top Level Budget Holders in the Services is recommended for procurements ex trade, for which deficiency is revealed in the provision reviews. The proposed powers for Procurements/Repairs/Overhauls ex PSUs/OFs and Govt Deptts in the Navy and Air Force are generally about 1.5 times those for trade.

(g)    Non Scaled Items.   Financial powers have been increased by 50-100%, to allow for induction of newer and more technologically advanced equipment to meet special requirements, for tests, trials and experimentation and to replace obsolete and obsolescent items. Such powers have been confined to the top two tiers of hierarchy in the Services.

(h)    Imports.  Powers for imports have been enhanced to Rs 20 Crs for the highest CFAs in the Army/IAF and to Rs 12 Crs for the Navy as per their projections. This will also take care of the Army†s requirement for Special Clothing and Mountaineering equipment for troops deployed in the Siachen Glacier. The powers for purchases ex import include powers for release of FFE in consultation with respective IFAs, upto the limits of the delegated financial powers of various CFAs. The enhanced powers will enable between 35-45% utilization of the import budget by the Services, as against existing 20-25%.

(i)     Rate Contracts.    Powers have been delegated to the Service HQrs and DGAFMS to enter into Rate contracts for common usage items/ stores / medicines with standard specifications and large annual turnover to enable users/ hospitals to make direct procurements based on rate contracts finalised centrally by the former.

 (j)   Type of Procurement.   In line with the MoF guidelines given in DFPRs, a clear distinction has been maintained between the powers proposed for sanctioning procurements on OTE/LTE basis and purchases on  Single Tender and PAC basis. Further, no enhancement of financial powers for Single tender purchases have been recommended but certain high level CFAs who were omitted earlier in Apr 2002 e.g. VCOAS & VCAS, have been now included.

Institutional Safeguards 

4.      Measures Suggested.  The following checks and balances are being instituted to ensure that the enhanced delegation of financial powers to the Services does actually lead to better fiscal management in the Services, resulting in tangible benefits by way of timely acquisitions, time bound implementation of schemes / projects, improved availability and serviceability state of major weapon systems / platforms / equipment in the hands of the field functionaries and optimum utilization of in-house capabilities built up over the years :-

(a)     Priority Procurement Plan.    Formulation of a clear Revenue Priority Procurement Plan for each Service in all major areas of procurement, has been mandated to indicate the carry forward liabilities and new schemes during the FY, with periodical reviews to see the results achieved vis-à-vis targets set. Funds are to be spent within the ambit of overall prioritized plan and CFA at each level should have his plan for the budget allocation held by him which dovetails into the overall plan for that purpose. These plans will be made both at HQ level and Command level in respect of various budget holders and notified formally in consultation with their respective IFAs.

(b)    Link between Revenue and Capital Plans.  The progress of schemes under the delegated powers of the Services and those to be executed under MoD powers must be monitored separately on a monthly basis at the level of MOD. The Revenue Procurement Plan must be correlated appropriately with the Capital Acquisition Plan to ensure that the linkage between the two is well taken care of.

(c)    Accountability. Clear accountability norms to be established by delineating measurable performance parameters for each major area of expenditure, such as availability of major eqpt / weapon systems /aircrafts /ships, maintainability and serviceability aspects, Major Works Program, automation of Services, training etc. Identification of these quantifiable targets is to be completed by the Services in six months time, with regular monitoring of performance against targets set, in sync with the outcome budget of MoF.

(d)    Approval of Procurement.  The TPC / PNC will only be a recommendatory body for procurements which will be sanctioned at next higher level by the CFAs, both in Service HQrs and in MoD. 

(e)    Use of In-house Capability.   The in-house capacity of Ordnance Factories, Army Base Workshops/Advance Base Workshops, Base Repair Depots, Naval Dockyards and Defence Shipyards must get utilised optimally.

(f)   Multiple Interface.  Revenue Procurements having Civil Works and manpower induction components should be reviewed as projects and monitored on a regular periodicity with reference to major milestones.

(g)   Implementation of Transportation Model.  The transportation model for direct dispatch of stores from the OFs /PSUs /Suppliers to the ultimate consignee must be implemented to obviate central stocking to the  maximum extent possible in the CODs / Depots, reduce transportation costs and ensure timely availability of equipment with the actual users.

5.   Capital Acquisitions.   The Service HQrs, DG (Acq) and Defence Secretary had specifically asked the FA (DS) Committee to consider delegation of financial powers to the Services for Capital schemes.  Delegation of financial powers to the Services at the level of Vice Chief/ Dy Chief is recommended for Capital Schemes/Projects costing upto Rs 10 Crs. The CFAs would be able to sanction approx 35% of the total Schemes and approx 1 % of the budget in the AAPs of the respective Services. Details are given in Appendix „D†.  Necessary checks and balances are being provided to ensure that the discipline that has been built up in the Acquisition Wing in regard to AON, Quantity Vetting, categorization and stipulations of DPP 2005 are duly factored in. A Quarterly Report should be rendered by the Services/HQ IDS to the DG Acq on the progress of various capital schemes under delegated powers, indicating the actual cash outgo against the budgetary projections in the AAPs.   A provision has been made for a review after one year.

Allied Issues

6.   Powers Without Financial Advice.    The Services had asked for delegation of certain financial powers without consultation of IFA, to CFAs where IFAs have been provided. Enhanced delegation of financial powers without financial concurrence has not been considered in such cases, as this goes against the grain of financial advice system. Accordingly, they have been asked to process such proposals separately on file, with detailed supporting justification. 
   
7.    Financial Powers of MoD.    Concomitant increase in the financial powers delegated to MoD functionaries in Jan 2003 would also need to be firmed up in consultation with the concerned JSs and Addl FAs. Similar principle for approving procurements as in case of Service HQrs will apply to TPCs concluded in MoD.