The first time one heard of the Tour of Duty (ToD) proposal for the defence forces was in the year 2020. In the absence of any details, for a volunteer Army, the proposal looked somewhat offbeat. Now after two years, the concept appears to have gained traction, albeit with only broad contours known and no specific details provided officially by the Ministry of Defence. However, it is evident that the objective may be to effect savings in revenue expenditure and Pension Budget. Since, the proposal appears to be transformative as far as recruitment and manning of Defence Forces is concerned, with wide ranging ramifications, it is imperative that the pros and cons are thoroughly debated before its implementation and in the process a set of alternatives are identified, so much the better for the organisation.
Concept of ToD
As is being commonly understood, ToD entails recruitment of some personnel (exact numbers not known), into the Defence Forces for a period of three to five years. After the completion of 3/5 years tenure, they will either be absorbed in CAPF/ Corporate Sector or let off with some Severance Package to enable their self employment. They will obviously be not entitled to any pension. In the absence of any clarity, it is being assumed that the entry level qualification, training period, posting profile and duties assigned to these personnel would be the same as the regular soldiers. It is not known whether they will get the same salary and allowances as regular recruit or a fixed /lower package.
Over a period of time, bulk of the personnel below three or five year service are expected to be these ToD entries. (Also being termed as Agnipath entry and personnel being named Agniveers). It is also being spoken that after a few years, 25% personnel would be below three years’ service and another 25% between 3-5 years’ service. The inferred objective of the proposal is to reduce the expenditure on military pensions and thus achieve compression of revenue expenditure. This in turn will enable allocation of more funds for capital acquisition which will facilitate military modernisation at a faster pace.
Probable Genesis of the Concept of ToD
Indian Defence Forces have a proven, time tested recruitment and induction system for its manpower which not only satisfies aspirations of youth from various regions but also meets the qualitative requirements of the Forces in terms of physical fitness, skills, trainability and leadership potential which together manifest ultimately in the operational effectiveness of the Forces. This system is just fine tuned from time to time in consonance with the requisite educational standards, technological developments and societal requirements (eg induction of Women Officers), there being no cause for any major intervention. However, the concept of ToD, if implemented, will entail a major shift in the recruitment, manning and discharge pattern of a significant number of defence personnel, mostly other ranks. Thus, the genesis of this path breaking proposal and its ramifications on the organisation need to be examined.
Over the years, a large Defence Budget but a slow pace of military modernisation has been the focus of many public discourses. For the FY 2022-23, the Defence Budget has an allocation of Rs 5.25 lakh crore including approximately Rs 1.2 lakh crore in pensions. Revenue expenses together with pension bill leave an inadequate amount for modernisation, especially in case of Army which is manpower intensive. One need not be an expert to infer that revenue expenditure should be capped to free more funds for capital required for modernisation. The ToD concept ostensibly aims to achieve just that by removing the pension liability of a large number of personnel who will exit after 3/5 years’ service. However, this is exactly where experts are required to rationally assess whether the ToD concept is the optimal way out to achieve compression of revenue expenditure and pension bill by destabilising a proven recruitment and discharge system or are there other means to achieve the same without impacting operational effectiveness of Forces.
The Defence Budget: Are We Dealing with Many Myths?
The trigger for the concept of ToD is clearly the perception of a large Defence Budget and the need to cap it, especially the need for reducing the ever-burgeoning Pension bill. Every year during the Budget Speech, the Hon’ble Finance Minister announces with fanfare an increased allocation to Defence; every year it is called the highest ever defence budget allocation. True, in terms of absolute figures but requires a nuanced analysis to unravel the pertinent facts. The whole gamut of figures associated with the defence budget needs a closer scrutiny and ratio analysis with standard yardsticks along with their progression over the years to come to a meaningful inference. The official statistics for the last decade are quite revealing and are reproduced in the figures below.
Figure 1: Budget of Ministry of Defence (2010-11 to 2020-21) (in Rs crore)
Figure 2: Defence expenditure as a percentage of GDP and total central government expenditure (2010-11 to 2020-21) (in Rs crore)
The Defence Budget, as seen from Figure 1 is growing at a CAGR of just 9% while the nominal GDP has been growing at a much higher rate, approx. 14-15% average. Figure 2 shows the Defence expenditure reducing as a % of GDP, it is a secular decline. To put things in perspective, throughout the decade of eighties, defence budget as a percentage of GDP was upwards of 3.5% while now the defence budget (including pensions) may barely exceed 2% of GDP in current Financial Year. The inference is that the perception of increase in Defence Budget is actually an optical illusion. In fact, in real terms, it has been decreasing over the years. If GDP is visualised as a piece of national cake, then defence is getting a smaller and smaller, ever reducing slice of this cake!! A former Prime Minister had rightly stated the necessity of defence expenditure being increased to 3% of GDP.
The next perception to be assessed is the inordinate burgeoning of the pension bill. As seen from Figure 3, the defence pension has increased at a CAGR of approx. 13.5%. This pension bill increase is again lower than the nominal GDP growth, despite grant of OROP and arrears during the period. However, there is no denying the fact that the defence pensions are increasing at a faster pace (13.5%) than the defence budget itself (9%), ie pace of increase is 50% higher.
Figure 3: Expenditure on defence pensions (2010-11 to 2020-21) (in Rs crore)
It is worthwhile to mention that average per capita pension of defence personnel is much lower than a Central Govt civil employee. The Defence Pension Budget, however, is big in absolute numbers due to large number of retired personnel which itself is a function of soldiers being compulsorily retired early from 36 years age onwards owing to the requirement of maintaining a young and physically fit Forces. A study has also shown that Life Time Earnings (Pay and Pension till average life expectancy of 70 years) of a Civilian Central Govt employee is about 60% higher than a corresponding pay grade Defence employee. Thus, attributing the high defence budget to higher salary and pension payments to defence personnel would also not be rational.
Another myth which abounds is that Defence personnel get pension from Govt, civilians (post 2004) are on NPS and do not contribute to pension liability of the Govt. The fact is that the Govt contributes to pension of defence personnel as well as civilian employees (10% of Basic Pay every month). The difference is only conceptual; while the defence pension system is on “Cash Accounting System”, the NPS is based on the “Accrual System”. Defence Pensions have to continue in its existing form as NPS is not suitable for employees who start retiring from the age of 36 years onwards. However, another study on NPS vs Defence Pension system has shown that if Defence Personnel also serve for 54 years age or more, NPS may be a preferable system to even the OROP which they are entitled today.
As per the latest SIPRI report, India is the third largest military spender in the world. Although it can be argued that India is big country with serious security concern etc yet this information needs to be analysed in a different manner keeping the focus on the burden on the taxpayer and thus affordability of defence expenditure. Gen Surjit Singh in his blog “Guftagu” has introduced the concept of “per capita soldiers”. Our population today is estimated to be approximately 138 crores while the strength of defence forces is approximately 14 Lakh. Thus, as per the “per capita soldier” concept, the number of combatant soldiers for every 10000 Indians is 10.14. This ratio is a lot higher in other countries. The approximate figures for others are, US 47, China 17, Pakistan 37, Russia 59, Sri Lanka 75, Iran 65 and Israel (leading the pack) 210. These statistics reveal that our country has a large population but the size of military is not that big and tax payers in India have to comparatively pay less to pay the soldiers. So much for affordability of defence expenditure in India!!
Even if we compare the affordability of defence expenditure within India, today vis a vis four decades back, the figures are revealing. In 1981, the Indian population was approx. 68.30 crores while the defence forces were 12.5 lakh strong. The per capita ratio is 18.3 soldiers for every 10000 Indians. Thus, in the last four decades, the number of soldiers for every 10000 Indians has dropped by more than 55%, ie average burden on a taxpayer is 55% lower.
All the aforesaid analysis indicates that our defence spending, whether as a percentage of GDP or on pro rata basis is decreasing gradually and continuously. In comparison to most countries too, our spending is lower despite having huge security concerns. The inference is clear; the size of our military has increased very little in the last four decades, despite increasing security concerns and advent of asymmetric warfare against the country. Thus, the Taxpayers are now paying lesser to pay the soldier.
Will ToD lead to financial savings?
As is evident by now, the Indian Defence Expenditure, including the Pension Budget, cannot be construed as unreasonably high, whether seen in the international context or even as per domestic growth over the decades. However, there is no denying the fact that a middle income country like India needs to economise expenditure, wherever possible and invest in growth. The ToD concept may be an initiative in that direction and needs to be examined for any significant financial savings.
The analysis of the financial implications of ToD is being restricted to OR; the OR pension budget being the major component owing to large number of OR in the Army. In any case, the officer cadre already has a Short Service Commission entry where officers can exit at 5/10/14 years’ service without any pension obligation to GoI.
For the purpose of analysis, it is assumed that the men on ToD of 3/5 years, have the same entry level qualification, same selection criteria, same training duration, same posting profile and salary as the regular Army recruit. It is also assumed that the strength of regular Army will be offset in same numbers as the number of men on ToD. However, it is not clear as yet that after the termination of ToD, are these men going to be absorbed in CAPF/PSUs or will they be let off with a Severance Package?
In case, the Agniveers are to be absorbed in CAPF/PSUs, there service in CAPF is liable to be seen in continuation. Thus, the pension liability will just shift to Ministry of Home Affairs (MHA), there being no overall savings to the Govt.
In case, the Agniveers are not to be absorbed in CAPF but given a Severance Package on exit, then the quantum of this package has to be offset from the pension bill savings. Given the fact that the training burden and expenditure on training of Agniveers will be higher, as they will have a turnover of 3/5 years, as compared to minimum turnover of 19 years for regular recruits in Army and higher in Navy & Air Force, there may not be any savings/insignificant savings in revenue expenditure.
The only way, the concept of Agnipath may lead to savings in Salary and Pension expenditure is if Agniveers are given lower salary then the regular Army Recruits and given no Severance Package. In such a scenario, the ToD scheme is likely to quickly become unpopular and fail to attract youth who can meet the minimum selection criteria. Within the unit, it will violate the principle of “Equal Work, Equal Pay” and the Commanding Officer may have to manage a demotivated bunch of Agniveers who will compromise the unit morale, bonding, cohesion and ultimately operational effectiveness.
Why Does the Pension Bill Pinch?
It has already emerged that there is no inordinate increase in expenditure on Defence Pensions (Figure 3), given that rates of DR applicable to pensioners are common for all Central Govt employees. In fact, as per the 7th CPC report, defence pensioners constitute 46.5% of all pensioners and account for 44% of overall pension expenditure while civilian employees (less railways) constitute 21% of all pensioners while receiving 28% of all pensions. Clearly, even the per capita pension of defence personnel, despite OROP is lower than per capita pension of civilians. Then why is it that Defence Pensions are always in cross hairs? The reason will be evident from the simplified scenario which is painted below.
Let us assume that two young friends complete their matriculate together; one joins the Army and other CAPF. By age 36 years, the Army soldier has now retired and getting pension, another soldier recruited in his place while the CAPF boy continues to serve. By the time two friends reach 55 years age, Army has retired two soldiers from the same job, given them pension and recruited a third soldier while the CAPF man continues to serve and earn salary. So, the Army has already incurred expenditure on three salaries (given one after another) and simultaneously two pensions for the same job as against only one salary expenditure incurred by CAPF.
As per answer given by the Ministry of Personnel, Public Grievances and Pensions in Lok Sabha on 16/03/2022 to an unstarred question 2324, the total number of defence pensioners stands at 34,10,567 while the total number of pensioners is 68,62,465. The inference is startling, ie today, half of the total Central Govt pensioners today are defence personneland it only corroborates the analysis above. It also indicates that that India has 2.4 defence pensioners for every serving soldier while the ratio for civilians is approximately 1 pensioner for each serving employee. The reason for high pension bill of Army, is now evident; it is this problem which needs to be tackled first and foremost to make a real dent in the pension bill.
Alternatives For Optimising Defence Expenditure : Few Suggestions
It is evident that firstly the concept of ToD is apparently tackling a non existent problem, ie, inordinate increase in Salary and Pension Bill. Secondly, even if it is assumed that the Govt has consciously decided to reduce the strength of regular Forces through the concept of ToD and thus lower the revenue expenditure, it is abundantly clear that there will be nil/insignificant savings, only transfer of Pension liability from MoD to to MHA. Savings can be achieved only if Agniveers are given lower emoluments, there is no lateral absorption and no severance package. However, in this scenario, the scheme itself may peter out after the initial euphoria. Moreover, unit having a mix of Agniveers and regular OR will have additional operational challenges, not to mention the HR issues of manpower planning, promotions, requirement of matching organisational rank and service structure as per the War Establishment with the available human resources, whenever Agniveers are posted to a unit. The structural difference in staffing of a military unit has to be understood; even a subunit at the lowest rung, ie an Infantry section has command and control elements and well defined distinct duties and responsibilities for its men, instead of being a set of merely 10 soldiers. Tinkering with this structure due to exigencies of the new recruitment pattern will not only impact the operational effectiveness of this sub unit but all such sub units integrated together is bound to have an upwards cascading adverse effect on military outcomes.
So, are there better alternatives which will effect savings in revenue/capital expenditure without destabilising the HR imperatives of a Unit, both in war and peace and without lowering its operational effectiveness? In the past, there have been Expert Committees constituted by the MoD, with similar objectives but they have mainly focussed on manpower optimisation and privitisation. Consequently, the Army, a manpower intensive Service, has been in a continuous loop of optimisations since the last three decades, reaching t saturation levels. Perhaps, it is time to focus on the many other levers available to optimise defence expenditure. Suggested below are some of the possible measures having the potential of large savings in defence expenditure.
In the past, successive Pay Commissions have recommended lateral absorption of retiring soldiers in Police and CAPF as a solution to this problem. However, it never got implemented, ostensibly as it impinges on their cadre structure and promotion policies of these departments and was not acceptable to them. Thus, the need to look at other viable alternatives.
The first and foremost revenue/pension bill saving measure is a Graded Retirement Profile of defence personnel, specifically Army OR who start retiring from 36 years age onwards. But isn’t a young and physically fit profile of Army a sine qua non? Yes, surely, especially of soldiers in combat arms in general and Infantry units in particular. But what about men in combat support Arms and Services? They may be able to serve till 55 years of age without impacting operational effectiveness. After all in Navy and Air Force, men can serve till 55/57 years of age, subject to their suitability and physical fitness verified periodically. Why can’t similar graded retirement ages profile be adopted for men in Supporting Arms and Services? A rough estimate is that at least four lakh OR may be able to serve longer with higher retirement ages, thus cutting the pension liability significantly and also reducing training expenditure for new recruits. Mindfully, the proposal of graded increase in retirement ages can be easily implemented without impacting the existing age profile of combat arms in general and infantry units in particular. In fact, apart from reduced training costs, it will facilitate retention of advanced skill sets, especially technical, within the Forces. It is a win – win formulae for all including soldiers.
Next big scope in cutting down revenue expenditure is effecting savings in revenue expenditure itself. With e-procurements and advent of GeM , it is imperative that apart from civil end use or dual use items, even common Defence use items are also introduced and procured through GeM. In addition, there is an urgent requirement of having algorithms which detect cartelisation amongst supplier of defence items; these cartels have to be busted to lower procurement prices. The DPM has to go beyond the L-1 system and introduce measures for effecting economy in revenue procurements. The CGDA has to integrate itself with its payment module ported on GeM. These measures by themselves have the potential to save about 20% of defence revenue expenditure on procurements/purchases.
While on procedures, the Capital Procurement Procedures, despite many rounds of attempted simplifications and DPP 2020, the process remains time intensive. By the time acquisition process reaches culmination stage, the prices have multiplied (commercial bids may have already jacked up prices knowing fully well the time consuming process) and the technology/specifications of items no longer state of the art, may be even obsolete. MoD will be well advised to have some case studies made on some past procurements to determine the Opportunity Costs of delays in procurement processes and to prevent the same mistakes in future procurements by suitable amendment of procedures. There is potential of large compression in capital expenditure here.
Another area where significant savings can accrue is in the realm of Indigenisation. While Indigenisation is the buzz word as part of” Atma Nirbhar Bharat” policy, there is inadequate understanding of the ecosystem required for successful indigenisation, at all levels, as is also evident from procedures. Firstly, Indigenisation under both Capital and Revenue heads requires significant amount of capital infusion by DRDO/PSU/ Entrepreneur for R&D which may or may not result in successful outcomes. Thus, it requires some degree of hand holding over protracted periods. Secondly, in case of successful indigenisation, there has to be a system of assured orders which does not exist today. For Indigenisation thru the Capital route, if Make II procedures haven’t made adequate headway, it is time to innovate a Make III procedure, so that the ecosystem is more entrepreneur friendly. From the Revenue route, there are many cases, especially in indigenisation of assemblies/subassemblies, wherein even after successful indigenisation, the agency hasn’t got any orders, thus rendering all their efforts and investment futile. This discourages entrepreneurs and reputed names are loathe to enter this field. Indigenisation yields lot of savings, especially in Foreign Exchange every year but it is only the tip of the iceberg. For the full potential to be tapped, the indigenisation ecosystem has to integrate the MSMEs and there has to be active collaboration between MoD and Dept of MSMEs.
A recent trend has been “Out Sourcing of Services”. This is a useful tool in reducing expenditure and future liabilities. However, one needs to proceed with caution and not indulge in reckless outsourcing which may end up increasing expenditure instead of economising. There are a few examples of the same in recent past. While identifying more and more tasks/services which can be outsourced, there is a need to do the Cost Benefit analysis diligently to outsource only those activities which reduce costs without adversely impacting the functional efficiency.
While being on Manpower Optimisation and Outsourcing of Services, there are some activities in peace stations can be outsourced and combatants saved from these duties, eg Campus Security, Housekeeping, Messing etc. Systems can be worked out for retaining these functionalities intrinsically within a unit and corresponding manpower authorised only when deployed in field. This has the potential of effecting large savings in manpower in peace stations.
Another big savings in defence expenditure possible is in the realm of Married Accomodation Projects. As per the Policy adopted more than a decade back in Army, the objective is to provide married accommodation to all personnel at the place of their posting. This is considered a faulty and altogether wasteful policy. It is known that many families, including OR families, do not want to reside in the station where the officer /OR is posted due to requirements of children education, health of elders in family or other miscellaneous reasons. So, the accommodation built for them in the place of posting remains unoccupied while the soldier cannot even claim HRA. While enormous capital funds are sunk into the construction and thereafter revenue expenditure incurred on maintenance, the accommodation may go abegging while the soldier remains dissatisfied. There is a requirement of reviewing all such future accommodation projects and scrap/ lower the number of units, thus effecting huge savings in defence expenditure. The resultant shortfall in married accommodation in peace stations, if any, can be met by grant of HRA and MEO hired accommodation.
While the lateral absorption of soldiers in Police/CAPF wasn’t found feasible, what about absorbing ex-servicemen in civilian departments of MoD? A number of retiring soldiers can be straightaway absorbed in MES, Ordnance factories (now reconstituted into Ordnance Boards) and even defence PSUs and DRDO establishments; if required the skill gap can be filled by some training prior to their lateral absorption. After all MoD itself is a big employer of civilians and remember charity begins at home
While talking about civilian departments in MoD which include DRDO establishments, OFS/OFB, MES and DPSUs, it is worthwhile to point out that they employ about four lakh personnel and may be having an equivalent number of pensioners who are paid salaries and pensions from defence budget. It is time that Defence Budget is split into Military Budget and Civil Budget of MoD. It will not only facilitate a more focussed analysis of economy measures possible, but lower the opprobrium on current Defence Budget.
Apart from the economy measures identified by the organisation for uniform implementation, there are many measures possible at the unit level which can effect significant savings in revenue expenditure. Each Commander knows where wasteful expenditure happens; he only has to be sensitised and incentivised to eliminate these wasteful practices and effect savings in Revenue expenditure. It is estimated that at least 10% savings in revenue expenditure can be realised every year at each unit/ financially empowered entity. There is a need to institute a Drive to eliminate wasteful expenditure at every level.
Surely, there are many more impactful measures possible for optimising defence expenditure; for that a meeting of minds between domain experts and specialists from all Services/Departments is required. For this to happen, a tiered, protracted but time bound exercise is required to be initiated.
A developing nation having serious security concerns, anywhere on the globe, will always have this dilemma of allocation of resources to defence forces vis a vis other sectors like health, education and infrastructure. For India this dilemma is acute, because of two nuclear armed adversarial neighbours with combined defence expenditure almost five times that of India on one hand and rising aspirations of materialistic growth of populace of a middle income country which is also a vibrant democracy, on the other hand. There will be many views on what is the right balance and how to strike it. However, what is irrefutable is that only a strong and secure nation can aspire for economic prosperity; military strength is an important constituent of Comprehensive National Power.
While it is agreed that there is a need to effect savings in revenue head of the defence budget, it is felt that ever increasing revenue expenditure is not the main cause of insufficient allocation available for modernisation of the Forces. Curbing revenue expenditure for freeing up capital for modernisation is at best a quick fix solution, a “fauri illaj” as per Army parlance, with only a limited capability to give a push to modernisation of Forces. Real fillip to the Capital Budget and Modernisation of Forces can only be given by arresting the secular decline in defence budget allocation as a percentage of GDP. For a nation which has to contend with the threat of a two and a half front war with combined spending of adversaries being five times more on defence, reverting the defence budget gradually to 3% of GDP is an absolute imperative.
It appears that the ToD concept has not been adequately analysed in the corridors of power, even for its potential to effect savings in the pension bill which in all likelihood will be insignificant. However, it is felt that the only way the ToD concept can serve some purpose is that it should be made a prerequisite for a job in all defence establishments and all Ministries should have a quota for these personnel in their establishments. Even in this option, care will have to be taken to limit the annual intake to a figure which does not disturb the HR balance and combat effectiveness of the units.
As far as alternatives for optimising defence expenditure are concerned, the focus has to be on all possible measures, capital as well as revenue, which do not adversely affect combat potential and not pension bill alone. Even the pension bill cannot be significantly reduced without attacking the real cause which has been identified; cosmetic measures won’t suffice and may even exacerbate matters military. Our decision making systems also have to be revamped in such a manner that they themselves become “Force Multipliers” in the drive to optimise defence expenditure.