The previous post on defence economics described the need to study the subject. it was concluded that: development of defence economics is necessary from the perspectives of
- democratic accountability
- efficiency of resource allocation to ensure preparedness
- military effectiveness to ensure the right mix of services are deployed to ensure peace
- improvement of service conditions — that ensures state of the art quality of life for servicemen, ex-servicemen and their families
This post focusses on democratic accountability and the need to maintain it even while dealing with complex choices in defence.
Sound financial management of a country’s security sector is key to maintain an efficient and effective security force that is capable of responding to the population’s legitimate security needs. Avoiding excessive, wasteful, and corrupt military expenditures and procurement thus requires high levels of transparency and accountability in military budgeting and procurement processes.”Such processes should adhere to government-wide financial management and oversight practices, within a rigorously-observed defence policy and planning framework. This includes adherence to public expenditure management (PEM) principles of comprehensiveness, discipline, legitimacy, flexibility, predictability, contestability, honesty, information, transparency and accountability”.
In the Indian context, the government and citizens must know the full costs of national security and this can be achieved by making the asset value of services explicit without compromising the strategic secrecy that is the imperative of any defence service. All the forces together own valuable land, spectrum, human resources, and equipment. Arriving at an explicit asset value creates incentives for increasing the efficiency of all these assets and creates a defence establishment that is effective, efficient, and fiscally prudent.
The process is easier said than done. For example, a simple step that is tedious to implement is a shift towards accrual based accounting. Currently, the defence budgeting system is based on a cash accounting model which ignores all non-cash transactions. This has masked the exact net present value of all the resources that the services currently possess. Such a system “does not provide a full picture of the (government’s) liabilities, because accrued liabilities such as those from unfunded pensions and commitments are not taken into account; two, it keeps no track of the assets of the (government), nor do they provide information on the costs of holding and operating them or of their consumption or use”. An accrual based accounting system enables more effective performance assessment and provides the necessary information to link the input costs to outputs, and outcomes that is required by services.
That said, the complexities of a process should not stifle measures that ensure democratic accountability.
Varun Ramachandra is a policy analyst at Takshashila Institution, he tweets @_quale
 “Transparency and accountability in military spending and procurement” http://www.sipri.org/research/armaments/milex/transparency, accessed 15-July-2015
 Amaresh Bagchi, Accrual accounting in government, Business Standard, 5-April-2005, http://www.business-standard.com/article/opinion/amaresh-bagchi-accrual-accounting-in-government-105040501073_1.html, accessed on 15-July-2015