MINUTES OF THE MEETING OF SENATE STANDING COMMITTEE ON DEFENCE AND DEFENCE PRODUCTION HELD ON 22ND OCTOBER, 2012.

An in-camera meeting of the Senate Standing Committee on Defence and Defence Production was held on 22nd October 2012 at 11:00 a.m. in Committee Room No. 1, Parliament House, Islamabad. The meeting was presided over by Senator Mushahid Hussain Sayed, Chairman SSC on Defence and Defence Production. Following Members attended the meeting:-

1) Senator Mushahid Hussain Sayed Chairman
2) Senator Chaudhry Shujaat Hussain Member
3) Senator Farhatullah Babar Member
4) Senator Col.® Syed Tahir Hussain Mashhadi Member
5) Senator Raja Muhammad Zafar-ul-Haq Member
6) Senator Haji Mohammad Adeel Khan Member  
7) Senator Sehar Kamran Member
8) List of participants from the M/O Defence and attached departments is annexed.

2. The meeting started with recitation from the Holy Quran by Senator Farhatullah Babar.

3. The agenda before the Committee was: “A comprehensive briefing on Defence Budget with a view to remove misperceptions”.

4. Secretary Defence, Lt. Gen. (R) Asif Yaseen Malik introduced the senior officers of the Ministry who were present for briefing. The Secretary informed that the Minister for Defence could not attend due to late arrival of flight. However, through queries by the Chairman and the Members of the Committee it transpired that the Minister had taken a flight from Karachi which was in any case to arrive after the Committee meeting time. The Chairman and other Members of the Committee directed to record and convey displeasure over this behavior of the Minister for Defence who despite personal and verbal assurance to the Committee Chairman, did not take the 7 a.m. flight through which a Member of the Committee had traveled to attend the meeting.

5.  Secretary Defence Lt. Gen. (R) Asif Yaseen Malik said this was his first appearance before the Committee and he felt honored to be there to talk about an essential matter which is broadly misunderstood.  He assured the Committee members that during his tenure as Secretary Defence everything will be prompt, efficient and accurate.

6. Additional Secretary-II of the Ministry of Defence, Air vice Marshall Arshad Qudoos, gave a detailed presentation on “Pakistan Defence Budget-Perceptions and Realities”.  He began with an overview of the state of war and peace affairs in the region and world over.  He said that Pakistan lies in the red zone where countries spend a lot on Defence. Total regional defence spending amounts to 330 billion US$ which is about 30% of the global spending. Pakistan’s military spending is only 5 billion US$ which is 5% of the total regional expenditure and it ranks 33rd in the world.  India, our immediate neighbor, spends 47 billion US$ on defence and is 8th in the world.

7. The Additional Secretary said that the armed forces are manpower intensive so a lot of support is required for physical maintenance and operational sustenance. He defined the Defence Budget ‘as the earmarking of financial resources for foreseen activities for the year’, which is classified into four main categories: Employee Related Expenditures, Operating Expenditures, Physical Assets and Civil Works. He informed that other than Pakistan Army, Air Force, Navy, and Defence Production Establishments (PAC Kamra, Heavy Industries Taxila and POF Wah) a number of Inter-Services Organizations (11 including ISI, ISPR), Directorate of Medical Services (9 including Armed Forces Institute of Cardiology, Pathology, Transfusion and Medical Institutions) and Accounts Organizations (Chief Controller Military Accounts, Controller Military Accounts and Controller of Accounts Air Force).

8. While explaining the process of Defence Budget preparation Air Vice Marshall said that Finance Division Budget Call Circular is passed on to Services Headquarters. Services Headquarters seek Operational and Support requirements in ‘kind’ from subordinate formations and convert them to Demand in Rupees for submission to the ministry of Defence. MoD then analyses these after which budget demands are submitted to Ministry of Finance through Military Finance. Finance Division, based on the availability of resources presents demands before the Parliament for final approval and after receiving Parliament’s endorsement and release by Ministry of Finance, Ministry of Defence allocates the head-wise funds to Services Headquarters.

9. The Additional Secretary informed that total allocation / spending on Defence in the country is 545 billion rupees of which 264.07 billion rupees are allocated to Pakistan Army, 114.21 billion rupees to Air Force and 52.72 billion rupees to Navy, 92.46 billion to Defence Production, 17.59 billion to Inter-Services Organizations and 3.92 billion to Accounts Organizations. In 2012-13 Defence Budget distribution was such that 42% was allocated for Employees related Expenses, 26% was for operating expenses, 22% for physical assets and 10% for Civil Works. He then gave details of service wise allocation / percentage for the three services i.e. Army, Air Force and Navy. Out of the Pak Army budget of 264 billion, 62% are employees related 19% operating expenses, 10% civil works and 9% physical assets. Out of 52.72 billion Pakistan Navy budget, 44% are physical assets, 34% are employees related, 15% operating expenses and 5% civil works. For Pakistan Air Force out of 114.21 billion, 48% are physical assets, 22% employees related, 20% operating expenses and 10% civil works.

10. In response to the queries of the Members, the Secretary and Additional Secretary Defence explained the reasons for different ratios on employees related expenses and physical assets for the Army compared to Air Force and Navy, which they said was not Pakistan specific as Army by the very nature is manpower intensive but operates with less costly arms and equipment. They also informed the Committee in response to queries and objections that excluding defence persons pensions from the budget was not Pakistan specific as many other countries have same practice.

11. Talking about Transparency and Accountability, Mr. Arshad Qudoos told the Committee that scrutiny of Defence Services budget is done by Financial Advisors from the Ministry of Finance after which a meticulous assessment of Estimates is carried out by the Ministry of Defence Budget Wing. A Special / Additional Secretary for the Military Finance coordinate and supervise the whole process. Military Accountant General Department books and records the military expenditures, through Chief Controller Military Accounts. Controller Naval Accounts (CNA) and Controller of Accounts Air Force and the Controller Internal Audit keeps a check through local auditors at every formation.

12. Further elaborating the transparency and accountability, the Additional Secretary said that the Auditor General of Pakistan through Director General Defence Audit (DG Audit North and DG Audit South) controls financial discipline and give an annual audit report of Defence Services (ARDS) containing audit paras as in the case of any civilian public sector organization.  He said that the Departmental Accounts Committee (DAC), headed by Secretary Ministry of Defence and Public Accounts Committee of the National Assembly examine and discuss all audit objections and paras for the armed forces budget as in the case of civilian departments. The Members of the Committee had some observations regarding response to the PAC and action in light of its decisions to which the Secretary Defence responded in detail assuring that the response which was already good will be further improved as he is focusing on these things.

13. Air Vice Marshall gave facts and figures in his presentation to remove the common misperceptions. He said that there is a misperception that Defence Forces are White Elephant and spend maximum percentage of the National Budget. However, the reality is that only 17% of the national budget is spent on Defence Forces which comes to 2.3% of our GDP in 2012-2013. Another misperception that exists in our society is that despite the budgetary constraints defence budget is increasing every year where as other departments do not have regular increases. This is again far from reality because in 2012-13, the augmentation given to other departments was much more than the 10% increment in Defence Budget. He said that the Ministry of Finance had given Indicative Budget Ceilings for the next three years which are adhered to. It is also mistakenly perceived that Defence Budget is on the increase with every successive Financial Year. In reality, Defence Budget is persistently decreasing in terms of percentage of National Budget. Though it is increasing in gross terms, yet decreasing in real terms due to inflation and defacto capping. It is also alleged that the Defence Budget has been increased by 10% for all the heads of Accounts. However, the truth is that most of the escalation is in obligatory heads, in actuality the pie of obligatory head is growing and funds required for non obligatory heads have been decreased.

14. Mr. Qudoos said the budget, from an operational perspective, can be divided into two main categories. ‘Teeth’ Heads which are Arms, Ammunitions and equipment required for fighting, and ‘Tail’ heads which are employee related and other expenses to maintain the Forces. He said that the Teeth heads constitute 22% of the Defence Budget and Tail heads 78% so the tail is definitely longer / heavier than the teeth. It is also supposed that while maintaining the army, much more  higher amount is spent on a soldier. In actuality the spending per armed forces person in Pakistan was much less then other countries including India. The details of per head per year in US$ are; USA 551,746, Turkey 25806, India 24075 and Pakistan only 8427. This shows that Pakistan Army is being maintained with meager resources / less expenses compared to many other countries. Further elaborating the argument, he mentioned the Medicare amount spent on a single soldier, which is Rs. 600 per head everything inclusive in Pakistan compared to higher spending in India.  He said that in 2011-12 out of Rs 495 billion Defence Budget, Rs 43.37 billion were paid back to National budget to National exchequer in form of utility bills, custom security and sales tax. With regard to the effects of increase in cost of POL, POL allocation shrunk by 15%. The Additional Secretary said that armed forces require funding for operational readiness. He also said that the Defence budget is prepared through a comprehensive process and has distinct major, minor and sub classifications. This money is mainly for maintenance, and additional funds are required for mobilization. Defence Budget is average 2.69% of GDP and 17.01% of National Budget. The whole system is transparent, overseen by the Parliament and accountable to the government, audit and PAC. He said that by giving details to the Senate Defence Committee, it has been shown that there is nothing to hide and more and more visibility will be provided on genuine requirement basis.

15.  A question and answer session followed. Senator Farhatullah Babar welcomed the new Defence Secretary Lt General ® Asif Yaseen Malik and appreciated his forthright statement made at the start of the meeting that the Defence Ministry under him will be ‘prompt, efficient and accurate’ in dealing with the Senate Committee. He also appreciated the comprehensive presentation by Air Marshal Arshad Qudoos on the defense budget. He said that he wanted to make some observations and also raise questions the replies to which may be given later in writing if answers were not readily available. Thereafter he made the following observations and asked questions.

16. Senator Babar said that the real total defence budget is much more than what is contained in the official brief and the presentation made today. The pension of defence personnel, being a legitimate charge on defense related expenditure, should be reflected in defense budget instead of the civilian component. He said that pension had always been part of the defence budget but was taken out of it during Musharraf era through an executive order only to deflect criticism from rising defence budget and to hide the reality.

17. Senator Babar said that there were several other organizations which were either heavily engaged in defence related projects like the Pakistan Atomic Energy Commission and SUPARCO or were regulated by the military establishment mostly for the benefit of defence personnel like the National University of Modern Languages and NUST.

18. Senator Farhatullah Babar said that expenditure on Employees as against expenditure on ‘Assets’ and ‘Operations’ in the three services need to be looked at more closely with a view to improving efficiency. The Assets have been described as the ‘teeth’ of the organization while the employees as its ‘tail’. The allocation for the ‘teeth’ was only 24 billion as against 230 billion for the ‘tail’ in the Army. As against this PN allocated 23 billion to ‘teeth’ and 16 billion to tail whereas in the PAF 55 billion were allocated for teeth and 25 billion for employees related expenditure. Similarly the ratio of operations vs employees’ allocation in the Army was far less as compared with the same ratio in the PN and PAF. The Army had allocated 49 billion for operations against 164 billion for employees, the PN had allocated 8 billion for operations against 16 billion for employees and the PAF had allocated 23 billion for operations as against 25 billion for employees. He said there was a need to have a closer look at the allocations under various heads with a view to improving efficiency and optimal utilization of resources.

19. Senator Farhatullah Babar also raised questions about transparency and accountability and asked for a report on the implementation of observations and decisions of the Public Accounts Committee (PAC) on reported financial irregularities. The Secretary Defence stated that a report on this will be submitted at the time of the next time. He asked about the mechanism for further re-allocation of the Coalition Support Fund among the three services and asked if any service had reservations about the allocations made to it. He stressed the need for a credible mechanism acceptable to all the three services for the distribution of CSF among them. He said that heavy losses had been incurred as a result of Mehran Base and Kamra Airbase attacks and asked as to how the losses incurred would be met. About the claim that expenditure per soldier in India was over 24,000 dollars while in Pakistan it was only 8,000 dollars he said that it appeared too good and needed to be looked into in greater depth. He asked if the items taken in calculating total expenditure per soldier in India and Pakistan were identical. The Secretary Defense stated that he was not sure about the break up in calculating the per soldier expenditure on India and Pakistan and said that he will give the details in the next meeting.

20. Senator Farhatullah Babar said that military organizations like the FWO, the NLC and others were engaged in purely commercial activities and asked how the profit earned by these organizations was accounted for. He said that the issue of defence forces involvement in commercial and industrial activities was a separate subject that needed detailed examination and said that a separate meeting of the Committee be held on this subject. Secretary Defense stated that Fauji Foundation was the largest tax payer in the country. The Chairman said that the subject will be taken up later separately by the Committee in its meeting on the defence forces involvement in commercial activities. In this connection a reference was also made to the DHAs in the country. The Secretary Defence said that the heads of DHAs did not even take their salaries from the Army and were paid out of the DHA sources. He welcomed discussion on it said that the Defence Ministry would be ready to give a briefing on the Defence Housing Authorities. The Secretary Defense stated that he will ensure that the heads of DHAs were also present in the meeting to answer questions. Senator Farhatullah Babar also raised the question of the use of land by defence forces allocated to them for a specific purpose and called for a discussion on it in a separate meeting. The Chairman said that the issue of land allocation and land policy will be taken up in the meeting on Military Lands and Cantonments.

21. The Secretary Defence answered to all the issues raised by Senator Babar and promised that more details will be made available to remove any misperceptions. He said that the difference in heavier tail in Army was universal due to the very nature of the force compare to PAF and PN which had less manpower requirement but more expensive high-tech equipment such as aircraft submarine etc. He said that the other issues raised by the Senator could also be better explained through more detailed information and deliberations as nothing was unjustifiable.

22. Senator Col. ® Syed Tahir Hussain Mashhadi congratulated Air vice Marshall for his outstanding briefing.  He said he has the highest regard for the defence forces because he himself is an ex army man. He praised the perseverance, dedication, devotion and love shown by the Pakistani soldiers for their country. Talking about the payback issue he said that the payback from the army is sacrifice of human life which has no match or compensation. Our soldiers are fighting in harsh and risky environments of FATA and Waziristan, he said. Apart from that, institutions like Fauji Foundation and Bahria are paying the maximum income tax. He asserted that 2.3% of GDP is hardly anything to cry about. A few Generals who imposed Marshal Law do not represent the armed forces; those who gave their lives symbolize the army, he said adding that General Public should not be misinformed because army is doing a tremendous job on many fronts and it must be admired for its efforts. On the pension issue, he said figures speak for themselves, even if pensions are included in the Defence Budget, the total amount actually spent on Defence in Pakistan is far less than countries around the world.  Senator Mashhadi stressed that the sacrifices of our men should not go in vain and this message must go out to the general public through the Committee.

23. Senator Raja Muhammad Zafar-ul-Haq said this was for the second time he attended a briefing on the subject. Giving his comments he said he wanted to know whether the budget is made annually or for fifteen to twenty years because strategic planning is required at the highest level for this kind of tasks. He pointed out that the presentation did not reveal the budget allocated to ISI and ISPR although they are the two most significant wings of the armed forces. The Secretary Defence said that details can be provided in this regard. The Additional Secretary said that long term strategic planning was in place but due to national resources constraints and other requirements some adjustments were made in the yearly budget or mid term framework.

24. Senator Sehar Kamran said transparency is very important because army bashing has become a habit these days. A few persons do not characterize the whole institution and Army is very much a part of the society, she said adding that there is a lot of criticism on the allocation of budget but to run a professional organization adequately compensating human resources was essential especially with institutions like the armed forces where higher risk is involved. She said the society needs to compliment the discipline shown by the army. Right now the budget is not meeting the requirements and as a Committee we should support the institution, she said.  Senator Sehar said that without deterrence, we cannot exist and loop holes must be covered in all institutions, not just the army. We should rectify our tax system and if there is synchronization between our institutions, things will undeniably change for the better, she said. One of the facts she laid stress on was the creation of buffer zones around all army institutions/ major institutions. With regard to the role of ISI she said our intelligence agencies are one of the best and it’s a setback that we have made them controversial. She asserted that we need to learn from our mistakes and the prestige of our country and Armed Forces must not be compromised at any cost. Parliament, Bureaucracy Media and Civil Society should support the army as it is an integral part of our society, she concluded.  

25. Senator Haji Mohammad Adeel said he was really disappointed that the Defence Minister was not present in the meeting.  The Chairman of the Committee said that he had given his observation in the start of the meeting regarding non serious and non responsive attitude of the Minister and directed to record serious reservations of the Committee in this regard. While commenting on the budget Senator Adeel said institutions like ISI are everywhere but it must be made sure that they do not interfere in the political affairs of a country. He also mentioned that the presentation lacked information regarding the funds for Atomic Energy Commission and other institutions. Naval budget is the lowest and this needs to be resolved as well he pointed out. While talking about the Military Land and Cantonment, Senator Haji Adeel said, their system must be made transparent and public must be informed on their source of income. He said that since local body elections were not held in these areas, the elected MPAs, MNAs and Senators must be involved in policy decision making. He said that the land allocated to the army under 1924 Act was being used for purposes other than those allowed in the Act. This matter must be investigated by the concerned authorities, the Senator said. He reiterated his assertion about separately mentioning or including in defence budget the pensions paid to the retired defence forces personnel. He said that there was no rational for including these in the civilian expenditure.

26. Secretary Defence General Asif Yaseen Malik while answering the various questions raised by the senators said that it is the prerogative of the Parliament to change the Defence Budget especially the decision to include defence forces pension in civilian head. He said it was basically a policy issue with global implications and before taking any decision in this regard, the regional and global implications must be kept in mind. He said that universities like NUML and NUST might be run by the army but they have a large percentage of civilian students studying there. He said that the fact that NUST ranks amongst the top 300 universities in the world must also be noted and complimented. He said that absolutely no money is spent from the army on the universities activities as these were self revenue generating and run by their independent Boards as per HEC Rules.

27. Addressing Senator Farhaullah Babar’s query concerning Public Accounts Committee, the Secretary Defence said he was working rigorously on that and hopefully the Ministry will be able to satisfy PAC by taking prompt actions and corrective measures where required. He further informed that the claim for the CSF is submitted by all the three forces separately which is compiled and properly audited at the headquarters level. He said that a further verification and reverification was undertaken at the US Embassy and in Washington. He said that basically it was reimbursement of the expenses already incurred by the defence forces, mainly the Pakistan Army which was actively and extensively involved in the war against terrorism. On the issue of Mehran and Kamra attacks, he said the policy will be rationalized and finalized soon, at the Joint Staff Headquarters level.  Replying to the issue of using different elements / parameters while calculating cost per head / per soldier in Pakistan and India, the Secretary said there was no major difference between India and Pakistan when it comes to the conditions and parameters, because we live in the same environment under similar circumstances. As far as the payback is concerned he said that institutions like Fauji Foundation are the largest tax payers in the country and the standard of excellent management of Armed Forces run or sponsored institutions speaks for itself because of which these are preferred by everyone and through better performance they contribute to the national exchequer instead of being burden.

28. Talking about ISI the Secretary Defence said it’s very unfortunate that ISI these days is seen only in the context of some contentious issues. ISI is one of the leading intelligence agencies of the world which is faced with huge challenges but the organization is performing its best within the limited resources, he said.  Inside ISI there is a lot of control, and except for a very small proportion, its budget is audited as well, the Secretary informed. We will give the standing committee required visibility on our funding mechanism for ISI and ISSPR, he assured. He made a statement that for the last five years, no political cell has been operating in ISI.  

29. Chairman of the Committee, Senator Mushahid Hussain Sayed in his final remarks said that we had a professional, honest and outstanding briefing. He reassured the Secretary Defence that the Senate Committee will support the defence forces and will be their first line of defence. Chairman also invited the honorable guests to the policy seminar on NATO withdrawal from Afghanistan to be held on 5th November 2012. He told the members that as a follow up of these meetings Defence Committee will come up with their own Defence Policy Strategy Document which will be first of its kind initiative and proof of lead role by any Parliamentary body. Senator Mushahid Hussain closed the meeting by thanking all the attending members and officers of Ministry of Defence.


(Amjed Pervez)                                                          (Mushahid Hussain Sayed)
Special Secretary /Secretary Committee               Chairman Committee