The idea of setting up a Non-lapsable Defence Modernisation Fund is off the table for now, top government officials told The Hindu, stressing that all defence funding needs are being met as and when they arise, and creating a non-lapsable pool has drawbacks as it affects parliamentary scrutiny and accountability.
Among Central ministries, defence spending accounts for the largest outlays and the Ministry of Defence (MoD) had informed Parliament as recently as December 2023 that a “separate mechanism is being worked out” by the Ministry of Finance in consultation with the MoD to explore a special dispensation to operationalise a “Non-lapsable Defence Modernisation Fund”.
“As of now, no such decision has been taken on such a Fund and it is not under any active contemplation because there are drawbacks such as reducing parliamentary accountability. The only funds that are non-lapsable traditionally are those funded through cesses levied for a specific purpose,” a top Finance Ministry official said on the issue.
“Except for things financed through a cess, taking away today’s appropriations and saying I will use it tomorrow goes against the basic norms or parliamentary financial accountability. Parliament would like to know whether you spent the money they voted for, or not, and it needs to be told, Yes or No. One can’t say, ‘Give us this money, we might use it or keep it for a future purchase’,” the first official said.
Assurance of funding
Ministries would only want a non-lapsable fund for a certain “assurance of funding”, pointed out another government official dealing with the subject. “If we are able to assure that funding without a non-lapsable fund and Budget provisions are made when necessary, then the question of a non-lapsable fund becomes academic. The real question is to make funds available when they are necessary to complete the procurements that are decided upon,” he pointed out.
Asserting that all necessary defence capital spending has been provided for by the Interim Budget 2024-25, the official emphasised that the consolidation of capex demands of the Services under one head instead of three heads for each Service in the Budget, provides more space for the Defence Ministry to optimise the use of available resources.
“’Dovetailing the Services’ capex budgets together under one head is aimed at creating a more unified approach to procurements. It is a push towards jointness so the three Services can sit together and optimise their capital expenditure and if one is not able to spend, another can take more money,” the official explained.
While such optimisation used to be done earlier as well, it required the Finance Ministry to get involved to reallocate the outlays. “Now, the power to optimise is within the Ministry of Defence so you are likely to get better utilisation of this money because you will see this inter se fluidity,” he noted.
The 15th Finance Commission had recommended the constitution of a dedicated non-lapsable Modernisation Fund for Defence and Internal Security (MFDIS), after the Centre had included the examination of such a fund’s creation in its terms of reference. In 2021, placing an action-taken report in Parliament along with the Commission’s report, the government had said it has “in-principle” accepted the creation of such a fund in the Public Account of India. “Sources of funding and modalities will be examined in due course,” it had said.
