Non-lapsable Capital Fund Account

• The defence ministry has proposed creation of a non-lapsable rolling fund to facilitate buying heavy-duty military hardware like artillery guns, combat aircraft, choppers, warships and submarines.
• A major defense purchase often takes years to complete, but the budget allocation lapses at the end of the financial year. As a result, the Ministry of Defense is often forced to return money meant for capital acquisition.

Analysis:

• The idea of creating such a corpus has been around for almost a decade. It was announced by former finance minister Jaswant Singh in his Budget speech in 2004.
• There is a popular narrative that it has not been set up only because there is a marked reluctance on the part of the bureaucracy to amend the ‘rules of business’, dating back to the British era, which do not permit the setting up of such a fund.
• However, In fact, there is a plethora of evidence to show that the problem does not lie with any ‘rules of business’, which, in any case, can be, and have been, amended several times. As a matter of fact, a non-lapsable pool of resources for development of the north-eastern region has now been in operation for more than a decade. The problem, instead, lies with the merit and workability of the fund.
• The objective of setting up a DMF is to make sure that defence procurements do not suffer on account of shortage of funds. But, in the backdrop of perennial underutilisation of the capital outlay, it is a weak argument to assert that procurements are affected by shortage of funds.
• Some would argue that underutilisation of funds is not for real and that it is the result of manipulation by the Ministry of Finance (MoF) which deliberately delays the process of financial sanction for individual procurement proposals.
• Here, it is important to note that proposals costing between Rs. 500 and 1,000 crore require approval of the finance minister and those above that limit require approval of the Cabinet Committee on Security (CCS), in which the finance minister is a member.
• The Standing Committee on Defence has been assiduously advocating the setting up of the fund despite being informed of the reasons why the idea was given up in 2004 itself.
• Standing committee has advised the MoD “to process the creation of DMF with suitably changed modalities in Consultation with the Ministry of Finance so that the modernisation programme can be carried forward smoothly at the desired pace without any need to seek the Parliamentary approval again and again.

By: Vishal