Gautam Sen
The Parliamentary Standing Committee on Defence in one of its latest reports to Lok Sabha has recommended the setting up of a Non-Lapsable Defence Modernisation Fund (NLDMF) to enable timely availability of financial resources for defence procurement. The avowed purpose is that, funds budgeted in a particular financial year for capital acquisition, if not spent fully, the unspent amount should be credited to a NLDMF with enabling provision to draw amounts from it in subsequent years for expenditure on similar purpose. The underlying idea is that capital budget allocations invariably remain unspent at the end of every financial year (April-March) and, the unspent funds need to be retained for spending in subsequent years on required basis. The fundamental principle of formulating the budget and charging the public exchequer ie. the Consolidated Fund of India (CFI) with approval of parliament as per the anticipated need of a financial or accounting year only, will be violated by instituting a NLDMF. A NLDMF perhaps can be institutionalized in a system where, a long-term, beyond-a-year budgetary approval process exists or a general rollover of allocations are permitted within certain defined parameters with legislature`s approval.
The Non-lapsable Fund of Central Pool Resources (NLCPR) for northeast development and various funds in the Public Account, are not comparable examples for setting up a NLDMF. The Public Account is basically meant as a repository for funds like National Small Savings Fund, provident fund savings of government employees, retained as a public trustee by government, and also a few other special purpose funds, reserve funds, etc. The Account and the funds within its purview are not subject to vote by the legislature. The NLCPR is only a notional fund, which helps the central government to monitor funds unspent within a normative threshold of 10% of each central department`s annual budgeted allocation, on the northeast. Provisions on northeast schemes are dovetailed in subsequent years depending on spending profile as observed from the NLCPR, and capacities of central departments in past years and also need of the current and future years. The notional amount in NLCPR is also not huge. As distinct from the above, the proposed NLDMF would have a sizeable amount parked in it, if past unspent budgeted allocations – more than Rs. 21000 crore over the past two years, is any indicator.
Some non-lapsable funds do exist. There is a renewal reserve fund for plant and machinery of ordnance factories of non-lapsable nature, already in the defence budget system operative since (1990-91) with a small net balance of approximately Rs.100 crore. However, the utility of the non-lapsable funds needs to be appraised and performance audited by C&AG to ascertain whether their optimal end-use has been achieved or the funds were injudiciously excess- budgeted initially in disregard to other competing demands, and unnecessarily parked in such funds for utilization with time-lag. Union Finance Ministry had laid down guidelines in the past, for crediting unspent funds into the non-lapsable pools and the modality for their drawal and expenditure under the parliamentary budget approval process. The objective was to ensure that unspent funds in the reserve pool are spent in subsequent years only as part of voted appropriations for expenditure. The purpose was to ensure parliamentary control in subsequent years when the funds were drawn out from the reserve pool.
While certain desirable checks have been built into the non-lapsable fund arrangements, a cardinal point of concern is that, the need of budgetary provisions harmoniously with cash-flow and expenditure needs of goods and services of government departments, attached and subsidiary organizations over an annual time-frame, is being negated. In case of defence modernization and capital acquisition, this is all the more worrisome because, of substantial quantum likely to be involved. Provision of budgetary allocations which are not fully utilized but diverted substantially to Public Account ie. outside the CFI, will impact fiscal deficit also. The expenditure outgo from the CFI towards transfer of unutilized amounts to the Public Account will be deemed as expenditure for computation of fiscal deficit, which would have been avoidable if the expenditure budget provision been to that extent less.
There is an inherent contradiction in the proposal for NLDMF. While central governments of different political hue had taken the stand that defence has not been neglected and optimum allocations provided for the purpose within the overall resources obtainable to the state, surrender of funds have taken place repetitively. The attributability for this deficiency lies on both the Defence Ministry and the Services Headquaters. The Defence Services have also experienced constraints in obtaining the requisite combat assets apropos their needs. The most glaring example is the huge deficiency of nearly 20 squadrons of combat aircraft vis-à-vis government approved force level. The lacuna lies in the defence management process. There are limits below which defence budget provisions cannot fall, say the same level as of the current year, duly adjusted for price level and foreign currency fluctuations in subsequent years. There is no reason why the procurement programmes cannot be realized within such a parameter or resource framework. Additional budget provisions can always be worked out with reasonable lead time.
The budgetary landmarks of initial budget estimates which are approved in the beginning of the financial year, the revised estimates after two quarters, and the final estimates and re-appropriations in the final estimates in March, provide enough flexibility to the executive to obtain budget provisions with parliament`s approval as per need, intervening appraisal, mid-course correction and re-appropriation. Obtaining budgetary allocations in the beginning of the year, and then transferring amounts from the approved allocations to a NLFDM in the later part of the year, defies logic. The Services Headquarters are intimately associated with the budget formulation process, though the responsibility of obtaining the Service and Grant-wise ceiling approvals from Finance Ministry is the concern of Defence Ministry. There should therefore be no hiatus in budget formulation and capacity to plan out expenditure, which does not seem to be happening. Whether a more integrative approach is required on planning and execution of acquisition programmes with budget formulation, needs to be examined. Creation of a NLDMF does not seem to be the remedy for systemic problems in this regard.
(The author is a retired IDAS officer who has served as Additional Controller General of Defence Accounts)
The views expressed are personal
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