In the news

• The Ministry of Defence (MoD) had informed Parliament recently a separate mechanism by the Ministry of Finance in consultation with the MoD to explore a special dispensation to operationalize a “Non-lapsable Defence Modernisation Fund” because the non-lapsable pool has drawbacks as it affects parliamentary scrutiny and accountability.

About Non-Lapsable Defence Modernisation Fund (DMF): 

• The DMF aims to create a dedicated pool of funds that carry over from year to year, ensuring that unutilized funds are retained for future defence modernisation initiatives. Currently, defence funding in India operates on a yearly basis, with unspent funds being returned at the end of each fiscal year.
• The dedicated Modernisation Fund is intended to supplement regular budgetary allocations and provide certainty in funding for various defence capability development and infrastructure projects.

Recommendation by XV Finance Commission

• The 15th Finance Commission proposed a dedicated Modernisation Fund for Defence and Internal Security.
• It said the Union may constitute in the Public Account of India, a dedicated non-lapsable fund, Modernisation Fund for Defence and Internal Security (MFDIS).

 Need for Non-Lapsable Funds:

• Addressing Budgetary Limitations: Yearly budget allocations lead to the surrender of unutilized funds, hindering defense modernization efforts.
• Creating Certainty: Non-lapsable funds offer certainty in funding availability, promoting stability and continuity in modernization initiatives.
• Enhancing Flexibility: These funds provide flexibility for addressing unforeseen contingencies and promoting long-term planning.

Significance of Non-Lapsable Funds:

• Certainty and Continuity: Non-lapsable funds offer assurance of funding for defence modernisation, eliminating the need for frequent requests for additional funds and ensuring continuity in project execution.
• Flexibility: These funds provide flexibility in utilization, allowing for the allocation of resources to unforeseen requirements or contingencies that may arise during the year.
• Long-term Planning: By allowing funds to carry over across fiscal years, non-lapsable funds facilitate long-term planning for defence modernization projects, promoting systematic and strategic development.

Challenges and Considerations

• Parliamentary Scrutiny: Establishing a non-lapsable fund may raise concerns about reduced parliamentary scrutiny and accountability over defense spending.
• Operational Modalities: Determining the sources of funding and operational modalities for the DMF require careful consideration to ensure effectiveness and transparency.
• Interagency Coordination: Coordination between the Ministry of Defence and the Ministry of Finance is essential for the successful implementation of the fund.

Conclusion

• The proposal for a Non-Lapsable Defence Modernisation Fund represents a proactive approach to addressing the challenges associated with defence funding in India.
• While the concept offers several potential benefits, its implementation requires careful deliberation and collaboration between key stakeholders to ensure accountability, transparency, and optimal utilization of resources in support of national security objectives.

Try this PYQ from CSP 2014:

Q.With reference to Union Budget, which of the following, is/are covered under Non-Plan Expenditure?

1. Defence-expenditure
2. Interest payments
3. Salaries and pensions
4. Subsidies

Select the correct answer using the code given below:

(a) 1 only

(b) 2 and 3 only

(c) 1, 2, 3 and 4

(d) None

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