Non-lapsable defence modernisation fund

Source-This post on Non-lapsable defence modernisation fund is based on the article “Non-lapsable Defence Modernisation Fund off govt. agenda for now” published in “The Hindu” on 3rd March 2024.

Why in the News?

The government has abandoned the proposal to establish a Non-lapsable Defense Modernization Fund, citing drawbacks related to its impact on parliamentary scrutiny and accountability.

About Non-lapsable defence modernisation fund

Background– The 15th Finance Commission has proposed the establishment of a dedicated non-lapsable Modernisation Fund for Defence and Internal Security (MFDIS). The idea behind is to address the disparity between projected budget needs and the allocation for defense and internal security.

In 2021, the government placed an action-taken report in Parliament alongside the Commission’s report. The government mentioned that it has “in-principle” agreed to create such a fund in the Public Account of India.

What is the need for Non-Lapsable Funds?

1. In India, the defense budget is assigned annually. At the close of each fiscal year, any remaining funds are reverted to the government’s consolidated fund.

2. Consequently, the defense services miss the chance to utilize these allocated funds for unforeseen needs or future requirements. Establishing a Non-Lapsable Defense Modernization Fund (DMF) offers a solution to this challenge.

3. Once operational, the DMF would allow the three services to keep any unspent budget allocation beyond the fiscal year’s end.

Why did the government abandon this proposal?

1. Traditionally, only funds raised through cesses for specific purposes are non-lapsable.

2. Apart from items funded through a cess, deferring today’s allocations with the intention of using them later contradicts the fundamental principles of parliamentary financial accountability. 

3. The government says it is working on a separate plan to explore a special arrangement for establishing a “Non-lapsable Defence Modernisation Fund.”

Difference between lapsable and non lapsable funds in India

1. In India, lapsable funds are budget allocations that must be spent within a set time or they return to the government’s general funds.

2. Non-lapsable funds, however, don’t expire at the end of the fiscal year and can be carried over if unused. They’re usually earmarked for specific purposes and don’t lapse at year-end for example– funds raised through cesses for specific purposes are non-lapsable.

UPSC Syllabus- Indian Economy