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15th Finance Commission to set up expert panel to look at roll-on fund, cess for defence

Defence ministry has demanded a fund for purchases that would roll on to the next fiscal if not utilised. But finance ministry has been against it.

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New Delhi: The defence ministry has long demanded non-lapsable funds for acquisition, and the levy of a ‘defence cess’ to finance security expenditure. And the 15th Finance Commission has now decided to set up an expert group consisting of representatives from various ministries to work out the modalities.

The Finance Commission’s report was tabled in Parliament Saturday, at the same time as Finance Minister Nirmala Sitharaman presented the Union Budget for 2020-21, which increased the defence budget allocation to Rs 4.71 lakh crore from the earlier Rs 4.3 lakh crore. The figure includes defence pensions.

Also read: IAF, Navy delaying procurement due to funds crunch. And lesser said the better about Army

Need for roll-on fund and other measures

The Union Cabinet, in July 2019, had approved an amendment enabling the 15th Finance Commission to address concerns regarding the “allocation of adequate, secure and non-lapsable funds for defence and internal security” of India. Defence Minister Rajnath Singh and other officials of his ministry held a meeting with the Finance Commission, during which the ministry also shared its fund projections till the year 2025.

The Finance Commission’s report said the proposal would serve the objective of ensuring predictability and stability in the flow of funds for defence and internal security. It added the expert group, comprising representatives of the ministries of defence, home affairs and finance, will “consider the detailed modalities and implementation plan for accretion to, and utilisation of, the proposed non-lapsable fund or an alternative mechanism”.

The report further pointed out that apart from setting up a non-lapsable roll-on fund, the defence ministry had proposed the levy of cess, monetisation of surplus land and other assets, tax-free defence bonds, and utilising the proceeds of disinvestment of defence public sector undertakings. The ministry had said the current provisions are inadequate to fund big defence acquisitions requiring large capital outlays, and thus, there is a need for alternate sources for additional funding.

ThePrint had reported that the requirement was communicated to the finance ministry a few months ago.

Also read: Navy trying to get ‘maximum bang for the buck’ — Admiral Karambir Singh rues fund crunch

Demand from parliament panel too

The creation of a non-lapsable defence fund is a long-standing demand put forth by the services as well as parliamentary standing committees.

A Parliamentary Standing Committee on Defence, headed by Major General B.C. Khanduri (retd), had recommended the creation of such a fund for defence purchases, which would roll on to the next fiscal if not utilised in the current one.

While the defence ministry was in favour of the move, the finance ministry did not agree. The Standing Committee on Defence, in a report tabled last year, had taken strong note of the finance ministry’s opposition.

Also read: ‘Make in India has failed in defence sector’ — experts highlight importance of self-reliance


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