The Hindu : Non-lapsable defence fund mooted

Online edition of India's National Newspaper
Wednesday, Feb 04, 2004

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National

Non-lapsable defence fund mooted

By Sandeep Dikshit

NEW DELHI, FEB. 3. The Government has finally bowed to repeated demands by defence experts and the Parliamentary Standing Committee on Defence by proposing a non-lapsable defence fund. The limit of this fund will be Rs. 25,000 crores; it will be a three-year rolling fund and will be available from April 1.

The idea behind the three-year rolling fund is that a major defence acquisition is a long-drawn affair. A contract sometimes takes two to three years to be hammered out even if it is in the final stages. But the Finance Ministry makes the allocation for only one fiscal year and if a particular purchase is not finalised within that fiscal, the unused amount devolves to the Central Exchequer.

This will not be the case any longer. The rolling fund will enable the armed forces to plan the requirements over three years right at the beginning. For instance, if Rs. 4,000 crores earmarked for capital purchases is unused, it will go to the Defence Modernisation Fund.

This money will be available to the armed forces for the next three years. The armed forces will thus be able to ensure continuity in negotiations for equipment since it will be sure that the funds are available.

"The process of defence procurement often extends over three years. Adequate and a committed availability of funds, over such a period, for defence modernisation and weapons system acquisition need a satisfactory resolution. This [the fund] will commit availability of adequate funds for the purpose,'' reasoned the Finance Minister, Jaswant Singh.

The Finance Ministry had so far resisted the setting up of a rolling fund on two grounds. One, it pointed out that the allocation for the Defence Ministry was made entirely from borrowed money and it was unfair to keep this money lying unused for extended periods.

Each time the Defence Ministry made a plea for funds, the Finance Ministry would ask it to ensure better use of funds by strengthening the monitoring system for spending allocated funds within the timeframe. Second, the Finance Ministry was apprehensive of other equally important departments such as Health and Education calling for a similar treatment.

The setting up of this fund will also give teeth to several other steps taken by the Defence Ministry to speed up and smoothen the complicated process of defence procurements. Some of the additional steps taken by the Ministry include the setting up a new procurement organisation with enough representation to all services and finalisation of the Defence Procurement Procedure.

The interim budget has also proposed a major cut in the Army's expenditure on stores. The allocation for small arms, ammunition and other items for soldiers has been cut by nearly Rs. 1,700 crores.

At the same time, the budget envisages an increase in pay and allowances for army and civilians by Rs. 750 crores. A 20 per cent increase in allocation for the Rashtriya Rifles has also been made. Thus in sum, the Army will get about Rs. 700 crores less during the next fiscal. But the reduction has been more than made up by the huge increase in allocation for the Army to buy equipment under the head `capital outlay on defence services'.

The Indian Air Force is likely to get about Rs. 750 crores more than the revised estimates for the current fiscal. It will get a 17 per cent increase under the stores head. But this increase is partly illusory. This year, the IAF was unable to spend about Rs. 500 crores under the same column. Thus, the increase works out to Rs. 300 crores if comparisons are made between the budget estimates for 2003-04 and those for the next fiscal.

In case of the Navy, the budget estimates for 2004-05 are higher by Rs. 400 crores than the revised estimates, despite a sharp cut in `other expenditure'.

The higher allocation is due to a special allocation of Rs. 677 crores for the refitment and modernisation of the Russian aircraft carrier, Admiral Gorshkov. The allocation for the Navy for all other purposes has seen modest increases. The Defence Research & Development Organisation's budget has been pruned by about Rs. 350 crores. Although Rs. 500 crores have been reduced under the head of "stores'', the allocation for its primary purpose, i.e. research and development, has been increased by Rs. 100 crores.

"Capital outlay on defence services'' has been increased by Rs. 5,500 crores. Though this looks like a major increase, the fact is that the armed forces were unable to spend over Rs. 4,000 crores. Thus the actual increase, when budget estimates for both years are compared works out to about Rs. 1,500 crores.

As mentioned earlier, the Army is the biggest gainer under this head - Rs. 1,600 crores over budget estimates of this fiscal and Rs. 2,600 crores over revised estimates. Another major area of increase is R&D and allocation to the Army for construction.

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