Agreed to 15th Finance Commission's suggestion on non-lapsable Defence Fund: Finance Minister

Finance Minister Nirmala Sitharaman said on February 13 that the government has agreed to the 15th Finance Commission’s recommendations for a non-lapsable defence fund, a move which could see states indirectly paying for a part of the country’s defence needs.

Defence and National Security are the centre’s responsibility as per the Seventh Schedule of the Constitution.

“We have agreed, in-principle, to the Finance Commission’s recommendation for a non-lapsable defence fund. The modalities and the structure will be worked upon,” Sitharaman said in Lok Sabha during her reply to the debate on Budget 2021-22.

In its report for 2021-22 to 2025-26, the 15th Finance Commission said it had re-calibrated the relative shares of the centre and states in gross revenue receipts by reducing its grants component by 1 percent, which would enable the setting up of the fund.

It recommended the government to set up “a dedicated non-lapsable fund, Modernisation Fund for Defence and Internal Security, to bridge the gap between projected budgetary requirements and budget allocation for defence and internal security. This may be called Rashtriya Suraksha Naivedyam Kosh or any other appropriate name.”

The 15^th FC said that the proceeds of the fund will be utilised for capital investment for modernisation of defence services, paramilitary services and state police forces, and a small component as a welfare fund for soldiers and para-military personnel.

As per the 15^th FC’s report, the incremental funding will come from transfers from the Consolidated Fund of India, disinvestment proceeds of defence PSUs, proceeds from the monetisation of surplus defence land, including the realisation of arrears of payment for defence land used by state governments and proceeds from defence land likely to be transferred to states and for public projects in future.

“The total indicative size of the proposed Fund over the period 2021-26 is Rs 2.38 lakh crore, with a maximum size of Rs 51,000 crore per annum. Any amount exceeding the same shall be deposited into the Consolidated Fund,” the report stated.

The 15^th FC said that the Ministry of Defence would have exclusive rights over the use of the fund, while the Home Ministry will only be permitted to use the fund that is earmarked paramilitary forces.

“The fund may be operated by a suitably empowered High-Powered Committee headed by the Cabinet Secretary and consist of the Secretaries of Defence, Home and Expenditure and the Chief of Defence Staff,” the report, tabled on the same day as the Budget on February 1, said.