The government has given an in-principle approval to creating a non-lapsable defence modernisation fund but details are still being worked out, with contentious issues likely to crop up around how to generate resources that will enable planned, long-term capital procurements and logistics.
ET has learnt that the finance ministry has proposed that the fund be initially created with the proceeds of monetisation of defence land. This would involve identifying surplus land available with the armed forces, especially in urban areas where several large such holdings exist. This land can then be sold to the state, civic agencies or any other entity identified by the committee overseeing monetisation.
The finance ministry, which had vehemently opposed the creation of such a fund in the past, has proposed that half the money generated by the sale of land be given to the armed forces, after due clearances by Parliament and following the annual budgetary process. The rest would go to the Consolidated Fund of India, which takes care of the overall expenses of the government in other sectors as well.
It is unclear whether the proposal will be accepted by the government or a decision will be taken to divert the entire proceeds of land monetisation towards the armed forces. As reported earlier, the three services have been allocated significantly lower budgets this year than their projected expenditure which is likely to impact modernisation plans. There was a Rs 1.24 lakh crore gap this year between what the armed forces projected as expenses and the allocation given by the finance ministry.
Other restriction on the fund proposed by the finance ministry is that it be used only after the annual budgetary grant given to the armed forces has been exhausted. Further, the ministry has proposed that in case the money in the non-lapsable fund is not used for three years, it be sent back to the Consolidated Fund of India.
The non-lapsable fund would be used to procure defence equipment for the armed forces under the Make in India initiative and for certain works like the creation of family accommodation for personnel under the Married Accommodation Project.