New Delhi: India‘s Ministry of Defence may soon look to sourcing reserve funds that have swelled up to $8.3 billion from its public sector undertakings (PSUs), reportedly to make up for the shortfall in allocated military budget.
The funds were lying unused in the Defence PSUs and an internal study had revealed that there were advance amounts — money usually paid towards the end of the financial year from the capital budget — that the government had released in favour of these public enterprises.
The Economic Times reported today that the Defence Ministry sent out a new set of instructions last week, asking financial managers to review the very system of providing advance payments to the public sector. The ministry was concerned that the PSUs have been using the interest generated from advance payments to show profits, instead of generating revenues from their core area of expertise, the ET claimed to have learned.
“Provision of advance shall not be a profit-making proposition for PSUs. Either they shall be subjected to provide interest on advance drawn or interest bearing financial instruments be obtained as a guarantee against the advance given,” the report said, quoting from a letter sent to all financial managers in the ministry. The reporter, Manu Pubby, said ET had read the letter.
An internal audit is said to have revealed that a total outstanding amount from PSUs was Rs.55,9892 crore ($8.3 billion). Of this, Rs. 51,573 crore was lying with Hindustan Aeronautics Limited, the report said. These are advance payments made since as early as 1975 which have still not been accounted for, the audit had revealed.
The Defence Ministry is also said to have red-flagged the practice of parking funds in PSUs as advance payments towards the end of the budget year as capital funds remained unspent over the years. “PSUs shall raise funds under the provisions of Companies Act and directives issued by SEBI (Securities and Exchange Board of India) rather than be used as ideal place for parking of government funds released under budgetary system,” the letter was quoted as saying.
As a first step, instructions have been passed to clear the outstanding funds till the year 2000. Also, a new provision will be put in place for “levy of penal interest if the advances extended to PSUs are not utilised within the given period for the purpose for which it has been released”, it pointed out.
Faced with a grim realisation that the Defence budget will remain limited over the next few years with no major increase planned, Defence Minister Manohar Parrikar has been trying to streamline spending, cutting down on wasteful expenses and pruning the cost of acquisition, the report said.
In the last financial year, the ministry unlocked a corpus of $2.3 billion that was lying as advance payments made into Indian accounts in the U.S. for purchase of equipment under the Foreign Military Sales route.