The defence ministry said though India is currently not engaged in any conflict, the nature of threats that it faces demands complete defence preparedness.

New Delhi: The defence ministry proposed to the 15th Finance Commission that it set up a “non-lapsable fund” as well as tax-free defence bonds, the disinvestment of defence public sector undertakings and levy of cess as a means to generate additional funds to meet the big defence acquisitions needed by the armed forces as they look to prepare themselves for modern warfare and a combined threat from Pakistan and China.

The defence ministry has also asked the commission to look at the monetisation of surplus land.

The defence ministry said though India is currently not engaged in any conflict, the nature of threats that  it faces demands complete defence preparedness. It said big defence acquisitions require large capital outlays and current provisions are inadequate to fund these and thus there is a need for alternate sources of additional funding.

The 15th Finance Commission has also been asked to examine whether a separate mechanism for funding defence and internal security is to be set up, and if so, how such a mechanism should be operationalised.

“The commission, with the objective of ensuring predictability and stability in the flow of funds for defence and internal security, intends to constitute an expert group comprising representatives of the ministries of defence, home affairs and finance to consider the detailed modalities and implementation plan for accretion to, and utilisation of, the proposed non-lapsable fund or alternative mechanism,” said its report tabled in Parliament on Saturday.

The commission said it is of the view that the non-salary component should be allowed to grow at a robust pace so as to allow for a reasonable level of maintenance of defence assets. “An annual growth of 11 per cent in total defence revenue expenditure allows expenditure on maintenance of defence assets (the non-salary component of defence revenue expenditure) to grow at around 15.5 per cent in 2020-21, compared to an average growth of about eight per cent in the previous two years,” it said.