The Reserve Bank of India will administer the non-lapsable fund for imports by the armed forces under the capital head, top ministry sources said on Sunday.

The announcement for setting up of a fund for defence imports under the RBI, is likely to be a highlight of the vote-on-account to be tabled in the Lok Sabha on 3 February.

Ministry sources explained that as and when the services firm up contracts to import an item of import - like the United Kingdom-made Advanced Jet Trainer or the Gorshkov, for instance - instalments would be paid out of the fund by the RBI on behalf of the ministry of defence.

The idea of bringing the fund under the RBI is that it will not lapse annually with budgetary grants in the defence budget but will be a permanent feature to be replenished by the finance ministry as and when the need arises.

The implication of the fund is two-fold: the purchase of foreign equipment for the armed forces will be smoother because budgetary allocations for procurement will be assured at all times.

The fund could also see a radical change in the amounts allocated for defence in the overall budget. This change could be reflected in the next full budget that the government will present.

The idea of setting up such a fund was first mooted by a task force on defence formed to evaluate the recommendations of the Tenth Finance Commission.

The task force had recommended the setting up of such a fund, taking into account the problems of expenditure faced by the services. While he was defence minister, Jaswant Singh reviewed the feasibility of the fund and recently as finance minister, assured Defence Minister George Fernandes that he would announce the fund in the vote-on-account.