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Govt's non-lapsable funds promote corruption: Ex-CAG Mehrishi

September 18, 2021 12:19 IST

Former CAG Rajiv Mehrishi says Centre has held back a report he submitted to the President, to end what he called “a nightmare of accounts that militates against good governance”.

Rajiv Mehrishi, the former Comptroller and Auditor General, has said the Centre has held back a report he had submitted to the President of India, to end what he called “a nightmare of accounts that militates against good governance”.


“The report is still not in the public domain; for some reasons that I don’t know it is not out for discussions, which disturbs me,” he said, criticising the finance ministry’s decision this year to set up a non-lapsable fund for defence modernisation. Such funds promote corruption, he said in a speech at a seminar this week.

Mehrishi said he submitted the report under Article 150 of the Indian Constitution to the President in April 2020, months before his term as CAG ended in August 2020. As an example of his concerns, he claimed in several central government ministries 25 per cent of spending is classified as “other expenditure”.

“This means you really do not know where the money has gone,” he said.

Article 150 of the Constitution says: ‘The accounts of the Union and of the states shall be kept in such form as the President may, on the advice of the Comptroller and Auditor-General of India, prescribe’. Mehrishi said none of his predecessors in CAG had offered such advice. “We departed from that to give a detailed advisory to the President on how the form and manner of keeping public accounts should be.”

The CAG, as a constitutional figure, takes an apolitical stand in its reports.

Mehrishi held high-profile posts in the Narendra Modi government. Before assuming charge as CAG, he was India’s home secretary for two years. Before that he was made the finance secretary in October 2014 in the first term of the government that came to power in May.

While Mehrishi did not commit if his report (a detailed letter with annexes) criticised the government’s subsequent decision to form a non-lapsable fund for capital expenditure in the defence sector, he made his objections clear while speaking at the CSEP-World Bank seminar, where the chairman of the 15th Finance Commission, NK Singh, was also present.

"We need to be really careful with non-lapsable funds as they promote corruption and laziness in the ministries which receive this money,” he said in an hour-long speech.

While it is true that due to the interference by the courts and the lengthy standard operating procedures money often reaches the target late, “non-lapsable funds as a solution scares me. You cannot make a system and then continue to make exceptions.”

He said the trend could intensify “after instituting such funds for North East and defence I do not know where it will go next.”

Finance Minister Nirmala Sitharaman had said in Lok Sabha (February 2021) in the course of the debate on Budget FY22: “We have agreed, in-principle, to the 15th Finance Commission’s recommendation for a non-lapsable defence fund. The modalities and the structure will be worked upon”. The Commission had asked for the fund 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.”

Singh did not respond to the comments made by Mehrishi against the Finance Commission’s proposals. 

Mehrishi, who was also chief secretary in the Rajasthan government under Bharatiya Janata Party chief minister Vasundhara Raje Scindia, said a better option to reform government budgeting -- to make them transparent and help intended beneficiaries -- is to have a two-year rolling budget.

“There can be yearly reviews of the allocations,” he said. Here too he suggested caution based on the audit reports.

He also took on the trend in state governments for allegedly not reconciling thousands of crores of rupees given out as "temporary advances” for decades.

Money given by the Centre for MGNREGA, he claimed, is booked by different states through different departments which makes it difficult to know “what you are spending money on”.

About government accounts, he said: “What deeply disturbs me is that we are an allocative regime. We just imagine if we can announce an allocation for a problem, it will be solved.”

Offering various examples like that of the National Health Mission, he said just raising the budget for health and education will not solve the problems of lack of healthcare or poor educational outcomes.

He has instead suggested that government accounts use an end-to-end enterprise-based IT system that tracks and traces all expenditure and revenue so that Parliament gets a clear picture.

While the former CAG did not say if the current efforts at the Centre to upload all government data on the computerised PFMS will help in this direction, he said the note to the President has outlined a law based on the USA Data Accountability Standards Law to make it possible.

Subhomoy Bhattacharjee in New Delhi
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