Faced with pressing expenditure needs this fiscal, the Finance Ministry has frowned upon setting up of numerous reserve and corpus funds and has said those using government money should be discouraged.

“The funds so created in the Public Account and the balances lying idle therein create a liability for the government along with inflexible entitlements,” said the Department of Economic Affairs in a recent missive to all government ministries and departments, noting that this is necessary for “prioritising expenditure given the various competing needs”.

Reserve and corpus funds are typically set up for a specific purpose such as development of roads and primary education. Such funds, which are kept in the Public Account, do not belong to the government and can not be accessed by it for regular expenditure.

Some of these funds may be created using a special cess or levy. For others, some amount of money is transferred from the Contingency Fund, which is the key sticking point for the Finance Ministry.

Noting that there has been a surge in the demand for setting up such dedicated funds in the Public Account, the Finance Ministry said, “While the funds are agreed for creation with dedicated receipts in the form of cess or levies, funds from government’s contributions out of its borrowings are best avoidable.”

The issue has also been flagged by the Comptroller and Auditor General of India, which pointed out that ₹1,674.75 crore was lying in 48 dormant reserve funds by the end of 2014-15.

In a recent report on Union Government Accounts 2014-15, the CAG said such funds create a burden on the exchequer. “Reserve funds and deposits form a part of the Public Account, wherein the transactions in respect of which government incurs a liability to repay the moneys received and the repayments thereof are recorded,” it had noted.

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