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Introduction
The contingency fund of India is one of three categories of government funds defined by the Indian constitution, the other two being consolidated funds and public accounts. In simple terms, a contingency fund is a sum of money set up for use in the event of national or state emergencies such as terrorist attacks, riots, or natural disasters such as floods, cyclones, and other natural disasters.
Its purpose is to stabilise the nation’s financial ability by acting as a safety net to fill up the gaps during a national emergency. Accounts for all the funds, including contingency funds, are with the Reserve Bank of India and its branches. However, the rules for the receipt, custody, and disbursement of money from the contingency fund are laid down by both the central and state governments.
Who Holds the Contingency Fund of India?
Parliament established the contingency fund of India in 1950 under the “Contingency Fund of India Act, 1950″ to meet the financial needs during any contingency. In short, it is a rainy day fund. On behalf of the President of India, the finance secretary (Department of Economic Affairs) holds the contingency fund, and the fund is operated under the President’s execution. But without parliament’s approval, the government cannot withdraw funds.
Corpus Of The Contingency Fund
The Indian constitution, under Article 267, mandates the formation of a corpus under the contingency fund of India to deal with disastrous situations. Corpus is defined as the permanent fund kept for the essential expenditures for the administration and survival of the nation. This amount can be enhanced from time to time. Initially, the corpus for the contingency fund of India was Rs 5 crore which was later increased to Rs 500 crores or 5 billion in 2005. Recently, the budget 2021-2022 proposed enhancing India’s contingency fund from Rs 500 crore to Rs 30,000 crore through finance bill 2021. The government has also changed the rules for the contingency fund of India, allowing the finance secretary to have 40% of the overall corpus at his disposal.
Any expenditure or withdrawal of funds from the contingency fund requires parliamentary approval to ensure that the corpus is maintained. Similarly, for the state contingency fund, any expenditure requires approval from the state legislature. Also, the corpus for state contingency funds varies across states of India, and the state legislature decides its quantum.
Difference Between Consolidated Fund, Contingency Fund, & Public Accounts Of India
A well-designed and well-managed funding system aids in maintaining effective financial control of a nation. The table below summarises the differences between the three types of funds that make up the Indian polity:
Consolidated Fund | Contingency Fund | Public Accounts |
It comes under Article 266 (1) of the Indian Constitution. | The central contingency fund was instituted under Article 267 (1) of the Indian constitution, whilst each state government’s contingency fund was established under Article 267 (2). | It was established under Article 266 (2) of the Indian Constitution. |
It is the most important fund out of all three and makes up all the revenue (taxable and non-taxable) of the Indian government. | The fund is kept to meet unforeseen expenditures during a crisis. | In this, the government acts like a banker in these transactions, and the funds in it do not belong to the government. They ought to be paid back to the rightful owners at some time in the future. |
Examples of consolidated funds include all loans raised, money or interest received on repayment of loans, allowances of the President, salaries, and pensions of legislative members, etc. | Funds used during a natural calamity or war are taken from the contingency fund. | Examples of public accounts include provident funds, deposits and advances, remittances, etc. |
It requires authorization from the parliament pre expenditure. | Although the President can withdraw funds during a crisis, it requires approval of the parliament post expenditure. Similarly, for state contingency funds, the state governor can withdraw funds during a crisis, but it later requires approval from the state legislature. | Its expenditure does not require any authorization from the parliament and is executed by the President of India. |
Conclusion
Funds are an integral part of the management of the financial activities of the Indian government. The contingency fund makes up one of them, which is used both by the centre and the state government during disaster management. On behalf of the President of India, the finance secretary (Department of Economic Affairs) holds the contingency fund, and the fund is operated under the President’s execution.
