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Utilisation of public funds - Part 2
4.0 ACCOUNTABILITY CONCERNS ARISING FROM DIRECT MODE OF TRANSFER
4.1 Modes of transfer of resources to States
The Government of India releases funds under CSS through two methods: treasury mode and society mode. In the treasury mode, after the sanction of funds by the concerned administrative ministry/finance ministry of the Union Government, the RBI is intimated to transfer the funds to the State Government. The expenditure is routed through the treasury and is captured by the AG office through the vouchers received for the same. With the IT systems in treasuries and AG offices in several states, funds can be tracked till the State Government spends through State Departments or transfers the fund to the Implementing Agencies (IAs) (mostly local bodies). The funds are audited by CAG. In the society mode, funds are sanctioned by the concerned administrative ministries and released by them. The funds are credited directly to the bank accounts of the concerned Implementing Agencies (IAs) of states. These funds are subsequently released further by these first level recipients to their constituents at the District, block (taluk) or village level. The expenditure of funds is monitored by the concerned central administrative ministry/ department, by keeping a watch over the Utilization Certificates provided by the agencies. The audit of such bodies is conducted by chartered accountants.
The quantum of direct transfers (society mode) of plan funds by the Government of India has rapidly increased in the last few years and amounted to about Rs. 1.22 lakh crore in 2010-11, which was about 31% of the total plan expenditure of the GoI.
4.2 Issues and concerns
There are several advantages of the treasury mode of fund transfer - it is robust, expenditures incurred are voucher-based, validated by AG and audited by the CAG. There is a well-defined system of tracking, cash management and bank reconciliation which provides information on cash flows at any point of time. However, this mode also has a few deficiencies. The transfer to states by Centre and to implementing agencies (in case they are not within treasury network) by states is immediately booked as final expenditure, irrespective of actual utilization.
The tracking of central releases is also difficult in view of several factors such as one lump transfer head for all Schemes, different nomenclature and budget heads in states and different systems of delegation by states.
In the society mode, there are more drawbacks than in the treasury mode. The transfer to states is booked as final expenditure under the functional major heads of accounts belonging to respective departments. In this case, unlike the treasury mode, the trail of fund release and utilization ends here. The central ministries are concerned about avoiding lapse of budget, which acts as an incentive for them to spend (release moneys), not connected with utilization by IAs. There is no uniform formal accounting framework for these IAs.
There is no assurance whether the amount has actually been spent by the IAs on the schemes or not. There is no centralized data on expenditure available in any financial statement. Until the CPSMS project, there was no centralized information on releases by various ministries of the GOI. Since the funds are not spent fully by the IAs in the same financial year, there remains substantial amount of unspent funds in their bank accounts. The unspent balances with the IAs constitute the float outside and the carrying cost of the float is substantial. There is no formal/regular system of getting monthly expenditure figures.
Audit of the IAs is carried out by CAs, appointed locally by the State level Society or the District level IA. In case of PRIs/ULBs, the responsibility is usually on Director, Local Fund who is a functionary of the State Government. CAG's audit jurisdiction is not comprehensive over all sub-grantees, i.e. down the line implementing agencies which receive funds from first level IAs at State level.
4.3 Shortcomings in the implementation of CSS
The CAG has studied the implementation of many CSS and observed a common pattern of shortcomings in their execution. As early as 1999, the CAG's Union Audit Report pointed out various constraints in CSS. The Ministries execute programmes without quantitative and qualitative evaluation of delivery. The funds are released mechanically without reference to capacity of State Governments or effective utilization of funds released earlier. The ministries were unable to ensure correctness of the data and facts reported by the State Governments. The internal audit function in both the departments implementing the projects as well as the societies was inadequate or nonexistent. The emphasis by State Governments was more on releases of assistance by the central ministries rather than ensuring the quality of expenditure and attainment of the objectives. The Ministries and State Governments were not seriously inclined to check misuse- expenditure booked in accounts assumed precedence over the bonafide and propriety of the expenditure. On the whole, expenditure information is unreliable.
5.0 THE SCOPE OF THE PUBLIC SECTOR PLAN
The process of having a plan of the Government began with the launching of the First Five Year Plan. The Annual Plans are the operational phase of the Five Year Plans. Over the years, both the scope of public sector plan and the administrative machinery involved have undergone changes.
5.1 Annual Plan of the Centre
As per the practice, Annual Plan is the plan component of the budget as well as Internal and Extra Budgetary Resources (IEBR) of PSEs which is prepared by Planning Commission in consultation with Central Ministries concerned. The BCR, MCR and the fiscal deficit put together determine the size of Gross Budgetary Support (GBS) for plan. Out of total GBS, a portion is provided to states as central assistance for State Plan. The Public Sector Enterprises (PSEs) also mobilize some resources in the form of Internal Resources (IR) and Extra Budgetary Resources (EBR), commonly known as IEBR. The GBS (net of assistance to State Plan) and the IEBR constitute the plan resources of the Centre.
5.2 Annual Plan of the States
Annual Plan of states is plan outlay in the State Budget and includes IEBR of State PSEs and resources of local bodies. The budgetary resources for the plan include State's Own Resources (including BCR and MCR), net budgetary borrowings and central assistance to State Plan. The resources transferred from Central Plan are not treated part of the State Plan to avoid double counting.
5.3 Issues relating to Public Sector Plan
The main issues regarding the scope of public sector plan of the Centre and States relate to:
- Budgetary Plan of the Centre and States
- Plan of the public sector enterprises of the Centre and States
- Plan of rural and urban local bodies
- Plan of the Implementing Agencies/ SPVs
- Public Private Partnerships(PPP)
5.4 Budgetary Plan of the Centre and States
The budgetary plan of the Centre and States is the main component of the Five Year or Annual Plans. As this Committee has recommended that the distinction between Plan and Non-Plan in the budget may be done away with, the budgetary component of the FYP will be the sum total of the projected aggregate expenditure for five years of Centre and State Governments. The annual budgetary component of the Plan of the Centre or a State will have a one-to one relationship with the Government budget of the Centre or of a State respectively. The Plan classification/ heads of development and budget classification/ heads of expenditure should become the same. Consequently, there will be no longer any necessity of any other plan-budget link document.
5.5 Plan of the Public Sector Enterprises of the Centre and States
The Centre has consistently followed the practice of including the investment plans of a large number of Central Public Sector Enterprises (CPSEs) as Central Plan outlay in the annual budgets. It appears quite reasonable that all the CPSEs may not get included in the Central Plan outlay in the annual budget of a particular year, as only the CPSEs having investment plans in that year need to be included. CPSEs incurring losses or not generating resources (IEBR) will not contribute to plan resources or plan outlays.
At the State Level, the practice of including the State Public Sector Enterprise (SPSE) plans in the Annual Plans of the states has not been followed uniformly by different states. While some states include the SPSE plans in their Annual Plans, quite a few states are keeping them outside their Annual Plans. Plan investments and resources (IEBR) of the CPSEs have always been important components of the Central Plan. Moreover, in several economic and even some social services, public sector investments are made and services delivered through CPSEs and SPSEs. More importantly, the size of the plan of the public sector should be neutral as regards medium and mode of delivery of functions/services.
Even for States, there is a need for a uniform adoption of the concept of planning investment outlays of State PSEs funded, inter-alia, from IEBR.
5.6 Plan of the Local Bodies
As prescribed by the guidelines of Planning Commission, some states specifically indicate the plan resources of the local bodies separately in the State Annual Plan as well as the annual budget. But generally, all development resources allocated from the State Budget to local bodies are subsumed in the Annual Budgets of the states. As a consequence, it is difficult to ascertain the expenditure and developmental programmes of the local bodies from the Annual Budgets of the states.
Local bodies are legal entities recognized by the Constitution and they need to have financial delegation and autonomy to function independently. They need to have their separate annual budgets and plans. However, there is a strong merit in the view that local bodies are but different organs of the State/UT Governments and the State/UT Annual Plans should reflect the resources and expenditures of all the organs, including local bodies, in a comprehensive manner.
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