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7/24/2019 capital exp

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Serial number Title Page Number

Title Page

Declaration

Certificate

Acknowledgement

I

ii

iii

iv

Ch.1

1.1

1.2

1.31.4

A STORY OF P!"#C $%P$&D#TR$

Introduction

Objectives & Context

Role O Public !x"enditurePublic !x"enditure In India

1

1

23

Ch.'

2.1

2.2

2.3

2.4

2.#

2.$

R$(#$) OF "#T$RATR$

Introduction

Pur"ose & Overall Objective

%eining P' Reorms

(co"e o Revie)

(tructure O Re"ort

Public !x"enditure 'anagement

#

*

+

1,

14

1#

Ch.*

3.1

3.2

3.33.4

R$S$ARC+ ,$T+ODO"O-Y

Credibilit- O /e 0udget

rans"arenc-

Polic- 0ased 0udget

ccounting Recording Re"orting

1

1*

2,21

1

TA!"$ OF CO&T$&TS


2/56

Ch.

4.1

4.2

4.3

4.4

A&A"YS#S / #&T$RPR$TAT#O& OF DATA

ccounting & Re"orting

!xternal udit

%escri"tion o /e Countr- !conomic (ituation

%escri"tion o 0udgetar- Outcome

2#

2$

31

34

Ch.0 FRA,$)OR FOR PF, 4,#3

Ch.2 S,,ARY #4#$

2

1


3/56

A STORY OF P!"#C $%P$&D#TR$

1.1 #ntroduction

raditionall- "ublic ex"enditure re"resented a orm o government intervention designed

to "romote allocate eicienc- t/roug/ correction o mar5et ailures redistribute

resources e6uitabl- and "romote economic gro)t/ and stabilit- 7'usgrave 1+#+8. /e

redistributive "o)ers o t/e (tate t/roug/ "ublic ex"enditure emanates rom t/e

normative arguments in avor o greater e6ualit- 7'ars/all 1+#,9 Ra)ls 1+18.

1.' The PF, Performance A33e33ment4 Ob5ecti6e and Conte7t

/e objective o t/is Public inancial 'anagement 7P'8 "erormance assessment is to

assess t/e :overnment o India;s P' s-stems "rocedures and "ractices at t/e union

level using t/e Public !x"enditure and inancial ccountabilit- 7P!8 P'"erormance measurement rame)or5. /e assessment is ex"ected to "rovide a baseline

relating to t/e P' s-stem at t/e ing t/e need to carr- out an indicator based assessment a revie) o

economic and iscal develo"ments is done and t/e institutional arrangements legal and

regulator- rame)or5s are elaborated to "rovide a setting in )/ic/ t/e P' s-stem

o"erates.

lt/oug/ t/e P' s-stems at t/e state level 7(N:s8 are similar to t/ose o t/e central

government and at an o"erational level extensive administrative and inancial interace

exist t/e states /ave considerable inancial and unctional inde"endence base don

Constitutional "rovisions relating to division o ex"enditure res"onsibilities and resource

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5/56

7ii8 /e desire to )or5 save and invest

7iii8 llocation o resources as bet)een dierent uses 7%alton8.

4. Provision o ree services li5e /ealt/ education etc to all members o t/e societ-

@narro)s t/e area o ine6ualit-@. (ocial securit- measures and social insurance sc/emes

)/ic/ are inanced "artl- or )/oll- rom "ublic unds e.g. old age "ensions sic5ness

and maternit- beneits unem"lo-ment relie industrial injur- com"ensation )ido);s

"ension etc. im"rove distribution b- reducing ine6ualit- o incomes. #. 'aintaining

economic stabilit-.

1. Public $78enditure in #ndia

/e role o "ublic ex"enditure in t/e iscal "olic- goals o gro)t/ e6uit- and stabilit-

/as varied across dierent "/ases o economic develo"ment in India. /e /istorical

im"ortance o "ublic ex"enditure lies in t/e mixed econom- model ado"ted in India ater

Inde"endence )/ereb- t/e :overnment assumed t/e "rimar- res"onsibilit- o building

t/e ca"ital and inrastructure base to "romote economic gro)t/. /e concerns regarding

e6uit- and "overt- alleviation ater t)o decades o Inde"endence added anot/er

im"ortant dimension to "ublic ex"enditure in terms o redistribution o resources. /e

inade6uate returns on ca"ital outla-s and t/e macroeconomic crisis o earl- Nineties

arising out o /ig/ iscal deicit s/ited t/e ocus o "ublic ex"enditure to eicienc- in its

management or acilitating ade6uate returns and restoring macroeconomic stabilit-.

=/ile t/e iscal "olic- goal o stabilit- could be ac/ieved t/e modus o"erandi o "ublic

ex"enditure management t/roug/ curtailing ca"ital ex"enditure raises concerns about

inrastructure investment and its im"act on t/e longterm gro)t/ "otential o t/e

econom-. urt/ermore stagnating revenue mobili>ation in "articular and some u")ard

movements in ex"enditures led to a reversal o t/e iscal stabili>ation "rocess since t/e

second /al o t/e Nineties.'anagement o "ublic ex"enditure /as al)a-s been an issue. It ma- be more dominant at

critical times t/an at times o relative stabilit- and "ros"erit- but it /as al)a-s been and

)ill remain a matter o concern. lt/oug/ tax"a-ers ma- be more )orried about t/e

amounts t/e- "a- toda- to t/e :overnment t/eir concern about t/e beneits it is even i

less vocal and articulate t/an t/eir o""osition to taxes. 'ore recentl- )it/ "ersistent

gro)t/ in iscal "roblems in develo"ing countries ormer centrall- "lanned economies

and establis/ed )estern industriali>ed democracies net eicac- o "ublic ex"enditure

management /as been

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increasingl- discussed.

6

2


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R$(#$) OF "#T$RATR$

'.1 Pur8o3e and O6erall Ob5ecti6e

/e "ur"ose o t/is literature revie) commissioned b- t/e %e"artment or International

%evelo"ment 7%I%8 on be/al o t/e %utc/ 'inistr- o oreign airs t/e ()edis/

International %evelo"ment Coo"eration genc- 7(ida8 t/e Canadian International

%evelo"ment genc- 7CI%8 and t/e rican %evelo"ment 0an5 7%08 is t/reeold.

irstl- to document t/e current "ublic inancial management 7P'8 reorm landsca"e

identi-ing t/e major underl-ing t/eories signiicant trends and dierences bet)een

a""roac/es used in develo"ed and develo"ing countries. /e second is to identi- t/e

main areas o reorm under t/e major P' com"onents and to document clearl- )/at is

5no)n )it/ res"ect to t/e eect o t/ese reorm "rocesses as )ell as to identi- ga"s in

current 5no)ledge. /e inal "ur"ose o t/e literature revie) is using t/e evidence base

develo"ed to assist )it/ t/e identiication o "otential evaluation to"ics and 6uestions.

/e overarc/ing objective o t/e revie) is t/at it )ill serve as an in"ut to a ort/coming

evaluation o P' reorm "rocesses. /e terms o reerence state t/at t/is evaluation )illbroadl- cover? i8 /o) P' can be successull- strengt/ened in "artner countries and ii8

/o) donors1 can eectivel- contribute to t/e successul strengt/ening o P' in "artner

countries.

/e =orld 0an5 /as recentl- establis/ed a P' reorm database2 t/at contains a

collection o current reerence material on P' reorms. /is inormation is dra)n rom

a )ide variet- o sources )it/in and outside t/e =orld 0an5 and is designed to "rovideeas- access to current 5no)ledge on dierent as"ects o P' reorm. Ao)ever )or5 /as

not been underta5en recentl- to s-nt/esi>e t/e literature assessments and evaluations o

t/e P' reorm "rocesses initiated b- actors 7be t/e- government or donor led8.

/e term donors rat/er t/an develo"ment "artners is used t/roug/out t/is document

to avoid an- conusion.

/is database alls amongst a m-riad o P' resources /oused b- ot/er multilateral

institutions 7International 'onetar- und 7I'8 %0 Organisation or !conomicCoo"eration and %evelo"ment 7O!C%88 researc/ institutions 7Overseas %evelo"ment

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Institute 7O%I8 Institute or %evelo"ment (tudies 7I%(88 consortia o donors and

academic institutions 7:overnance and (ocial %evelo"ment Resource Centre 7:(%RC88

and individual bilateral agencies 7%I% (ida8.

ccording to Raghabendra 9ha: anot/er "rime candidate as an ex"lanation or

inade6uate gro)t/ "erormance o t/e Indian econom- is t/e 7legendar-8 "oor

"roductivit- o "ublic ex"enditure in India. /e seeds o suc/ "oor "roductivit- are

embedded in t/e ver- "/iloso"/- be/ind suc/ ex"enditures. Public ex"enditure

management s-stems in India /ave em"/asi>ed control and ignored ac/ievement and

/ave oten served as avenues o eas- and stead- em"lo-ment or man-. s a

conse6uence :overnment %e"artments and "rograms /ave tended to ex"and

uncontrollabl- irres"ective o an- rationale or t/eir existence. Aig/l- centrali>eddecisionma5ing and control s-stems /ave let bureaucrats unable to ta5e initiatives to

secure im"roved results even )/en t/e- )is/ed to do so. Aence "ublic service /as

settled into a lo)level e6uilibrium in )/ic/ lo) ex"ectations t/e dead )eig/t o

bureaucrac- lac5 o incentives accountabilit- and "olitical intererence combine to

generate lo) "erormance /ig/ )astage and ram"ant corru"tion. In t/e Indian case t/is

is t-"iied b- a /ig/ incidence o ailure o "ublic ex"enditure across t/e board? rom

largescale "ublic sector )/iteele"/ant t-"e investments to anti"overt- "rograms t/at

do not at all reac/ t/e real "oor.

Ran5it umar Pattnaik et.al. in t/e researc/ "a"er attem"ted to anal->e t/e role o

"ublic ex"enditure in India as a 5e- o"erating iscal "olic- instrument in order to ac/ieve

t/e goals o gro)t/ e6uit- and stabilit- and -et maintaining t/e intermediate targets o

deicit indicators to ensure t/e sustainabilit- o "ublic inances. /e Indian econom-

running Bnearl- at ull steam t/ere is a case o rea"ing t/e beneits b- /ig/er

mobili>ation o revenue recei"ts. /is can emanate in t/ree )a-s. irst )/en t/e

econom- is on an u"s)ing t/ere is more "robabilit- o mobili>ing more taxes. (econd

t/e increased ca"ital ex"enditures )ould "romote gro)t/ and enable /ig/er tax

collections. /ird t/e user c/arges levied on t/e use o ca"ital goods )ould boost non

tax revenue collections. urt/ermore given t/e iscal "olic- transmission lag t/ere is a

need to ront load decisions on "ublic investments es"eciall- at a time )/en t/e Indian

econom- is on a /ig/ gro)t/ "/ase and industries /ave im"roved t/eir eiciencies and

increased t/eir ca"acit- utili>ation. Aig/er tax mobili>ation as )ell as recentl- increased

s/are o t/eir devolution to t/e (tates )ould be able to garner resources or

im"lementation o sc/emes or "rovision o local "ublic goods.

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ccording to Ste8hen +owe3 and Rinku ,urgai ;'ers9

D Restriction o "rovision o major subsidies.

D Reduction o jobs in :overnment %e"artmentsE Public (ector underta5ings 7P(


10/56

/e narro)est deinition conines P' to t/e do)nstream activities o budget execution

control accounting re"orting monitoring and evaluation 7llen et al 2,,48. n

alternative deinition describes P' as t/e taxing s"ending and debt management o

government )/ic/ inluences resource allocation and income distribution. /e s"ending

"ortion covers t/e budget c-cle including budget "re"aration internal controls

accounting internal and external audit "rocurement and monitoring and re"orting

arrangements 7Rosen 2,,28.

The multiplicity of PFM role players and PFM relationships

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'.* Sco8e of Re6iew

It "rovides an overvie) o t/e major t/eoretical models and a""roac/es to P' reorm

and examines some o t/e reorm ex"eriences to date. Reorm ex"erience /as guided t/e

develo"ment o some o t/e ne)er a""roac/es and continues to reinorce t/e need orrecognition o countr- context9 /o)ever lin5s bet)een t/e t/eor- and "ractice are oten

tenuous. It )as not relevant t/ereore to rame t/e literature on reorm ex"erience )it/in

t/e models and a""roac/es described.

Fiterature on critical issues o ca"acit- develo"ment and countr- context is also

revie)ed9 and t/e role o civil societ- and donors in P' reorm. inall- t/e re"ort

assesses recent researc/ on P' reorm rom t/e subnational and sector "ers"ective.

/e revie) ocuses on literature assessments and evaluations "roduced in t/e last ten

-ears. /e vast majorit- o t/e documentation revie)ed is available "ublicl- alt/oug/ a

e) documents )ere "rovided to t/e consultants in drat ormat a/ead o t/eir

"ublication. /e literature revie)ed includes academic and tec/nical articles

develo"ment "ractitioner guides manuals /andboo5s and )ebsites. :iven t/at t/e

overall objective o t/e revie) is to "rovide in"uts to an evaluation on /o) to strengt/en

P' in "artner countries t/e em"/asis is "laced on recent researc/ into P' reorm in

develo"ing and transition countries. ctual ex"erience in t/e im"lementation o reorms

b- O!C% countries is oten relevant but re6uentl- disregarded. Conse6uentl- t/is

literature revie) includes commentar- on some o t/e most im"ortant indings and

lessons rom O!C% countries.

'. Structure of Re8ort

/e remainder o t/is c/a"ter discusses t/e 5e- drivers o recent P' reorm. /e re"ort

is t/en divided into our urt/er c/a"ters. In c/a"ter t)o dierent a""roac/es to reorm

o ex"enditure management and revenue administration are described. /e Ne) Public

'anagement 7NP'8 ""roac/ is briel- ex"lained9 and t/e c/a"ter t/en traces t/e

evolution o various a""roac/es to ex"enditure management )it/in t/e overall P'

reorm "rocess in develo"ing countries. /e inal "art examines dierent a""roac/es to

revenue administration revie)ing t/e literature on organisational c/anges in tax revenue

administration. C/a"ter t/ree discusses reorm ex"erience and revie)s t/e literature o

t/e 5e- s-stem and "rocedural reorms ta5ing "lace in t/e P' subs-stems e.g.

budgeting auditing legislative scrutin-. C/a"ter our revie)s t/e available literature on

some o t/e ot/er issues aecting P' reorm initiatives suc/ as countr- context

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ca"acit- external sta5e/olders and lin5s )it/ service deliver- and ot/er "ublic service

reorms. /e inal c/a"ter summarises t/e 5e- t/emes and issues and /ig/lig/ts ga"s in

5no)ledge. o"ics or uture evaluation and a tentative list o evaluation 6uestions

develo"ed in consultation )it/ t/e management committee is "rovided. /ere )as

insuicient evidence rom t/e literature revie) to enable a conclusive list o to"ics to be

develo"ed and t/e list s/ould t/ereore be vie)ed as tentative and t/e basis or uture

discussion. Reerences are listed b- c/a"ter and additional texts are "rovided in t/e

general reading list. /e re"ort also contains t)o annexes? nnex 1 "rovides a glossar- o

common terms9 nnex 2 contains a summar- o assessments used to monitor P'

reorm and assess t/e status o P' s-stems.

Public $78enditure3 a3 a Percentage of -DP

Revenue

!x".

Interest

Pa-ment

'ajor

subsidies

%eense

!x".

Ca"ital

!x".

otal

!x".

1++,+1

1++1+2

1++2+3

1++3+4

1++4+#1++#+$

1++$+

1+++*

1++*++

1+++

2,,,

2,,,,1

2,,1,2

2,,2,3

2,,3,4

2,,4,#

2,,#,$

2,,$,

2,,,*

70!8

13.

13.4

13.2

14.,

11.*11.#

11.3

11.

12.4

12.*

13.3

13.2

13.*

13.1

12.3

12.3

12.4

11.+

4.,

4.3

4.4

4.*

4.24.1

4.2

4.2

4.4

4.*

4.*

4.

4.*

4.3

4.1

3.

3.$

3.4

2.3

2.,

1.

1.$

1.21.1

1.1

1.3

1.2

1.*

1.2

1.3

1.$

1.$

1.4

1.2

1.3

1.1

2.,

1.+

1.

1.+

1.$1.#

1.#

1.

1.

1.*

1.

1.$

1.$

1.#

1.4

1.3

1.2

1.2

#.+

4.

4.3

4.3

3.3.2

3.,

3.4

2.2

2.#

2.3

2.

2.#

4.,

3.$

1.+

1.

2.$

1+.

1*.1

1.4

1*.3

1#.#14.$

14.3

1#.,

14.$

1#.3

1#.$

1#.+

1$.2

1.2

1$.,

14.1

14.1

14.#

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;#= Relation3hi8 between Public $78enditure and -DP -rowth

"og ;-DP=1>?1@'?>'=notes t/at t/e surve- researc/ "rocess starts )it/ t/e selection o valid

measurement7s8E6uestionnaire7s8 t/at contain t/e 6uestions t/at measure t/e intended

conce"t7s8. /ereore t/e 6uestions need to be )orded careull- and unambiguousl-

must be acce"table to t/e res"ondents not give oence and be easil- understood b-

ever-one. Once t/e 6uestionnaire /as been selected or develo"ed t/e res"ondents need

to be selected. /e relevant criterion in selecting res"ondents is t/at t/e 6uestions s/ould

a""l- to t/e "o"ulation rom )/ic/ t/e res"ondents /ave been selected 7/eron 1++28.

/e next ste" )as to administer t/e 6uestionnaires.

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!aker71+**8 discusses our t-"es o 6uestions t/at ma- orm "art o a 6uestionnaire

vi>. closedended 6uestions o"enended 6uestions contingenc- 6uestions and matrix

6uestions.

"inde Rothman and Sieberhagen 71+++ cited in van -l 2,,28 add t/at as sel

evaluation 6uestionnaires are usuall- 6uantiied it is easier to com"are t/e scores o

dierent individuals. =eiers 71+**8 urt/er "ostulates t/at t/e anal-sis o 6uestionnaires

is eas- due to t/e structured inormation in t/e 6uestionnaire )it/ minimal or no o"en

ended 6uestions.

erlinger 71+*$8 /o)ever ound t/at t/e main "roblems ex"erienced using

6uestionnaires involve "oor levels o res"onse and t/e limitation o not being able to test

t/e given res"onse or accurac-. urt/ermore t/e validit- o selevaluation

6uestionnaires ma- dier rom situation to situation as some items are ambiguous and

could be vie)ed as /aving t)o "ossible ans)ers 7(mit/ 1+*1 cited in van -le 2,,29

van -l& van der =alt 1++48.

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Chart *.1 The Re3earch Proce33

(ource? (e5aran 2,,1

Adam3 and Sch6ane6eldt71+*#8 advise Bresearc/ design reers to a "lan blue"rint or

guide or data em"lo-ees o organisations and inter"retation set o rules t/at enable t/e

21

Dening the research

question

Preliminary data gathering

(reie! of "iterature#

Deeloping the theoretical

frame!or$ for the study

%eneration of &esearch

'uestions

Field !or$(estalishing

contact !ith students of

)nstrument deelopment

)tems and scaling

*onducting the surey

+nalysis and ndings of

the &esearch

Discussion on

*onclusion and reisit

the "iterature


22/56


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not assessed in t/is re"ort as t/e external assistance at Central level /as been ver- lo).

/e s/are o external assistance in t/e gross revenue o t/e Central :overnment /as

remained less t/an one "ercent in recent -ears. Ao)ever t/e external donor agencies

su""ort t/e (tate :overnments in India t/roug/ loans and grants or various "rojects. s

"er t/e recommendations o t/e )elt/ inance Commission t/e Central :overnment

/as been transerring or on lending external assistance to states )it/out acting as a

inancial intermediar-. /at is t/e states avail suc/ assistance on t/e terms and

conditions o t/e lending agencies including oreign exc/ange ris5 )/ic/ )as earlier t/e

res"onsibilit- o t/e Central :overnment. /e P' assessment )as carried out during

t/e "eriod 'arc/ 2,,+ to Mune 2,,+. /e drat re"ort )as revised ater receiving

comments rom t/e ex"erts at =orld 0an5 and P! (ecretariat during November to

%ecember 2,,+. /e P' ssessment Re"ort or :overnment o India at


24/56

iii. PolicE@ba3ed budgeting /e extent t/at budget ormulation is in line )it/ t/e

"olicies o t/e government.

iv. PredictabilitE and control in budget e7ecution /e extent o s-stematic and

"redictable budget im"lementation and t/e eectiveness and eicienc- o ex"enditure

and revenue management and controls.

v. Accounting: recording and re8orting /e eectiveness and trans"arenc- in

maintaining and re"orting on t/e "ublic inances and t/e reliabilit- and ade6uac- o

inancial inormation or management decisionma5ing.

vi. $7ternal 3crutinE and audit /e arrangement or extent and sco"e o scrutin- o

"ublic inances as )ell as t/e timeliness and t/e strengt/ o corrective measures ta5en.

/e stud- involved ollo)ing activities?

1. Revie)ing P' institutional structure t/roug/ legal and regulator- documents

budgetar- documents and inancial auditing re"orts.

2. nal-sis o budgetar- data to "re"are t/e "erormance indicators to assess t/e P'

Outturns 7credibilit- o t/e budget8.

3. /e inormation on budget classiication budget documents unre"orted government

o"erations arrears iscal ris5s and trans"arenc- related issues suc/ as "ublic access to

iscal inormation )ere collected and anal->ed to "rovide ratings on e- CrossCutting

Issues. /e entire budget c-cle )as anal->ed to "rovide rating on "erormance indicators

relating to budgetar- "olic- and "redictabilit- and control in budget execution.

4. /e inancial accounting and re"orting s-stem and audit and control s-stem )ere

anal->ed and relevant inormation )ere collected to assess t/e "erormance in t/ese

areas.

#. %iscussions )ere /eld )it/ relevant government oicials to examine t/e institutional

set u" and )or5ing o P' s-stem at t/e union level. %iscussions )it/ 5e- government

oicials in relevant de"artments included t/e sco"e o various reorm measuresunderta5en to strengt/en t/e P' s-stem and results o suc/ reorm.

$. /e re"ort )as "re"ared as "er t/e guidelines given in t/e P! (ecretariat P'

Perormance 'easurement rame)or5. /e re"ort includes re6uired su""orting data to

acilitate t/e revie) o t/e re"ort. /e structure o t/e rest o t/e evaluation re"ort is as

ollo)s?

D C/a"ter 2 "rovides bac5ground inormation and t/e economic and iscal context or t/e

evaluation9

D C/a"ter 3 ex"lains t/e scores or t/e 31 individual "erormance indicators9

24


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26/56

A&A"YS#S A&D #&T$RPR$TAT#O&

OF DATA

.1 Accounting and Re8orting

BConsolidated -earend inancial statements are critical or trans"arenc- in t/e P'

s-stem 7P! 2,,#? 4#8. (tatements need to be understandable and "rovide inormation

in a consistent manner. In t/e last t)elve -ears t/e Public (ector Committee o t/e

International ederation o ccountants 7IC8 /as establis/ed a set o "ublic sector

accounting standards31 or :eneral Pur"ose inancial (tatements 7:P(8 "re"ared on

eit/er a cas/ or accrual basis. %ierences bet)een International Public (ector

ccounting (tandards 7IP((8 and statistical bases o inancial re"orting /ave also been

anal-ses and recommendations or convergence made 7IC 2,,#8.

/e debate on t/e use o t/e accrual basis in t/e "ublic sector /as a long /istor-. In t/e

context o NP' reorms )it/ t/eir em"/asis on "erormance a need )as identiied to

introduce t/e accrual basis in order to Bencom"ass accounting and re"orting on t/e

allocation and use o total economic resources 7bot/ cas/ and non cas/8 at t/e dis"osal o

managers 7O!C% 1++3? 38. lt/oug/ %iamond 72,,2a8 rejects an- assum"tion t/at

"erormance budgeting re6uires accrual accounting. O!C% 72,,2a8 argues t/at accrual

accounting cannot be introduced successull- )it/out accrual budgeting. B'ore recentl-

led "rimaril- b- t/e international agencies suc/ as t/e O!C% t/e I' and t/e =orld

0an5 and b- some international accounting bodies suc/ as IC countries /ave been

strongl- encouraged to ado"t t/e accounting s-stem generall- used b- t/e "rivate sector?

accrual accounting 70oot/ 2,,? 1*18. Ao)ever even ater almost t)o decades

6uestions remain9 )/et/er t/e accounting needs o t/e "ublic sector )/ic/ revolve

around democratic accountabilit- are )ell served b- "rivate sectorbased accounting t/at

revolve around inancial "erormance and "roitabilit- 70oot/ 2,,8.

26

,


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else)/ere. /ere is also a gro)ing em"/asis on t/e central "osition o (Is in t/eir

countr-;s national integrit- s-stem and t/eir role in detecting and re"orting on corru"tion

and raudulent "ractices. In t/e nineties several develo"ing countries )ere alread- a/ead

o t/eir industriali>ed "artners in t/is res"ect 7%-e and (ta"en/urst 1++*8.

In develo"ing countries donors re6uentl- su""ort (Is eit/er directl- or indirectl- e.g.

t/roug/ a "articular "roject or sector "rogrammed. /e AIPC u"date surve-s s/o)ed

"ositive "rogress or external audit reorm. :uidance on (I reorm em"/asi>es t/e long

term3# 7ten -ears "lus8 and countr- s"eciic nature o reorms 7%I% 2,,#c INO(I

2,,8. /e need to "riorities t/e develo"ment needs o an (I;s senior management is

also stressed. t t/e same time based on ex"erience in !astern !uro"e 0ra>il and

several ot/er countries a number o "otential 6uic5 )ins are identiied including?

i8 re"rioriti>ing resources9

ii8 im"roving "ublicit-9

iii8 )riting better recommendations9

iv8 ma5ing re"orts more userriendl-9

v8 en/ancing audit documentation9

vi8 develo"ing a (I Lvision;9

vii8 im"roving communications )it/ audited bodies and v

viii8 using "ilot audits as learning ex"eriences 7%I% 2,,#a8.

ccording to %I% 72,,#c8 recent researc/ s/o)s t/at reorm tec/ni6ues including "eer

revie)s t)inning arrangements develo"ment o tec/nical training ca"acit- and contact

committees a""ear to be succeeding in bot/ accession and develo"ing countries. !ens )it/out "arliamentar-

consent and commissioners )ere a""ointed to audit tax collectors 7(ta"en/urst 2,,48. In

most countries t/e budgetar- role o t/e legislature is bot/ ex ante 7a""roval o t/e

budget andEor c/ange8 and ex post 7oversig/t8 7=e/ner 2,,4 (ta"en/urst 2,,4 Fienert

2,,#8. /e "articular em"/asis varies. (ome researc/ suggests t/at "arliaments in a

=estminstert-"e s-stem ocus on a strong ex post revie) "rimaril- done t/roug/ t/e

Public ccounts Committee 7PC8. On t/e ot/er /and legislatures in "residential

s-stems suc/ as t/e


30/56

lt/oug/ some researc/ /as been done on t/e relations/i" bet)een t/e legislature and

t/e executive 7=e/ner 2,,4 Fienert 2,,#8 it seems t/at t/e current researc/ em"/asis is

more on legislative oversig/t and s"eciicall- t/e role o t/e PC in =estminster s-stems

7'c:ee 2,,2 (ta"en/urst et al 2,,4 Peli>>o and (ta"en/urst 2,,4a8.Figure 7 s/o)s a

model o an Lideal PC;3.

3 'an- noncommon)ealt/ countries e.g. :erman- rance !ast !uro"ean

ranco"/one rican and Fatin merican countries /ave establis/ed committees similar

to t/e PC 7(ta"en/urst 2,,48.

30


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.* De3cri8tion of the CountrE $conomic Situation

$conomic -rowth

/e Indian econom- /as remained buo-ant in recent -ears. /e "ace o gro)t/ o :%P

/as averaged *. "ercent during t/e last our -ears ma5ing t/e countr- one o t/e astest

gro)ing economies in t/e )orld. Ao)ever t/ere /as been a moderation in gro)t/ in

2,,*,+ due to t/e allout o t/e global economic crisis /e Indian econom- moved "ast

t/e LAindu gro)t/ rate; o around 3.# to #.# "ercent in t/e earl- 1+*,s and ollo)ing t/e

introduction o broad based economic reorms t/e gro)t/ /ad started accelerating since

t/e mid 1++,s and ac/ieved .* "ercent gro)t/ o :%P during t/e 1,t/ ive Kear Plan

72,,2,3 to 2,,$,8. /e accelerating domestic investment and savings rates su""orted

t/e gro)t/ "at/. /e /ig/ gro)t/ in t/e econom- /el"ed in im"roving government

revenues )/ic/ "rovided iscal s"ace to bot/ central and state governments and led to

ac/ieving t/e iscal targets led do)n b- t/e iscal Res"onsibilit- and 0udget

'anagement ct 7R0'8. :%P at actor cost at constant "rices gre) at t/e rate o +

"ercent in 2,,,* and t/e gro)t/ rate )as more t/an + "ercent in t/e "revious t)o

-ears. /e im"ressive "erormance o t/e Indian econom- in recent -ears )as driven b-

t/e industrial and service sectors. 'anuacturing activities t/e largest com"onent o t/e

industrials sector contributed /eavil- to t/e overall gro)t/ o :%P. 0esides

manuacturing t/e construction sector "rovided momentum to gro)t/. /e gro)t/ o t/e

service sector continued to be broad based alt/oug/ t/e trans"ort and communication

sector s/o)ed t/e astest gro)t/. gricultural gro)t/ )/ic/ de"ends /eavil- on t/e

monsoon s/o)ed a luctuating trend. Im"ressive gro)t/ in savings and investment

"la-ed a 5e- role in recent gro)t/ in t/e econom-. /e reorm "rocess initiated during

t/e 1++,s )as considered to /ave im"roved business conidence )it/ entre"reneurial

activities contributing to a rise in com"etitiveness o t/e econom- and a gro)t/ omanuacturing t/us accelerating t/e rate o investment. /e gross domestic savings

continued to rise and reac/ed 3$ "ercent in 2,,,*. 0ot/ t/e "rivate and "ublic savings

/ave contributed to /ig/er overall savings. One notable eature o resurgence in savings

and investment in recent -ears is t/e emergence o a negative savingsinvestment balance

im"l-ing an im"roved demand situation in t/e econom-. /e savingsinvestment ga" in

t/e national income accounts is re"resented b- t/e current account deicit and relects t/e

utili>ation o oreign savings. /e rise in t/e inlation rate in 2,,$, )as contained in

2,,,* b- monitoring "rices and ado"ting ot/er "olic- interventions. Inlationar-

32


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"ressure /o)ever started rising in 2,,*,+. verage annual =PI inlation c/anged rom

$.# "er cent in 2,,4,# to 4.4 "er cent in 2,,#,$ #.4 "er cent in 2,,$, and 4. "er

cent in 2,,,*. Inlationar- "ressures )ere exacerbated during 2,,*,+ b- t/e

/ardening o international "rices o crude oil minerals and metal related "roducts. =it/

"rices o t/ese items s/ooting u" in )orld mar5ets im"orted inlation "la-ed a crucial

role in domestic inlation in 2,,*,+.

Ao)ever because o t/e /ig/er inlation in t/e earl- "art o t/e -ear t/e average

inlation o #2 )ee5s reac/ed +.2 "er cent on Manuar- 24 2,,+. /is )as considerabl-

/ig/er t/an t/e #2)ee5s average o 4.$ "er cent in t/e corres"onding "eriod o t/e

"revious -ear. In res"ect o "rimar- articles t/e average #2)ee5s inlation at 1,.$ "er

cent as on Manuar- 24 2,,+ )as /ig/er t/an t/e average #2)ee5s inlation o *., "er

cent in t/e "revious -ear.

-rowth of #ndian $conomE

Sectoral Com8o3ition and #n6e3tment and Sa6ing3 Rate3

'


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verage =PI

Inlation

$.# 4.4 #.4 4. 1,.# *.

Current ccount

0alance as ratio to

:%P

78,.4 781.1 781.1 781.# 783.2 781.

+

(ource? Central (tatistical Organi>ation :OI Revie) o t/e !conom- 2,,*,+ !C to t/e P'

'acro!conomic rame)or5 (tatement 70udget 2,,+1,8 :OI

/e -ear 2,,*,+ remained a diicult -ear due to t/e international economic crisis and

t/e "ace o economic gro)t/ in t/e countr- )as adversel- aected. /e Central

(tatistical Organi>ation 7C(O8 in its advance estimates /as "redicted gro)t/ o .1 "er

cent or :%P during 2,,*,+ as com"ared to + "er cent in 2,,,*. /e moderation in

gro)t/ or 2,,*,+ is mainl- attributed to a s/ar" slo)do)n in gro)t/ in industr- to 4.*

"er cent rom *.1 "er cent in 2,,,*. =it/in industr- t/e manuacturing and

construction activities are ex"ected to moderate s/ar"l-. :ro)t/ in agriculture orestr-

and is/eries is estimated to decline to 2.$ "er cent in 2,,*,+ as against a gro)t/ o 4.+

"er cent in 2,,,*. (ervices is slated to gro) at +.$ "er cent in 2,,*,+ as com"ared to

a gro)t/ o 1,.+ "er cent in 2,,,* )it/ gro)t/ in inancing real estate insurance and

business services declining and gro)t/ in communit- social and "ersonnel services

increasing. /e iscal situation in t/e countr- /as )orsened "artl- because o t/e global

inancial crisis and "artl- because o internal develo"ments suc/ as t/e rises in

government ex"enditures and liabilities. /e deicit "osition o t/e :overnment /as

increased signiicantl- be-ond its R0' targets.

0uilding on t/e gro)ing strengt/ o Indian econom- and im"ressive gro)t/ in recent

-ears t/e !levent/ ive Kear Plan sets a target or +J gro)t/ in t/e ive -ear "eriod

2,,Q,* to 2,11Q12 )it/ acceleration during t/e "eriod to reac/ 1,J b- t/e end o t/ePlan. /e ive -ear "lan intends to ma5e t/e gro)t/ inclusive b- beneiting t/e "oor and

marginal section o t/e societ- im"roving education and /ealt/ standards

. De3cri8tion of !udgetarE Outcome3

Fi3cal Situation

34


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/e iscal adjustment "rogrammed initiated in India in t/e atermat/ o macroeconomic

crisis in 1++,+1 com"rising tax and nontax reorms ex"enditure management and

institutional reorms resulted in signiicant iscal corrections in terms o reducing t/e

iscal deicit and t/e debt to :%P ratio u" to t/e mid 1++,s. /e inances o central

government /o)ever started deteriorating to)ards t/e end o t/e 1++,s on account o

rising revenue ex"enditure a all in tax buo-anc- a slo) do)n in P(< restructuring and

u")ard revision o sta salaries on t/e basis o recommendations o t/e it/ Pa-

Commission. /e iscal deicit o t/e Central government reac/ed a "ea5 o $.2 "ercent

o :%P and t/e revenue deicit )as over 4 "ercent o :%P in 2,,1,2. o)ards t/e end

o t/e nineties inances o t/e state governments also deteriorated ta5ing t/e combined

deicit to more t/an 1, "ercent o :%P in 2,,1,2. /ere /as been an a""reciable

turnaround in t/e iscal situation in t/e countr- rom 2,,1,2 to 2,,,*. Central and

(tate governments contributed to t/is turnaround in e6ual measure. ccording to t/e

iscal restructuring "lan recommended b- t/e )elt/ inance Commission Central and

(tate governments ta5en toget/er )ere re6uired to "/ase out revenue deicits and bring

do)n t/e consolidated iscal deicit to $ "ercent o :%P. /e "lan envisaged Central

government com"ressing t/e deicit to 3 "ercent o :%P and t/e consolidated deicit o

t/e states to be reduced to 3 "ercent. It )as seen t/at alt/oug/ t/e "erormance o t/e

Centre in reducing t/e revenue deicit /as lagged be/ind t/e "lan bot/ Central and (tate

governments /ave been successul in reducing t/eir iscal deicits to less t/an 3 "ercent

o :%P in 2,,,* one -ear beore t/e target date. /e Central government enacted t/e

iscal Res"onsibilit- and 0udget 'anagement ct 7R0'8 in 2,,3 to "rovide a legal

and institutional rame)or5 to bring do)n t/e iscal deicit contain t/e gro)t/ o "ublic

debt and stabili>e debt as a "ro"ortion o :%P over t/e medium term. /ere )as a stead-

reduction in bot/ t/e revenue and iscal deicits o t/e Central government and t/e

reduction )as s/ar"er ater t/e enactment o t/e R0' ct. /e iscal deicit relative to:%P )as reduced rom $.2 "ercent in 2,,1,2 to 4.# "er cent in 2,,3,4 and urt/er to

2. "er cent in 2,,,*. (imilarl- t/e revenue deicit )as reduced rom 4.4 "er cent in

2,,1,2 to 3.$ "er cent in 2,,3,4 and s/ar"l- t/ereater to 1.1 "er cent in 2,,,*. It is

ex"ected to be a 4. "er cent deicit or 2,,*,+ rat/er t/an t/e iscal Res"onsibilit- and

0udget 'anagement ct "lan or a sur"lus. Closer anal-sis o t/e iscal variables at

central level s/o)s t/at t/e rise in revenue generation )as t/e main contributor to t/e

iscal consolidation "rocess. (ustained economic gro)t/ and im"roved "erormance o

manuacturing and services and t/e im"rovement in tax administration contributed to t/e

35


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37/56

ac/ieving sur"lus ater 'arc/ 31 2,,*. /e iscal deicit does not include governments

o budget liabilities b- )a- o bonds issued to oil com"anies and ertili>er com"anies to

Com"ensate t/eir losses in t/e administrated "rice regime. /e "rojected deicits )ould

be muc/ /ig/er i t/ese budget liabilities are accounted or. /is magnitude o iscal

deicit is un"recedented and is considered to /ave sur"assed t/e "reviousl- /ig/est level

o deicit incurred in 2,,1,2. /e government /as underta5en a number o measures and

"ut or)ard t/ree iscal stimulus "ac5ages to combat economic slo)do)n in India

besides initiating a number o measures on t/e monetar- "olic- side.

!udgetarE De6elo8ment3

ollo)ing a tax reorm "rogrammed in t/e countr- ater t/e economic crisis o 1++1 t/at

ocused on sim"li-ing t/e tax s-stem reducing exem"tions and tax rates )it/ t/e

objective o "roviding incentive or better tax com"liance t/e direct taxes Q "ersonal and

cor"orate income tax s/o)ed im"ressive gro)t/. /e com"osition o gross tax revenue

c/anged in avor o t/e direct taxes as t/eir relative s/are increased rom about 4,

"ercent in 2,,2,3 to over #, "ercent in 2,,,* 7able 2.38. /e "ersonal and cor"orate

income taxes demonstrated remar5able gro)t/ rates o 2# and 32 "ercent during t/is

"eriod. /e direct tax reorm gave im"ortance to ex"ansion o t/e tax base strengt/ening

tax administration and im"roving tax com"liance. In t/e case o indirect taxes t/e eort

)as to bring in a moderate and sim"liied tax structure )it/ reduced tax rates. o )iden

t/e tax net and to "rovide nondistortionar- treatment to goods and services a service tax

)as introduced in 1++4+# and its ambit /as been continuousl- ex"anded since t/en. /e

service tax "roved to be a buo-ant source o revenue or t/e government. !orts )ere

being made to introduce a com"re/ensive :oods and (ervices ax re"lacing existing

taxes on "roduction and sale o goods and services collected b- bot/ t/e central and state

governments. (trengt/ening o tax administration and ado"tion o inormation

tec/nolog- to create com"uteri>ed inormation s-stem /as broug/t about signiicantc/anges in t/e direct tax com"liance in recent -ears. /e gro)t/ o tax revenue /o)ever

remained subdued in 2,,*,+ due to decline in gro)t/ o manuacturing activities and

services. /e com"osition o government ex"enditure reveals t/at t/e general services

com"rising interest "a-ments retirement beneits administrative services and ot/er

administrative services remained t/e major com"onent o t/e total ex"enditure. /e

interest "a-ment )/ic/ )as about 2* "ercent o total ex"enditure /as declined to belo)

2, "ercent in 2,,*,+. /e interest "a-ments /ave declined in recent -ears due to

sotening o interest rates t/us reducing t/e average cost o borro)ing. /e relative s/are

37


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39/56

ax Revenue

7Net8

$.4$ $.+ .14 .14 *.4 +.3$ *.#+

Nontax

Revenue

2.+# 2.+ 2.#* 2.1$ 2.,1 2.1* 1.

:ross ax

Revenue

*.*1 +.23 +.$* 1,.23 11.3 12.$4 11.#

Direct Ta7

Personal

Income ax

1.#, 1.#, 1.#$ 1.* 2.,$ 2.#3 2.2$

Cor"oration

ax

1.** 2.31 2.$3 2.*3 3.4* 4.11 4.,+

#ndirect Ta7

Customs 1.*3 1. 1.*3 1.*2 2.,* 2.22 1.++

!xcise 3.3# 3.3, 3.1# 3.11 2.*4 2.$3 2.,,

(ervice ax ,.1 ,.2+ ,.4# ,.$4 ,.+1 1.,+ 1.2,

Ot/ers ,.,* ,.,* ,., ,.,# ,.,, ,.,# ,.,4

(ource? 0udget %ocuments :overnment o India

R!? Revised !stimatesNote? Net revenue recei"t is derived b- deducting t/e s/are o state governments in central taxes.

/e grants "rovided to state governments are an im"ortant item o Central :overnment

ex"enditure. /e vertical imbalance t/at exists in t/e inances o central and state

governments due to t/e Constitutional assignment o tax sources is addressed t/roug/ t/e

transer o a s/are in central taxes based on t/e recommendations o t/e Central inance

Commission and grants to t/e states. /e tax revenue available to t/e Central

:overnment is s/o)n as Lnet tax revenue; ater deducting t/e "ortion s/ared )it/ t/e

states 7able 2.38. /e Central inance Commission also recommends or state s"eciic

Central grants t/at includes grants to ill t/e ga" in t/e non"lan revenue account ater

ta5ing into account t/e s/are o central taxes to be devolved and some s"ecial "ur"oses

grants. /e central government "rovides su""ort to state "lans in t/e orm o

bloc5Eunconditional grants under a devised rame)or5 called t/e :adgil ormula.

39


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41/56

central :overnment. ollo)ing a se"aration "rinci"le t/e Constitution demarcated t/e

taxation "o)ers o bot/ t/e levels o government. /e division o taxation "o)er is based

on t/e economic and administrative rationale. /e borro)ing and oreign exc/ange

entitlements are controlled b- t/e Central :overnment. =/ile rticle 2+3 o t/e

Constitution allo)s t/e states to borro) t/e- need "ermission rom t/e Centre i indebted

to it. /e Constitution also recogni>es t/at t/e (tates; tax "o)ers are inade6uate to meet

t/eir ex"enditure needs and t/ereore "rovides or t/e s/aring o revenues rom central

taxes 7rticle 2, rticle 228. /e (tates in need o additional assistance can also be

given grantsinaid 7rticle 2#8. /e tax devolution and grants in aid are determined b-

t/e inance Commission an inde"endent bod- a""ointed b- t/e President 7rticle 2*,8.

/e inancial -ear o t/e :overnment is rom 1st "ril to 31st o 'arc/ o t/e ollo)ing

-ear. /e budgetar- "rocess is carried out in accordance )it/ t/e "rovisions o rticle

112 o t/e Constitution. /e annual inancial statement o recei"ts and ex"enditure o t/e

:overnment is "laced beore t/e Parliament )/ic/ coners s"eciic aut/orit- or raising

revenue t/roug/ taxation and incurring ex"enditure. s-stem o Lote on ccount; is

"rovided b- t/e Constitution to enable Parliament to consider t/e estimates more

careull- over an extended "eriod. /e legislative control over government inances is

exercised irst )/en t/e annual budget s/o)ing t/e estimated recei"ts and "ro"osed

ex"enditures o t/e government is "resented as )it/out t/e a""roval o t/e "arliament no

tax can be levied or collected and no mone-s can be a""ro"riated rom t/e Consolidated

und. /e legislature also controls t/e im"lementation o t/e government "olicies b-

ensuring "ro"er use o t/e mone- voted or t/e "ur"oses and in t/e manner t/at t/e

legislature )anted t/roug/ "arliamentar- "rocedures and a s-stem o committees.

ollo)ing t/e Constitutional "rovisions or t/e budgetar- "rocess a inance bill is

introduced in t/e Parliament during t/e budget session t/at contains tax "ro"osal or t/e

ensuing -ear. /e tax "ro"osals )/en considered and "assed b- Parliament becomes t/einance ct. /e inance ct "rovides t/e legal status to t/e revenue raising aut/orit- o

t/e :overnment or t/e -ear. /ere is no la) exclusivel- governing "ublic "rocurement

o goods b- t/e de"artments and ministries. Rules and directives in t/is regard are

available in t/e :eneral inancial Rules 7:R8 2,,#. :uidelines or "ublic "rocurement

are "rovided b- t/e 'inistr- o inance t/roug/ a L'anual on Polices and Procedures or

Purc/ase o :oods;. n im"ortant number o instructions issued b- t/e Central igilance

Commission 7CC8 su""lement t/ese regulations. ("eciic sectoral "rocurement

regulations exist in some areas suc/ as deense "rocurement. =/ile certain control and

41


42/56

oversig/t unctions are carried out b- central aut/orities suc/ as t/e Com"troller and

uditor :eneral and t/e CC no central aut/orit- exists t/at is exclusivel- res"onsible

or deining "rocurement "olicies and or overseeing com"liance )it/ t/e establis/ed

"rocedures. rticle 2++ o t/e Constitution )/ic/ sti"ulates t/at contracts legall- binding

on t/e :overnment /ave to be executed in )riting b- oicers s"eciicall- aut/ori>ed to

do so "rovides some legal rame)or5 relating to "rocurement. urt/er t/e Indian

Contract ct 1*2 and t/e (ale o :oods ct 1+3, are major legislations governing

contracts o saleE "urc/ase o goods in general. /e Central Public (ector !nter"rises

7CP(!s8 com"rise enter"rises establis/ed b- t/e :overnment o India 7:OI8 as

:overnment com"anies under (ection $1 o t/e Com"anies ct and )/erein t/e e6uit-

/olding o t/e :OI is more t/an #, "er cent. It also includes statutor- cor"orations

constituted under s"eciic statutes o t/e Parliament. ollo)ing a re"ort o t/e !stimates

Committee o t/e 3rd Fo5 (ab/a 71+$2$8 )/ic/ stressed t/e need or setting u" a

centrali>ed coordinating unit to ma5e continuousa""raisal o t/e "erormance o "ublic

enter"rises t/e :overnment set a 0ureau o Public!nter"rises 70P!8 in 1+$#. In 1++,

t/e 0P! )as made a ullledged %e"artment t/e %e"artment o Public !nter"rises

7%P!8 o"erating under t/e 'inistr- o Aeav- Industries & Public !nter"rises. /e

%e"artment o Public !nter"rises is t/e nodal de"artment or all Central Public (ector

!nter"rises 7CP(!s8 and ormulates "olic- "ertaining to t/e role o CP(!s in t/e

econom- as also in la-ing do)n "olic- guidelines or "erormance im"rovement 7and

evaluation8 autonom- and inancial delegation "ersonnelmanagement and ot/er related

areas. It also collects evaluates and maintains inormationon several areas in res"ect o

CP(!s. /e %P! acts as t/e interace bet)een t/e administrative 'inistries and t/e

CP(!s.

/e Constitution o India called or t/e creation o a Consolidated und to )/ic/ all

revenues received and all loans raised b- t/e issue o treasur- bills and all mone-sreceived in re"a-ment o loans /ave to be credited. Contingenc- und is "rovided or

meeting unoreseen ex"enditure "ending subse6uent aut/ori>ation o t/e ex"enditure b-

Parliament. t/ird account called t/e Public ccount is created in )/ic/ all transactions

relating to debt de"osits advances and remittances are accounted or. /e audit o t/e

accounts o t/e


43/56

t/e legislature to ascertain t/at t/e ex"enditures voted are not exceeded or varied and

t/at t/e mone- ex"ended )as legall- available or and a""licable to t/e "ur"oses or

)/ic/ it )as a""lied. /e accounts o t/e


44/56


45/56

a""ended to t/e estimates. It also s"eciies t/e "rocesses to be ollo)ed and t/eir

sc/eduled dates. /e :R also "rescribes t/e broad guidelines "rocedures and orms or

t/e "re"aration o budget estimates o recei"ts and ex"enditure b- t/e ministries. /e

ministriesEde"artments "re"are t/eir estimates and recei"ts and ex"enditures ollo)ing

t/e "rescribed accounting "ractice. /e estimates o ex"enditure are urnis/ed to t/e

0udget %ivision in stages. /e initial (tatement o 0udget !stimates is submitted b- t/e

de"artments b- 31st October ater )/ic/ "rebudget meetings are /eld bet)een t/e

'inistr- o inance and t/e de"artments. ter t/e "rebudget meetings are over t/e

a""roved ceilings or ex"enditure as inali>ed in t/ese meetings are communicated

including ceilings or revenue and Ca"ital !x"enditures. /e inal (0! is submitted b-

t/e de"artments ater inali>ing t/e ex"enditure "ro"osals ta5ing into account t/e ceilings

ixed b- t/e inance de"artment relating to non"lan ex"enditure and t/e annual "lan

allocations determined b- t/e Planning Commission. =/ile inali>ing t/e budget

"ro"osals t/e 'inistr- o inance /as to 5ee" in vie) t/e amount o resources available

and t/e acce"table levels o budgetar- deicits. /e res"ective 'inistriesE%e"artments

"re"are t/e detailed demand or grants containing t/e details o "ro"osed ex"enditures

ollo)ing budget classiication. /e budget "ro"osals are "laced beore t/e Parliament b-

t/e end o ebruar-. /e inancial dvisers o t/e de"artments "la- a crucial role all

t/roug/ t/e budgetar- "re"aration "rocess as t/e- submit t/e (0!s inali>e t/em and

ensure t/e correctness o accounts classiication ma5e modiications in t/e context o

econom- and ot/er considerations consolidate t/e estimates or eac/

"rogrammedEorgani>ation to "resent a com"lete "icture o t/eir inancial costs and

obtain a""roval o t/e (ecretar- 7!x"enditure8 in t/e 'inistr- o inance )/erever

necessar-. ter t/e inali>ation o t/e budget b- t/e 'inistr- o inance it is "laced in

t/e "arliament or its consideration and ado"tion. Parliamentar- discussion o t/e

budgetar- "ro"osals aords an o""ortunit- to members to revie) t/e )or5ing o:overnment in general. s "er t/e "rovision o t/e Constitution a statement o estimated

annual recei"ts and ex"enditure "re"ared b- t/e :overnment is "resented in t/e

Parliament. /is annual inancial statement is commonl- 5no)n as t/e 0udget. /e

budget s/o)s recei"ts and "a-ments o t/e government under t/ree /eads? Consolidated

und Contingenc- und and Public ccounts. /e budget includes t/e Revenue 0udget

and Ca"ital 0udget. /e estimates relating to ex"enditure are in t/e orm o Lc/arged;

)/ic/ is not submitted or voting and Lvoted; )/ic/ are submitted as demand or grants.

!ac/ ministr-Ede"artment "ro"oses a demand or grants )/ic/ contains t/e amount

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/e Reserve 0an5 o India 7R0I8 t/e Central ban5 o t/e countr- is t/e ban5er to t/e

:overnment and is t/e re"ositor- o all cas/ balances o t/e :overnment o India. It

"la-s a vital role in assisting t/e :overnment in t/e economic management o t/e

countr- "articularl- t/e monetar- s-stem. /e Central :overnment borro)s t/roug/ t/e

issue o treasur- bills or re"lenis/ing its cas/ balances rom time to time. /e Reserve

0an5 /as been entrusted )it/ t/e res"onsibilit- o management o "ublic debt raised b-

t/e :overnment o India including maintenance o detailed accounts o all t/e loans

loated. /e R0I /as also been entrusted )it/ t/e com"lete control o oreign exc/ange

o t/e countr-.

The Role of the Com8troller and Auditor -eneral of #ndia ;CA-=

/e Com"troller and uditor :eneral o India 7C:8 t/e su"reme audit institution in

India /as a crucial role in assisting t/e "arliament in inancial control. /e jurisdiction o

t/e C: includes auditing t/e accounts o Central (tate and local governments

:overnment commercial enter"rises aut/orities substantiall- inanced rom :overnment

revenues and anot/er bodies or aut/orities )it/ t/e a""roval o or at t/e re6uest o t/e

President o India. /e C: also examines t/e accounts relating to grants and loans

given b- t/e :overnment to ot/er bodies. /e C: audits t/e ""ro"riation and inance

ccounts and submits t/em along )it/ t/e audit re"orts to t/e President o India

ollo)ing )/ic/ t/e- are laid beore t/e Parliament. /e re"orts are t/en "assed on to t/e

Public ccounts Committee )/ic/ examines t/em and ma5es recommendations to

Parliament on t/e various issues involved. /e "rimar- unction o t/e audit b- t/e C:

is to veri- t/e accounts to ascertain

718 )/et/er t/e mone-s s/o)n in t/e accounts as /aving been disbursed )ere legall-

available or and a""licable to t/e service or "ur"ose to )/ic/ t/e- /ave been a""lied or

c/arged and )/et/er t/e ex"enditure conorms to t/e aut/orit- )/ic/ governs it and 728 )/et/er t/e assessment collection and allocation o revenue /ave been "ro"erl-

done. /e ""ro"riation and inance ccounts are accordingl- examined under t/e

directions o t/e C: and certiied as to t/eir correctness subject to /is observations in

/is Re"orts on t/e ccounts submitted under rticle 1#1 o t/e Constitution. /e C:

/as t/e aut/orit- to ma5e regulations on t/e sco"e o audit. "art rom t/e traditional

orms o audit commonl- 5no)n as t/e a""ro"riation audit and regularit- audit t/e

discretionar- orms o audit 7t/e "ro"riet- audit and t/e eicienc-cum"erormance

audit8 develo"ed b- t/e C: /ave assumed signiicance rom t/e vie)"oint o

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Saccountabilit-S in a com"re/ensive sense. /e audit loo5s be-ond t/e mere regularit- o

ex"enditure to its "rudence and econom- and to a general examination o t/e eicienc-

and eectiveness )it/ )/ic/ an organi>ation is disc/arging its inancial res"onsibilities.

Accounting and Re8orting

/e government accounts in India are 5e"t on a cas/ basis. /ereore onl- actual

recei"ts and "a-ments during t/e inancial -ear are ta5en into account )it/ no

outstanding liabilities or accrued income included. ll cas/ a""ro"riations la"se at t/e

close o t/e inancial -ear. One o t/e most distinctive eatures o t/e s-stem o

:overnment ccounts in India is t/e minute elaboration o t/e inancial transactions o

:overnment. 0ot/ recei"ts and "a-ments are dierentiated and classiied in detail.

urt/er t/e uniorm classiication o transactions enables inancial com"arisons bet)een


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t/e accounting s-stem envisaged im"roving accountabilit- and "rovided o""ortunit- to

revie) "erormance )it/ reerence to objectives o economic and social develo"ment as

visuali>ed under Plan "rogrammed. Initiall- t/e C: /ad t/e res"onsibilit- o com"iling

and maintaining t/e accounts o t/e


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res"ective s"/eres it /as generall- "rovided or a single integrated s-stem o Courts to

administer bot/


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D Intellectual Pro"ert- ""ellate ribunal

D Rail)a-s Claims ribunal

D ""ellate ribunal or !lectricit-

D %ebts Recover- ribunal

D Central !xcise (ervice ax ""ellate ribunal

/e 'inistr- o Fa) and Mustice loo5s ater t/e judicial set u" o t/e countr-. /ere are

also man- legal committees and commissions t/at are set u" in India so t/at t/e judiciar-

can run smoot/l- and render all "ossible /el" to t/e general masses o India in solving

t/eir legal "roblems.

/e Rig/t to Inormation ct 7RI8 is a la) enacted b- t/e Parliament o India in 2,,#

allo)ing citi>ens o India to access to records o t/e Central :overnment and (tate

:overnments. /e ct a""lies to all (tates and en 7excluding t/e citi>ens )it/in M&8 ma- re6uest

inormation rom a @"ublic aut/orit-@ 7a bod- o :overnment or @instrumentalit- o

(tate@8 )/ic/ is re6uired to re"l- ex"editiousl- or )it/in t/irt- da-s. /e ct also

re6uires ever- "ublic aut/orit- to com"uteri>e t/eir records or )ide dissemination and to

"roactivel- "ublis/ certain categories o inormation so t/at t/e citi>ens need minimum

recourse to re6uest or inormation ormall-. /e RI assumes signiicance on

inormation disclosure in India )/ic/ )as /it/erto restricted b- t/e Oicial (ecrets ct

o 1+23.

A33e33ment of the PF, SE3tem3: Proce33e3 and #n3titution3

!udget CredibilitE

P#@1 Aggregate $78enditure Out@turn Com8ared to Original A88ro6ed !udget

/e PI1 com"ares t/e aggregate actual ex"enditure )it/ t/e budgeted ex"enditure toexamine t/e abilit- o t/e :overnment in im"lementing t/e ex"enditures voted b- t/e

legislature and to deliver t/e "ublic services based on t/e :overnment "olic- statements

and "rogrammers outlined b- t/e administrative ministriesEde"artments in t/eir budget

"ro"osals. /e total ex"enditure igure used or t/e indicator is net o debt re"a-ments

and t/e donor unded "roject ex"enditure. /e aggregate ex"enditure outturn assessment

is carried out or t/e last t/ree iscal -ears 2,,$, 2,,,* and 2,,*,+. /e

ex"enditure igures or t/e -ear 2,,*,+ are revised estimates as t/e inal accounts

igures 7audited igures8 are not available. /e budget documents clearl- identi- t/e debt

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to customi>e t/e a""roac/ to t/e countr- context and develo" a""ro"riate incentive

s-stems or civil servants and "oliticians.

Predictability and control in budget execution: /e aim o tax administration reorms is

to increase voluntar- com"liance as )ell as increasing revenue and reducing evasion .Countr- ex"erience suggests t/at success re6uires time /ig/level "olitical commitment

and "ublic su""ort and to be embedded in and "art o )ider "ublic sector reorms.

Procurement reforms are ta5ing "lace )orld)ide as a )ellorgani>ed eicient and

trans"arent "ublic "rocurement s-stem is a vital com"onent o an- sound P' s-stem.

Recentl- moderni>ation o "rocurement s-stems in develo"ing countries /as received

increased attention. /e literature /ig/lig/ts t/e lac5 o objective evaluations o current

reorms and t/e act t/at objective indicatorbased assessments /ave onl- recentl- been

launc/ed. !x"erience in t/e P/ili""ines does s/o) t/at success /as been ac/ieved

t/roug/ )ides"read su""ort and strong o)ners/i" o less t/an "erect reorm rat/er t/an

no o)ners/i" o state o t/e art "ractices.

Payroll costs constitute a signiicant "ercentage o recurrent costs. (u""ort to "a-roll

reorms /as concentrated on t/e introduction o automated s-stems9 /o)ever t/ere

a""ears to /ave been no evaluation o t/eir eectiveness eit/er in terms o im"roving

controls or in im"roving mediumterm "lanning "rocesses.

nternal controls in /eavil- indebted countries /ave not im"roved signiicantl- alt/oug/

no clear ex"lanation is "rovided as to )/- "rogress /as been so limited. %ebate

continues on t/e best role or internal audit in t/e "ublic sector. !x"erience in en-a and

(out/ rica suggests t/at t/e traditional L"olicing; role is not eective.

Accounting and reporting: /e im"ortance o timel- consistent and com"re/ensive

re"orts is em"/asi>ed in P' reorm literature and eorts to im"rove consistenc- and

com"arabilit- /ave been made t/roug/ t/e introduction o IP((. /e academic debate

on t/e advantages and disadvantages o accrual accounting 7and budgeting8 continues.

O!C% ex"erience s/o)s t/at t/e move rom cas/ to accrual accounting needs careul

"lanning and to be "art o )ider "ublic sector reorms.

!xternal scrutiny and audit: (Is /ave a vital role in /olding government to account and

ensuring trans"arenc- in government o"erations. :enerall- audit reorms ta5e a long

time alt/oug/ a number o 6uic5 )ins /ave been identiied. Revie)s suggest t/at audit

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reorms /ave beneited rom "eerlearning "ractices including t)inning arrangements

contact committees and ot/er regional ailiations. Lirstgeneration; P' reorms in

develo"ing countries concentrated on technical issues, second-generation

reforms hae recogni!ed the need to enhance the role of the legislature

and thus im"roe domestic accounta#ilit$% &he lac' of ealuations on the

e(ectieness of su""ort "roided to legislatures is identi)ed in the

literature%

Cross cutting issues: In develo"ing countries man- donors /ave been "romoting

c/anges in legislation but t/e literature notes t/at lac5 o com"liance is oten t/e major

issue and ne) legislation alone is unli5el- to ac/ieve desired results. utomated

s-stems "articularl- I'I( /ave become s-non-mous )it/ P' reorm seen b- some

as even drivers o reorm. ailure rates )ere re"ortedl- /ig/ because o unrealistic

timescales lac5 o o)ners/i" insuicient consultation and inade6uate s"eciications.

!vidence o im"roved success rates )as not ound. :ender res"onsive budget anal-sis

no) introduced in more t/an 4, countries is "roducing mixed results in moving to)ards

more e6uitable distribution o "ublic resources.

Documents

capital exp