REPORT OF THE COMMITTEE ON JUST IN TIME RELEASES MADE BY GOVERNMENT OF INDIA
1. Introduction
Funds are released to states through direct devolution of taxes and state share as per the Finance Commission recommendations or through Centrally Sponsored Schemes (CSS). During the FY 2018-19 total expenditure proposed in the union budget is amounting to Rs. 24,42,213.30 Cr. Broad Categories of expenses for the purpose of application of Just in Time(JIT) are given in Table-1. There are transfers to States, expenses incurred by Government of India for establishment, subsidy and other payments. Expenses are also incurred to take care of central sector and centrally sponsored schemes. It may be seen that transfer to States is more that Rs.3,37,469 crores.
Table 1: Profile of total Expenditure Budget (2018-19) |
S. No. | Item | Total allocation (in Rs. Crore) |
1. | Total Expenditure Budget | 24,42,213.30 |
2. | Establishment | 5,08,399.60 |
3. | Transfer to States and UTs with legislatures | 4,81,342.86 |
4 | Less Grants-in-Aid for SDRF, Post devolution revenue Deficit grants | 1,43,873.5 |
5 | Net Transfer to States(3-4) | 3,37,469.36 |
6 | Interest payments | 5,75,794.95 |
7 | Others | 8,76,675.89 |
8 | Less Food, Fertilizer, Petroleum, Interest & Other Subsidy | 2,94,852.90 |
9 | Less salaries for Autonomous Bodies | 36,082.00 |
10 | Net Others (7-8-9) | 5,45,740.99 |
| Total monitorable expenditure(5+10) | 8,83,210.35 |
There are other types of expenses also where efforts may be made to bring in more efficiency in fund management. There is ample scope of bringing down the cost of capital to raise funds and disburse it to the States to meet expenses pertaining to these activities. Net cost of borrowing would come down if the borrowing is scheduled in such a manner that it is used as early as possible. This may be achieved by following the just in time releases as proposed in the following sections.
As per the approved procedure, funds under Centrally Sponsored Schemes (CSS) are released by Ministries/ Departments to State Governments through advises issued to RBI. These transactions are captured in PFMS. This has been pictorially presented in Fig-1. RBI thus debits the Government of India account as per the directions given by Government of India and credits the account of the State maintained by it (except J&K). Commensurate provisions are made in the receipts under these schemes by the concerned states. States therefore, make provisions in their budget in their demands for grants. The funds received by the States are further released to State Implementing Agencies (SIAs) or utilized by the State departments acting as Implementing Agencies (IAs). Accumulation of CSS funds with the States is either in the State treasury account/PL Accounts or with the SIAs. These releases from Government of India (GoI) to the States may be tracked through PFMS. However, releases from the State treasury to PIAs/IAs could be tracked only when the State treasury is integrated to PFMS, regular data exchange take place between treasury and PFMS and SIAs are registered in PFMS with due mapping with the concerned Central Sector Schemes. Once fund flow is managed through PFMS and information is available to the mangers, fund management would become very effective. This would bring in financial efficiency through effective cash management in the releases made to the State Governments which in turn would improve overall scheme management under different schemes both Centrally Sponsored Schemes and even Central Schemes.
Figure 1: Fund flow under CSS
It may be seen from the above table that net transfer to the States amounting to Rs.3,37,469.36 Crore may be released using JIT concept. At present most of the releases are made to the States through two tranches i.e. twice a year. Thus borrowing cost to raise capital for those CSS releases is more than Rs.13,000 Crore whereas if the releases may be timed at least once in a quarter, then the borrowing cost would come to almost half. Thus it would yield desired saving of about Rs.6,500 Crore in an year. Similarly, if systems are developed to ensure monthly releases and subsequently real just in time releases where funds are released by Government of India as and when actual demand comes.
2. Statement of Problem
Resources are mobilized by the GoI through its revenue collection and borrowings. Funds are generally borrowed by government and disbursed for the requirements of the PIAs and States. Timely release of fund shall be done to ensure that borrowed funds are released as and when required and borrowing is also planned accordingly.
CSS is one of the biggest components of Central expenditure with the budget of around 3.37 lakh crore (2018-19). From 2014-15, funds under CSS are released to State treasury. Some components under CSS are spent by GoI directly or through implementing agencies other than States. These releases are made as per the requirement and parking of funds is possible only in the case of releases made to the autonomous bodies or central/State implementing agencies getting funds. Releases are made using PFMS and agencies are expected to be on EAT module of the PFMS to enable tracking of funds. In the case of releases to the States, funds are kept idle at different stages and levels in the implementation hierarchy. This idle money has a cost and there is need to bring down this cost of borrowing. Inefficient use of capital is a cause of concern.
3. Introduction of JIT in Centrally Sponsored Schemes
(a) Just in time concept is based on the principle of providing funds as per the requirement of implementation of program/scheme. Further it endeavors to bring down the unutilized funds idly parked with the implementing agencies for a longer period. Once implemented, this will result in reduction in cash mismatch of GoI during the financial year and less requirement of short term borrowings which includes Ways and Means Advances.
(b) As per this concept, GoI may release funds to the States in such a manner that funds reach the implementing agencies and remain available with them when needed rather than getting parked twice a year without the actual requirement being there. To begin with, funds may be released on quarterly basis rather than twice a year. This would bring down the float. To ensure that paperwork in the process of releases is not increased, current system of approval for releases may be followed. Therefore, all papers as required to be checked before the release of first tranche would be called for and examined by the program divisions, IFD and accounting offices. Approval will be accorded for the amount due for the six monthly release but actual release will be only half of the amount in the beginning and remaining half to be released on utilization of at least 100% of the amount released in the first half. Fund utilization means, actual expenditure of funds by the States/UTs for the intended purpose of the scheme. Fund transfer to any implementing agency, deposits with other Government departments or transfer of funds to bank or treasury accounts. For this tranche, same Integrated Finance Division ID No. may be used and initial sanction may specify the approval accorded for the release of both tranches. Similar process to be followed in second half yearly releases also. Thus, this process only changes the release cycle and approval process remains unchanged. Thus, while releasing the funds as per second half yearly approval, due care shall be taken about the utilization of funds pertaining to State share in the scheme. Once the system matures, release cycle may be brought down to monthly level.
(c) It is, therefore, envisaged that funds would be released in a more staggered manner to reduce float of funds and its avoidable parking. As per this JIT concept, proposals of release of funds would be received from the States as is done now. States would be informed about their likely share under the scheme so that they may plan their budgetary allocations in a more appropriate and realistic manner. States would be informed that on approval of their proposal under centrally sponsored schemes, releases would be made in four or more tranches. Wherever it was released in two or less tranches, it would be released in four tranches and wherever it was done in more tranches, it would be released in four or more tranches.
(d) Proposal of releases would be examined by the program division of the Ministry concerned and sent for financial concurrence as done in the past. IFD would concur the proposal for release of payment on quarterly basis. As proposals of releases are considered for half yearly release in many cases, same concurrence would be valid for releases to be made in two quarters. First release would be done by following due process but second release would be made based on utilization of funds already released. Once the balance in the SIA account goes below the prescribed limit of say 20%, second release would be affected by default. Similarly third release would be done by following due process but fourth release would be following the same process as followed for second releases.
Figure 2: Stakeholders in Fund flow under CSS
(e) In CSS there are multiple agencies and bank involved. In a typical CSS fund flow agencies and stakeholders have been pictorially depicted in Figure-2. In order to bring in efficiency, number of agency accounts may be brought down and even banks may also be selected in such a manner that most of the transactions are handled by the same bank. For fund transfer within the Bank and interbank settlement through CBS, there e is no need to involve NPCIL. It only adds to cost and noise/error. By allowing transactions from accredited bank to State nodal account and most of the destination accounts directly through CBS or intra fund transfers, huge savings would be achieved. Ministries have their account with one or the other bank, which is termed as accredited bank. States generally open account for the implementing agency. Under the CSS, funds from GoI are transferred through RBI advise by PAO and it reaches the State treasury. GOI account with RBI is debited and State treasury account is credited. From the state treasury it is transferred by the State to its State Nodal Agency’s Bank Account. If the SIA Account is with SBI then GOI fund reaches in this account. This account is mapped and registered in PFMS. Now, SBI is expected to transfer funds to vendors and beneficiaries. Vendors and beneficiaries may have accounts with different banks. State may be advised to open State nodal account with the bank having maximum beneficiary accounts. Thus maximum fund transfer from State nodal account (say SBI) to destination banks would take place through intra bank transfer. This would happened instantly and without possibility of error due to transfer of data to NPCIL and other channels. Only interbank transfers may be routed through NPCIL.
(f) Once the above system of quarterly releases matures, release cycle may be brought down to monthly level. Gradually within a period of one year utility may be developed in PFMS to ensure that as and when funds are released by the states in the State Nodal Account of the Scheme a trigger is generated and commensurate funds are released by Government of India as well. In the cases where DBT payments are taking place, such release management would require some special tools to facilitate fetching of funds in the proportion of share of GoI and States eg. if a beneficiary has to get Rs.10,000 and Rs. 6000 to be borne by GoI whereas Rs.4000 to be provided by the State, then the requirement of all such cases in the state will be consolidated on daily or weekly basis (depending upon the fund flow requirement of the scheme). State will transfer its share to the nodal account and through trigger release from GoI will also be done immediately.
Committee deliberated about this concept and its applicability was closely examined in a few schemes of Ministry of Rural Development, Ministry of Agriculture and Ministry of Women and Child Development.
4. Steps to Implement JIT
In order to facilitate JIT
(a) States need to be informed in advance about the budget provisions made by Government of India and likely share of the State. There is a gap between Centre and State regarding provisions of CSS. At the time of preparation of their budget, States are not aware of likely inflow under CSS and hence unable to make accurate budget provisions. Accordingly, despite releases from Centre they have to wait till 1st Supplementary to open account heads under their budget and make necessary budget provisions after following a long drawn process.
(b) Some schemes need to be modified to allow multiple tranches in a year. Schemes like PMAY, NRLM, SBM, PMGSY etc have the provision to release funds in two tranches. In order to make JIT effective and applicable, scheme guidelines need to be amended to allow more than two releases. Guidelines to allow releases on utilization of at least 80% of the amount released in the past. Mandatory releases in bulk have inbuilt potential to be allowed parking of funds for a longer period. Though Rule 86 and 230 of GFR provide for monitoring of unspent balances before releases by Ministries/departments, the scheme guidelines, which are often, approved by the Cabinet override this stipulation.
(c) IFD and Accounting formations need to monitor the balances lying idle in the State treasury before releasing the installments under CSS. This is possible provided States integrate their treasury with PFMS. It has operational issues which may be handled by active participation of NIC. PFMS has a module to generate a report on utilization of CSS funds by the States. This can be leveraged by Program Divisions for considering releases based on the balances available with the Treasuries.
(d) A letter of comfort or Fund transfer letter to be issued for the total applicable releases during six months. [GFR to be suitably amended]. Government of India will allow sanction of amount to be released in multiple tranches through JIT arrangement. It would thus make one sanction valid to release multiple tranches through intelligent interface of technology and by setting fund transfer limits. Out of this provision, system shall be enabled to ensure that there is automatic release of quarterly/monthly installments through PFMS on utilization of previously released funds. In the bigger CS schemes, there are dedicated software to facilitate fund transfer and monitor physical and financial progress of the scheme. These software may be integrated with the PFMS to ensure that details of fund transfer and utilization is shared with PFMS through proper accounting and reconciliation mechanism.
(e) It is often reported that States divert Funds to their Public Account. It is given to understand, on the basis of C&AG audit reports, that States generally transfer the unutilized CSS funds received from GoI at the fag end of the FY, to Personal Ledger / Personal Deposit accounts kept in the Public Account of the State. This gives distorted figures of expenditure reported by the States and it would also make it difficult to monitor expenditure and unspent balances through PFMS. Requirement of UCs as per the report submitted by the program in charge of the State is not a very healthy way of accounting. Instead either the State finance or AG should be asked to furnish the status on utilization of funds and balance lying with the State under different schemes.
(f) There are EBR released taking place for the CSS schemes. These releases also need to be integrated in PFMS so that fund is provided and used as per the requirement and with minimum float. Since EBR are raised through ABs and agencies like NABARD are actually borrowing from the market, bigger tranches of borrowings have the interest risk of keeping funds idle with the States/SIAs. Borrowing tranches need to be rationalized so that amount borrowed is transferred to SIAs and actually used by them without much delay. Releases from budgetary resources need to be reviewed more closely in such jointly funded schemes.
5. Analysis of Fund Flow of Three Pilot Schemes and Proof of JIT Concept
Existing payment and accounting system ensures timely release of funds on demand for the expenses pertaining to establishment, interest payments, subsidies towards food, fertilizer petroleum, interest etc. In all these cases funds are released through payment channel and commensurate amount is reimbursed to the accredited sales of the concerned Ministry. There is no parking of fund as it is made available on demand. For the central sector releases, payments are released through PFMS where autonomous bodies or institutions are provided funds. There is scope of bringing in efficiently in the fund management with the help of mandatory use of PFMS. This Committee has focused on CSS.
This concept has been examined closely in the context of following schemes:
(a) PMAY (Grameen)- MoRD
Public housing programme in the country started with the rehabilitation of refugees immediately after independence and since then, it has been a major focus area of the Government as an instrument of poverty alleviation. In view of Government’s commitment to providing “Housing for All’’ by 2022, IAY has been re-structured into Pradhan Mantri Awaas Yojana –Gramin (PMAY-G) w.e.f. 1st April 2016.
PMAY-G aims at providing a pucca house, with basic amenities, to all houseless householder and those households living in kutcha and dilapidated house, by 2022. The immediate the objective is to cover 1.00 crore household living in kutcha house/dilapidated house in three years from 2016-17 to 2018- 19.The minimum size of the house has been increased to 25 sq.mt (from20sq.mt) with a hygienic cooking space. The unit assistance has been increased from Rs. 70,000 to Rs. 1.20 lakh in plain and from Rs75,000 to Rs 1.30 lakh in hilly states, difficult areas and IAP district. The beneficiary is entitled to 90.95 person day of unskilled labour from MGNREGS. The assistance for construction of toilet shall be leveraged though convergence with SBM-G, MGNREGS or any other dedicated the source of funding. Convergence for piped drinking water, electricity connection, LPG gas connection etc. different Government programmers are also to be attempted.
The cost of unit assistance is to be shared between Central and State Government in the ratio 60:40 in plain areas and 90:10 for North Eastern and the Himalayan States. From the annual budgetary grant for PMAY-G, 90% of funds is to be released to States/UTs for the construction of new house under PMAY-G. This would also include 4% allocation towards administrative expenses and 0.5% of the budgetary grant is to be retained at the central level as reserve fund for special Projects. The annual allocation to the states is to be based on the Annual Action Plan (AAP) approved by the Empowered Committee and the fund to States /UTs is to be released in two equal installments. In PMAY-G, programme implementation and monitoring is to be carried out through an end to end e-Governance model- Using PFMS, AwaasSoft and Awaas App.
PMAY funds are released to State treasury in two tranches. State nodal accounts are maintained by the SIAs. Fund released may be planned through JIT to derive savings as explained in the concept note above. A list of top 10 States having maximum float is given in Table 2 below. It may be seen that huge amount remains with the SIAs which may be brought to half without much difficulty.
Table 2 : List of Top ten States as per Average Float under PMAY-G |
S.No. | State | States | Annual Average Float (in Rs. Lacs) |
1 | MADHYA PRADESH |
MP
| 197187.721 |
2 | BIHAR |
BR
| 188385.386 |
3 | ASSAM |
AS
| 139122.654 |
4 | ODISHA |
OR
| 120734.252 |
5 | MAHARASHTRA |
MH
| 115232.272 |
6 | WEST BENGAL |
WB
| 110336.194 |
7 | CHHATTISGARH |
CG
| 105395.123 |
8 | TAMIL NADU |
TN
| 86171.035 |
9 | UTTAR PRADESH |
UP
| 52155.936 |
10 | JHARKHAND |
JH
| 50604.52 |
Analysis of data of expenditure and fund outflow of HP and Haryana has been done (reports enclosed as Annexure 2 and Annexure 3 respectively). Similar pattern is visible in other States as well. Therefore, just by managing the releases to the States in four tranches savings may be derived.
(b) PMKSY- Ministry of Agriculture
The Pradhan Mantri Krishi Sinchayee Yojana (PMKSY) was launched on 1st July, 2015 with the objective to achieve convergence of investments in irrigation sector at field level. The scheme aims at providing end-to-end solutions in irrigation supply chain, viz., water resources, distribution network, farm level applications and improving water use efficiency. PMKSY not only focuses on creating sources for assured irrigation, but also creating protective irrigation by harnessing rain water at micro level through ‘Jal Sanchay’ and ‘Jal Sinchan’. Micro irrigation (MI) is an integral component of PMKSY to maximise water use efficiency at field level and ensuring ‘Per Drop-More Crop’ (PMKSY-PDMC).
With a view to provide impetus to the micro irrigation, in the Union Budget 2017-18, Hon’ble Finance Minister announced setting up of a dedicated Micro Irrigation Fund (MIF) to be instituted with NABARD with an initial corpus of Rs. 5000 crore for facilitating the States to mobilize additional resources for expanding coverage of Micro Irrigation.
Release of Funds to the tune of 60% of annual allocation to the States under different components of PMKSY is done as first instalment. This is done upon receipt of proposal in the prescribed format along with specified documents including annual action plan approved by State Level Sanctioning Committee (SLSC). The concerned implementing Ministry/Department at the Centre is responsible to ensure receipt of utilization certificate and corresponding physical and financial progress report while releasing the funds for the specific component. The utilization certificate is submitted by the respective implementing Department/agency of the State.
Release of the second and final instalment is considered on receipt of the following:
· Utilisation Certificates (UCs) indicating more than 90% for the funds released up to- previous financial year;
· Utilisation Certificates (UCs) of at least 50% of the funds released in first instalment during current financial year;
· Performance report in terms of physical and financial achievements as well as outcomes, within the stipulated time frame in specified format.
Under this scheme, funds are released on the same pattern as in the case of many other scheme. It is evident from the above that scheme has in-built float in the system and it allows funds to be parked with the agencies.
(c) PMMVY, Ministry of Women and Child Development
From 01.01.2017, the Maternity Benefit Programme is implemented in all the districts of the country. The programme is named as ‘Pradhan Mantri Matru Vandana Yojana’ (PMMVY). Under PMMVY, a cash incentive of Rs.5000/- is provided directly to the Bank/Post Office Account of Pregnant Women and Lactating Mothers (PW&LM) for first living child of the family subject to fulfilling specific conditions relating to Maternal and Child Health.
Under this scheme an escrow account has been prescribed at State/UT level. Dedicated Escrow Account has to be opened where Government of India transfers funds and State is also asked to transfer its share in the same account. This arrangement is most inefficient way of managing funds. Government of India and States are transferring their funds to the escrow account and not earning even the basic interest. This could be done away with and this scheme may also be made to comply the guidelines of JIT and release through treasury and State Nodal Account.
Apart from the above it is noticed that Extra Budgetary Resources (EBR) are also used in many schemes like PMAY, SBM, PMKSY etc. These resources are also reaching the same implementing agencies. Funds are reaching from two sources and there is no direct linkage about their utilization. These funds shall necessarily be tracked through PFMS and releases be made after looking at the unspent balances with the States.
6. Recommendations
a) JIT may be implemented in all CSS and Central Sector schemes. Releases made to Autonomous Bodies shall also be covered under same arrangement through PFMS.
b) Initially fund release may be done on a quarterly basis or in four tranches in a year. Subsequently monthly releases may be started.
c) Approval for fist and second release shall be obtained in one go. 25% of the likely release to a particular State shall be made only when the entire fund released by GoI is utilized i. e. 60% or 90% of the GoI share is utilized and only State share is left as unspent balance. Similarly third and fourth release shall be approved by following the procedure of looking at UCs and actual progress of the scheme. Here again third release of 235% shall be made as per the utilization of funds. Fourth tranche shall be released in the manner as stipulated for the second tranche.
d) Utilisation of funds shall be monitored through electronic means and with due accounting figures collected from the State. Current system of seeking UCs from the program manager is to be discontinued in favour of more robust account based utilisation certificate.
e) Banking arrangement to be introduced to reduce the number of intermediaries in the fund flow. Same bank may be asked to manage the agency account at the State level to reduce delay in fund flow and for smooth transactions.
f) Compulsory routing of transactions of DBT type through NPCIL shall be revisited. Arrangement of mandatory settlement of all DBT type transaction of even between the same State nodal bank and the beneficiary is adding to unnecessary cost of more than Rs. 100 crores in MoRD alone. It also adds to delay and error in transactions.
Annexure-2 |
Debit Details of the State of Himachal Pradesh under PMAY-G |
Amount in Rs. lacs |
FY 2018-19 | April | May | June | July | August | Sep |
Cumulative Expenditure | 617 | 1198.27 | 1470.04 | 1792.72 | 1983.38 | 2107.04 |
First release +OB | 3150.557 | 3150.557 | 3150.557 | 3150.557 | 3150.557 | 3150.557 |
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Annexure-3 |
Debit Details of the State of Haryana under PMAY-G |
Amount in Rs. lacs |
FY 2018-19 | April | May | June | July | August | Sep |
Cumulative Exp. | 515.05 | 1097.9 | 1486.46 | 1486.46 | 1493.71 | 1494.46 |
First Release+ OB | 1657.019 |
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