Public Financial Management System: A Comprehensive System for Payment, Effective Use of Funds, Accounting and Monitoring[1]
A. INTRODUCTION:
1. Public Financial Management in Government of India (GoI) is complex due to different types of organisations, plethora of schemes, varied control mechanism specific to processes, scheme type specific fund disbursement processes, multi layer movement of funds (Centre-Sub-national-Local Bodies), need for monitoring, huge receipt base, complex tax structure, different receipt collection processes specific to taxes and non-taxes etc. It is evolving and getting more and more organised with every passing year. GoI collects major revenues in the form of direct and indirect taxes. There are portals to handle income tax and other direct taxes and indirect tax which is mainly Goods and Services Tax (GST). Receipts are remitted to GoI account maintained with Reserve Bank of India (RBI). Other miscellaneous receipts are called non-tax receipts and these are collected by respective ministries and remitted through respective banks to RBI.
2. Part of tax receipts are retained by GoI for its own expenses and for the schemes it runs across the country as its direct intervention in development. Rest of the receipts are shared with States(sub-national governments) as per the method and formula suggested by Finance Commissions of India after its due approval by the Government. GoI mainly incurs expenditure on central sector schemes, centrally sponsored schemes, defence, internal security, repayment of debt and interests etc. Central Sector (CS) schemes are schemes of gov of India where entire funding is done by GoI, whereas Centrally Sponsored Schemes (CSS) are schemes with some contribution from the states also. There are subsidies paid to support procurement of food grains and public distribution of the same, Kisan Samman, fertilizer etc through one scheme or the other which are by and large funded by GoI. Schemes like MGNREGA, PMAY, Swatch Bharat mission etc are examples of Centrally Sponsored Schemes which are partly funded by the States.
3. Fund disbursement to States for their share as per finance commission and for schemes are done through RBI. Payments to implementing agencies, vendors, employees etc are released by the department through its accredited bank. Every department of GoI maintains its account with one accredited bank which acts as an agent of RBI. They release funds as per the advise of the department and seek reimbursement from RBI. Direct Benefit Transfers (DBT) are done either directly from the GoI accounts maintained with different banks or through state treasury and banking channel thereafter.
4. For the CS and CSS schemes, utilisation certificates are demanded from the States against the releases made in the previous years before subsequent releases are made. Implementation of schemes are mainly done by the States where it is extensively monitored by the concerned department and through its internal control mechanism. In addition, concerned GoI department also monitors the progress and implementation of the schemes and programs. There are internal audit and external audit provisions for better financial management of the schemes. Before the introduction of Public Financial Management System (PFMS), these activities of release of payment, monitoring and seeking inputs on utilisation of funds were done through different methods including manual and partly computerised stand-alone systems. There were cash management challenges, increased cost of funding schemes and problem in getting cohesive inputs on utilisation of funds leading to problem in formulating and monitoring the schemes. PFMS, an IT Portal was started with limited objective of monitoring plan schemes but later it was introduced as a tool to monitor almost all areas of public financial management.
B. PROBLEMS IN PUBLIC FINANCIAL MANAGEMENT (PFM):
5. There were several challenges in implementation of schemes starting with duplication of objectives and their deliverables and lack of synergy therein. Disbursement of funds to implementing agencies was also happening with involvement of many intermediaries and there was significant opaqueness in the transactions.
6. Funds were lying idle in many cases. Some implementing agencies were sitting with huge funds whereas others were deprived of funds, hence overall scheme implementation was getting affected adversely.
7. Utilisation of funds was assessed on the basis of manual data submitted by the implementing agencies which was often not consistent and audited data used to raise several concerns. Baseline and development indicators were also very difficult to monitor. Problems in the PFM were affecting cash management of government, as funds are borrowed at premium whereas it was not getting utilised as envisaged.
C. OBJECTIVES OF PUBLIC FINANCIAL MANAGEMENT SYSTEM (PFMS)
8. It started as a project to provide a financial management platform for all schemes, a database of all recipient agencies, and integration with core banking solution of banks handling plan funds, integration with State Treasuries and efficient and effective tracking of fund flow to the lowest level of implementation for the schemes of the Government. It also aimed to provide information across all schemes/ implementation agencies in the country on fund utilization leading to better monitoring, review and decision support system to enhance public accountability in the implementation of plan schemes. Further, PFMS was expected to provide effectiveness and economy in PFM through better cash management for Government, transparency in public expenditure and real-time information on resource availability and utilization across schemes. The roll-out will also result in improved programme administration and management, reduction of float in the system, direct payment to beneficiaries and accountability in the use of public funds. PFMS has been championed as a system to facilitate Just in Time (JiT) releases for more effective cash management whereby the departments of GoI should release further instalments of funds to States/sub-national governments and implementing agencies only after seeing the details of fund parked in the pipeline.
D. BENEFITS OF PFMS
9. PFMS has facilitated tracking of funds, bringing down the idle funds in the pipeline and improved reporting of utilization of funds released through it. PFMS has given the ammunition in the hands of the managers to track funds at all levels which are involved in the implementation of the schemes. Complete tracking of funds up to the end beneficiary is one of the major objectives of PFMS. The tracking of the funds released from GoI is done through; release of funds under CS and CSSs through PFMS (onboarding a CS/CSS), registration of all Implementing Agencies, monitoring of bank balances of Implementing agencies, uploading of expenditure details by IAs by using Expenditure Advance and Transfer module of PFMS.
10. Tracking of Funds: To ensure complete tracking of funds, it is essential that all schemes are registered and duly mapped in PFMS. This process is called On-boarding of scheme on PFMS. It implies that all payments under that scheme are released through PFMS and the tracking of the funds till the last mile is achieved. Registration of all Program Implementing Agencies is done in PFMS and their mapping is done as per the hierarchy of the line of command or fund flow envisaged in the scheme. All components of schemes which are to be monitored are also mapped in the system so that fund flow against those activities is tracked through PFMS. Agencies are also required to upload the expenditure details in PFMS. Thus, not only bank balances are available in PFMS, the detail of all Expenditure, Advances and Transfers (EAT) from agency accounts are captured in PFMS. Expenditure is the actual utilization of fund by making payment to the vendors or beneficiaries. Advance is given to a vendor or an employee for supplying goods and services and is later adjusted by a settlement bill. Advance once settled becomes part of expenditure. Transfer means given fund to a lower-level agency by its parent agency for implementing the scheme at that level and do not involve actual expenditure.
11. Utilization of releases made by the Centre: PFMS through EAT module and other reports facilitates reporting of utilization of funds processed through PFMS. Through EAT module a functionality available to Ministries/Departments to track the actual utilization of the released under Central Sector Schemes.
12. Reduction in Idling of Funds: Idling of funds has been a known problem in GoI and PFMS is contributing a lot in doing away with idling of funds lying with the intermediary agencies.
13. Better Accounting and Reconciliation: PFMS is also handling receipt, accounting and the bank reconciliation system for the Central Government. PFMS carries out Fund Transfer Order (FTO), reconciliation with external system, FTO reconciliation with banks, response reconciliation with banks, failure reconciliation, scroll reconciliation, updating Deemed Success/ Failure status received from NPCI etc.
14. Synergy in payments and schemes: PFMS provides payments, receipts and accounting details in a very comprehensive manner. This has resulted in faster synergy in process flow development and business process re-engineering for bringing in faster reforms in the government’s processes. Quick implementation of Treasury Single Account (TSA) in the identified Autonomous bodies to facilitate Just-in-Time payments is an example of this improved synergy.
15. Other Benefits of PFMS
PFMS provides Decision Support System for all levels of program managers, details of funds devolved to States, information for utilization of funds. It facilitates direct e-payment to beneficiaries, validation of their Bank Accounts, reduction in failed transactions, removal of ghost beneficiaries of social sector schemes and dissemination of relevant information to citizens.
E. CURRENT STATUS OF PFMS
16. PFMS had successfully made payment under 510 DBT schemes of GOI amounting to Rs 2,67,093 Cr till the end of FY 2019-20. Similarly, during the current FY 2020-21, in spite of slowdown due to Covid-19, payment to the tune of Rs.1,62,676 Cr was disbursed through 466 DBT schemes.
17. Except for the schemes related to Atomic Energy, IB (MHA) and Non-Civil Ministries i.e Railways, Defense, and Post all Central Sector schemes of GoI are onboarded on PFMS. By September 2021 around 593 CS schemes out of total 721 were onboarded. Under CSS, all schemes are on boarded on PFMS. At present, there are 171 CSSs schemes which are being operated through PFMS. Total 19,81,730 Implementing agencies of CSSs are registered. Out of these, 81,690 are using EAT module. Overall, in Civil Ministries/Departments more than 99.5% of total payments are being done through digital mode through PFMS. On receipts side the Non-Tax Receipt Portal (NTRP) has been developed to collect Government receipts through online mode.
18. One of the more talked about payment system handled by PFMS is DBT payment. DBT payments are made through PFMS which includes various stakeholders like External Software Systems of the Ministry/Department, Accredited Banks, Sponsor Bank/Agencies banks, NPCI, Destination Bank, RBI etc.
19. DBT Schemes covered by PFMS: So far 510 DBT Schemes have been covered. There are 45 Central sector scheme, 29 Centrally Sponsored schemes, 257 State Linked Scheme, 45 UT Schemes and 8 other central expenditure. The amount of cash transfer done in these schemes was Rs.267092.98 Cr. The annual growth in term of Amount disbursed based on the data of last seven FY are as under:
Table 3: Annual Growth in fund disbursement through PFMS | ||||
Financial Year | Number of Schemes | Transaction | Amount (in cr) | % Increase (Amt) |
2014-15 | 56 | 2,19,43,733 | 6,967.17 | |
2015-16 | 90 | 6,74,50,640 | 22,138.47 | 217.75% |
2016-17 | 162 | 10,11,48,847 | 31,393.53 | 41.81% |
2017-18 | 297 | 16,54,73,305 | 90,754.95 | 189.09% |
2018-19 | 416 | 50,97,25,682 | 1,54,748.87 | 70.51% |
2019-20 | 510 | 1,02,37,64,443 | 2,67,092.98 | 72.60% |
2020-21 (till Oct 2020) | 466 | 81,96,85,740 | 1,62,676.08 | |
20. Estimate of quantum of fund float in current schemes after introduction of PFMS and interest savings on this account: In a standard welfare scheme, funds are transferred from Program Division to Program Implementation Agencies in pre-decided hierarchy (as per operational requirements) (Central Agency- State Program Implementation Agency- District Program Implementation Agency (DRDA)- Block Program Implementation Agency (BDO) – Village Panchayats (VDO)). PFMS have developed detailed mechanism to track the funds from Program division till it reaches to intended use (vendors/beneficiaries/ procurement) for the implementation of Funds. Ministry of Finance/ Line ministries/ Program Divisions/ State governments are actively monitoring PFMS MIS to track the funds and funds are being released based on unspent balances/ float lying unutilized. However, no focused study has been conducted at PFMS on fund float and reduction of interest savings.
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