Government proposes to hike ministries’ reporting limits for financial expenditure

GS Paper II

News Excerpt:

After a gap of about 18 years, the government is set to revise its financial limits for ‘New Service’ and ‘New Instruments of Service’ after getting approval from Parliament’s Public Accounts Committee (PAC).

More details on the news:

  • The PAC has approved the Finance Ministry’s proposal to raise the reporting limit for new policy-related expenditure by ministries/departments to above Rs 50 crore but not exceeding Rs 100 crore along with mandating prior approval of Parliament for spending over Rs 100 crore.
  • Reporting limit for 'New Instrument of Service' set at up to 20% of the original appropriation or up to Rs 100 crore, with Parliament approval required for amounts exceeding this limit.

Background:

  • This is the fourth such change since the last 50 years and has come after wide consultations. The first change occurred in 1970. The last such revision had come into effect in 2006.
  • The PAC and the Comptroller and Auditor General of India (CAG) have been pointing to the growing instances of unnecessary supplementary, re-appropriations not adhering to the NS/NIS limits; and re-appropriations without reporting to Parliament or without obtaining prior approval of the Finance Ministry.
  • In a separate report titled ‘Excesses over Voted Grants and Charged Appropriations (2019-20)’, which was also tabled in Parliament recently, the PAC had raised concerns over excess expenditure, ranging between 10.04 %  to 79.77 %, incurred during FY 2019-20 for grants/appropriations even after obtaining high amounts of supplementary grants by the ministries/departments to meet their additional requirements.

New Service (NS)

  • NS refers to expenditure arising out of a new policy decision, not brought to the notice of Parliament earlier, including a new activity or a new investment.

New Instrument of Service (NIS)

  • NIS refers to relatively large expenditure arising out of important expansion of an existing policy.
  • The financial limits for ‘New Service/New Instrument of Service’ are applied whenever the expenditure is incurred on account of the expansion of an existing policy.

Need to raise financial limits for spending:

  • Encouraging Meticulous Budgetary Estimation: The proposed amendments intend to encourage the Ministries to meticulously estimate their budgetary requirements.
  • Addressing Surge in Supplementary Proposals: The necessity for the upward revision arises due to a surge in supplementary proposals from the Ministries/Departments seeking prior approval from Parliament, causing delays in execution of projects/schemes/programmes despite availability of savings.
  • Challenges of Low Limits on Expenditure: The limits were very low between Rs 10 lakh to Rs 2.5 crore and the value differed across nearly 50 items of expenditure. Hence, it was extremely difficult to comply and it would slow down the overall government spending process.
  • Anticipating Budget Growth with GDP Increase: With an expected growth of GDP in the range of 6-7 % year-on-year, the size of the Budget is anticipated to grow substantially in the next decade too and thus, requires an upward revision in the financial limits.

Public Accounts Committee (PAC)

  • The Committee on Public Accounts was first set up in 1921 in the wake of the Montague-Chelmsford Reforms.
  • At present, it consists of 22 members (15 from the Lok Sabha and 7 from the Rajya Sabha).
  • The term of office of the members is one year. A minister cannot be elected as a member of the committee.
  • The Chairperson of the Committee is appointed by the Speaker from amongst the members of Lok Sabha elected to the Committee.
  • The function of the committee is to examine the annual audit reports of the Comptroller and Auditor General of India (CAG), which are laid before the Parliament by the President.
  • The committee examines public expenditure not only from legal and formal point of view to discover technical irregularities but also from the point of view of economy, prudence, wisdom and propriety to bring out the cases of waste, loss, corruption, extravagance, inefficiency and nugatory expenses.

Significance of proposed changes

  • The government intends to simplify the process in such a way that it becomes very easy to adopt by the Ministries and it will be very easy for the PAC to find deviations.
  • It would speed up the process of decision making for the government and also perhaps improve the pace of scheme implementation.

Supplementary Grants - Supplementary Grants refer to additional grant amounts sought by the government during a financial year, over and above the amounts already authorized in the budget. They are necessary when the authorized funds are insufficient to meet the current expenditure or when a need arises for spending on new services not contemplated in the budget for the year.

  • Purpose: Supplementary Grants are primarily required to meet expenses that cannot be deferred until the next financial year and were not foreseen when the original budget was formulated.
  • Process: The need for supplementary grants typically arises after the main budget has been passed. The government presents these additional demands to the Parliament. They must be approved by the Lok Sabha, the lower house of Parliament, which has the power to approve or reject such demands.

Types of Supplementary Grants:

  • Additional Grant: Sought when a need has arisen during the current financial year for additional expenditure upon some new service not contemplated in the budget for that year.
  • Excess Grant: Requested when money has been spent on any service in excess of the amount granted for that service in the budget. This is usually presented after the financial year has ended and after the accounts for the year have been finalized.
  • Token Grant: Sought when funds to meet proposed expenditure on a new service can be made available by reappropriation from the savings under other grants, and the amount required is less than Rs 100. This grant is more of a procedural requirement to comply with the rules that no amount can be spent without the Parliament's approval.

Conclusion:

The proposed financial limits revision signals a positive stride in promoting efficient budgetary processes, curbing delays, and aligning government spending with economic growth. This move fosters transparency, prudent fiscal management, and effective governance.

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