Institutional Mechanisms of Transparency in Budgets


  • 15 May, 2014
  • Nilachala Acharya

The need for enhancing transparency in government budgets has been discussed widely in recent years. Issues relating to lack of transparency have been raised in several domains of public expenditure in the country, but Centrally Sponsored Schemes (CSS) have drawn considerable attention in this regard. The quantum of budgetary resources flowing through the CSS has increased noticeably over the last decade. In the CSS, there have been two kinds of fund flow channels; first is the conventional route in which Central funds reflect in the state budget prepared by the state finance department (such as ICDS and mid-day meal among others); the second route is one that bypasses the state budget and the state treasury. In the latter, Central funds are sent directly to the autonomous bank accounts of the societies/agencies set up for implementing a certain scheme (examples are MGNREGA, SSA, NRHM, NRDWP and NBA etc.). The main argument in favour of this practice of bypassing state budgets, which was adopted by several Central ministries over the last decade, was that sending money through the state budget delays the fund flow process and hence constrains the results achieved through the schemes.

However, when the funds are not flowing through the treasury system in the state, the utilisation of the same does not fall under regular audits by the office of the Comptroller & Auditor General (CAG) of India; audits of expenditures in such cases can be carried out by independent chartered accounts. This flexibility with regard to auditing of the expenditures in the CSS has given rise to strong criticisms pertaining to weakening of the transparency and accountability mechanisms from many quarters, including the CAG. The scams reported in the use of NRHM funds in some of the states a few years ago had reinforced the demands to do away with this practice of Central funds bypassing the state budgets and the treasury system. Further, in the debates in the National Development Council (which is the highest decision-making body on development planning in the country), Chief Ministers of several states have been critical of this practice of Central funds bypassing the state budgets as it undermines the oversight role of the state legislature in the sphere of public expenditure.

The Central Planning Commission, taking note of the persistent criticisms of the proliferation of CSS, had appointed a committee headed by BK Chaturvedi to suggest a roadmap for the convergence of existing schemes towards reducing the total number of CSS as well as strengthening of institutional mechanisms for transparency in implementation of such schemes. Apart from recommending such convergence and reduction in the total number of CSS from 147 to 59, the committee also suggested doing away completely with the practice of Central funds being sent directly to the autonomous bank accounts of the societies/ agencies in the states.

Following these recommendations, the Interim Union Budget 2014-15 has proposed that the Central funds should reflect in the state budgets in all CSS instead of any such amount being sent directly to the autonomous bank accounts of the societies/scheme implementing agencies. This certainly is a significant step towards enhancing institutional mechanisms of transparency in the CSS. However, the actual implementation of this proposal would depend on the new government at the Centre as well as the decisions to be taken by the state governments. In addition to implementing this proposal, state governments should also try to ensure availability of treasury information in the public domain in a timely manner.

The author works with Centre for Budget and Governance Accountability, New Delhi