The expression ‘utilisation of public funds’ lends itself to multiple interpretations. It can refer to efficient, effective expenditure which also satisfies rules and procedures governing government spending. It also means that public funds have to be utilized without fraud and waste. It partly includes the budgetary processes since no expenditure from public funds is permissible without legislative approval.Publicexpenditure is subject to elaboratesystems of accounting and audit.CAG conducts audit of expenditure to verify its veracity, regularity, efficiency and propriety. CAG reports major irregularities revealed in audit to PAC and COPU. The Estimates Committee primarily examines the accuracy of budget estimates. Utilization of public funds should result not only in expenditure and output but also in the intended programme outcomes. While incurring expenditure from public funds, government servants should be guided by canons of financial propriety.
Summary
¤ Union budget or State budgets provide funds to Ministries, government agencies and other bodies for various approved purposes, schemes, projects and programmes. No government expenditure can be incurred without approval of parliament or the concerned legislative assembly.
¤ Government spends money directly/departmentally or through other agencies to whomthey transfer funds. The transferee agencies are often State governments or field level government agencies or Panchayati Raj institutions. In this mode, funds are utilized through government agencies.
¤ Government departments may also pass on money in the form of grants to non government organizations (NGOs).
¤ Revenue expenditure is for current or ongoing expenditure. Capital expenditure generally results in creation or acquisition of assets.
¤ In budget, expenditure is separately shown for individual elements like pay of officers, pay of staff, their dearness allowance, travelling allowance, office consumables, petrol and vehicle maintenance, office rent, telephone bill and a host of contingencies.
¤ Full utilization of sanctioned funds or achieving the financial targets of a scheme is important.
¤ Full utilization of funds is the first indicator of a scheme’s performance. Unutilized funds mean that financial targets of a scheme have not been met.
¤ Recently, the emphasis has shifted to project outcomes from physical targets.
¤ The implementing agencies have to utilize the funds fully within the prescribed time limit, usually 31st March, for the purposes for which they are intended.
¤ Unutilized funds have to be surrendered to the finance department and are no longer available to the concerned agency or programme.
¤ In India, the plan budgets whether at the Centre or in State’s are seldom fully utilized. This is particularly the case in social sector programmes which have a vital bearing on human development index.
¤ Generally, the large, capital intensive sectors are able to fully utilize their plan budgets.These expenditures consist mostly of a small number of relatively lumpy items.
¤ In contrast to such sectors, social programmes are unable to speedily utilize finds. Social sectors include education, health and family welfare, water supply and sanitation, social security and welfare, and nutrition.
¤ The inability of the state governments to fully utilize the available funds in the Central schemes is due to systemic weaknesses in the government apparatus in social sectors across many states besides the rigidity in the norms, guidelines and unit costs governing the Central schemes and the lack of fiscal decentralization from Centre to state governments as well as from state governments to local governments.
¤ Some observers now argue that the problem in social sectors is no longer insufficiency of funds but poor programme implementation and poor utilization of funds. This situation presents a great administrative challenge.
¤ Although the states share of expenditure is usually around 20% - 30% in CSS, many states cannot afford it.
¤ Central Ministriestend to formulateschemes with the same all-Indiapattern without allowing for regional or State variations.
¤ The financial approvals of schemes often get delayed.
¤ In many schemes like mid day meals and hostels, costs are estimated on per unit or per head basis. In an inflationary situation, such unit costs escalate quickly, and it becomes difficult to run the programme.
¤ A major difficulty in social sector schemes, and in fact in other grass root schemes, arises from inadequate staff and lack of project planning and management skills.
¤ Rangarajan Committee examined the mode of transfer of funds from the Centre to implementing agencies for various programmes. The funds aretransferredintwo ways – the treasury mode and the society mode. In the treasury mode, funds are sent to States through the RBI. The State governments transfer funds to District Rural Development Agencies (DRDAs), Panchayati Raj Institutions (PRIs), Non Government Organizations NGOs and other Implementing Agencies (IAs).
¤ In the society mode, Central ministries transfer funds directly to IAs - DRDAs, PRIs and NGOs and others.
¤ The Central Plan Scheme Monitoring System (CPSMS) has recently set up its portal. CPSMS integrates tens of thousands of implementing agencies through a common system and tracks fund movement at successive stages starting with the initial release from the Centre till the money actually reaches the ultimate beneficiaries.
¤ CAG reports and other studies have revealed many problems of fund utilization. We have outlined them earlier.
¤ As we noted earlier, the purpose of fund utilization is to realise value for money, and achieve the programme objectives. Achievement of these objectives depends on provision of facilities, inputs and services. Physical targets of programmes are necessary but not sufficient forachievingtheirultimategoals. As a result,there is considerable emphasis in recent times on the final outcomes of the programmes.
¤ Expenditures from all public funds have to be properly accounted for and have to go through the audit of the comptroller and auditor general (CAG). Major irregularities which emerge are also examined by parliamentary committees.
¤ The Comptroller and Auditor General of India (CAG) is the head of the Supreme Audit Institution of India (SAI).
¤ The CAG is the sole auditor of the accounts of the Central Government and the State Governments.
¤ Audit means examination of accounts, transactions and records by the CAG.
¤ The CAG examines various aspects of Government expenditure. Conduct of audit is done based on accounts, vouchers and records.
¤ Audit may be of different types like regularity audit (Compliance) and performance audit.
¤ Performance audit assesses: (a) economy (b) efficiency and (c) effectiveness.
¤ The CAG examines and certifies the Finance Accounts and the Appropriation Accounts of the Centre and the States.
¤ Parliament and State Legislatures have constituted specialized Committees like the Public Accounts Committee (PAC) and the Committee on Public Undertakings (COPU), to whom CAG’s audit Reports and Annual Accounts automatically stand referred.
¤ Government servants have to follow the canons of financial propriety. We have outlined them above.
PRACTICE QUESTIONS
1. What are the reasons for shortfalls in utilisation of budgetary allocations made for plan programmes and schemes?
2. Why are State governments unable to fully utilize the budgetary allocations made for social sectors?
3. What are Centrally Sponsored Schemes (CSSs)? What is their importance in social development and poverty alleviation programmes? What are the changes proposed in the pattern of CSSs?
4. Outline briefly the process of making allocation for programmes or schemes in the budget.
5. Discuss the two methods by which Centre transfers funds to programmes which are implemented at state level.
6. How will you distinguish expenditure on revenue account and on capital account?
7. What is the difference between expenditure on plan account and non plan account? What is Rangarajan Committee’s recommendation on continuing this distinction? What is the basis of the recommendation?
8. Why did Rangarajan committee recommend that Central funds meant for DRDAs and NGOs should be released through the State treasuries?
9. Write short notes on: (a) financial targets (b) physical targets (c) outputs and (d) outcomes.
10. How can the efficiency of use of budgetary allocations be estimated?
11. What is Central PlanScheme Monitoring System(CPSMS)? What functionsdoesit perform?
12. What are the problems of fund utilization which CAG reports have revealed?
13. What arethe functions of the Comptroller and Auditor General of India(CAG)?
14. What is audit? How does it differ from the accounting function?
15. What is regularity audit or compliance audit?
16. What is performance audit?
17. Explainbriefly:(a) financeaccounts (b) appropriationaccounts(c) financialyear(d) surrender of funds (e) March rush of expenditure.
18. What are the functions of : (a) PAC (b) Estimates Committee and (c) COPU.
19. Enumerate the canons of financial propriety. What is their importance in utilization of government funds?
20. Discussbriefly thenatureof irregularitieswhichoccurred in: (a) 2-G allocation(b) coal block allocation and (c) Commonwealth Games.
REFERENCES
CAG’s brochure on SAI
Regulations on Audit and Accounts – CAG (2007)
Twelfth Five Year Plan
Report of the High Level Expert Committee on Efficient Management of Public Expenditure (C. Rangarajan Committee)
Studies of The Centre for Budget and Governance Accountability (as reported by Subrata Das)
