“Overstaffed,” “inefficient” and “lacking in stewardship of tax payer’s money” are the grouses that ordinary Indians often have about government departments. The Department of Expenditure, as old as the ministry of finance itself (1947-), has been entrusted to help the government shed these labels. Central government funds meant for states and programs under various ministries change hands here. The department also maintains accounts of expenditures and follows up on how well states and other departments have spent the funds released.

Along with the departments of Economic Affairs and Revenue, the Department of Expenditure was part of the first finance ministry following independence. Two years later, in 1949, however, there were only two departments, with Revenue and Expenditure having merged. Expenditure, though, returned to being a department on its own in the fiscal year 1956-57, when another new department, Company Law Administration, was added. In 1958-59, the ministry was back to its original formation.

All ministries and departments of the central and state governments are required to adhere to the General Financial Rules. These rules were first issued in 1947 as executive instructions and subsequently updated and reissued in 1963.  The Department of Expenditure released a new set of guidelines in 2005 based on recommendations of a task force and consultations with various departments and ministries. General Financial Rules, 2005 covers a range activities of the government: expenditures, payments, procurements of goods and services, accounting, inventory management, contract management, grants and loans, refund of revenue and budgeting, among others. It recognizes the changes that have taken place in the last few years and decades — new service delivery systems, advancements in information technology, liberalization of the system of procurement —  as well as the need to align with international accounting practices. Many redundant rules have been removed while introducing greater flexibility and accountability. However, despite all these efforts, corruption in the government has become a raging issue. Loopholes in rules have been exploited, such as Rule 134, Review of Projects: After a project … is approved, the Administrative Ministry or Department will set up a Review Committee consisting of a representative each from the Administrative Ministry, Finance (Internal Finance Wing) and the Executing Agency to review the progress of the work. The Review Committee shall have the powers to accept variation within 10% of the approved estimates.

To receive a contract from the government, it is now a commonly held belief that a 10% commission needs to be paid to the officials concerned.

The Department of Expenditure ensures the optimal use of funds allocated by the central government. Funds are released to states as part of the annual plan drawn up by the states and approved by the Planning Commission and for programs implemented by ministries. The department monitors their utilization and assesses their impact.

The department’s establishment division determines and revises the salary structures of central government employees. Its staff inspection unit provides human resources consultation to ministries and departments, advising them to eliminate redundant positions and creating new ones to enhance organizational efficiency. Among other department functions are framing accounting policies for the central government and state governments; carrying out internal audits of the finance ministry and monitoring internal debt; payment of pension to retired central government employees; framing the government’s policy on subsidies, including those of food, fertilizers and petroleum; conducting cost-benefit analyses of programs and determining prices of essentials such as petroleum, coal, steel and cement; and promoting cost-efficiency in public sector enterprises.

Autonomous/Attached Bodies

The National Institute of Financial Management was set up in 1993 as a center of excellence in the areas of financial management and related disciplines. The institute is run by a “society” (with legal authority to frame its own rules and regulations) headed by the union finance minister and has a governing board chaired by the secretary at the Department of Expenditure. The Appointments Committee of the union cabinet selects the director.

The institute trains officers of the central and state governments and government-owned companies, conducts research in the fields of accounting, and also functions as a consultant to government departments and organizations. It has post graduate programs in financial management and financial markets for both officers in government organizations and corporate executives. The institute is based in a state-of-the-art facility in Faridabad, a satellite of Delhi.

The breakup of the budget for the fiscal year 2011-12 was available for the main section of the Department of Expenditure. The sanctioned employee strength is 641 and the budget stood at $20.7 million. "Office Expenses and other administration expenses" has been allocated $9.4 million, and $8.2 million is to be spent on the employees (as salaries, overtime allowance, medical treatment, etc.). Information technology ($689,000), travel expenses ($375,000) and professional services ($334,000) are other major budget heads. A grant of $892,000 has been set apart for the National Institute of Financial Management.

The UPA’s Hollow Austerity Measures

The establishment division of the department of expenditure has been keeping a tight rein on how the government employees utilize funds, especially on domestic and foreign official travel. It has issued circulars to all government ministries and departments with strict guidelines on limiting the days of travel as much as possible, along with the mode of travel. The emphasis on austerity measures made news headlines when the United Progressive Alliance won a second term in office in 2009. Bureaucrats, ministers and MPs were directed to fly economy class and the likes of Sonia Gandhi and her son, Rahul, of the ruling Congress party, led by example.

However, amid the show of austerity, Union Minister of External Affairs SM Krishna and his junior minister, Shashi Tharoor, were found to be staying in two of the top five-star hotels in the capital. They had been alloted official bungalows, which were being renovated at the time. When the media reported on the splurge, both Krishna and Tharoor claimed that they were paying for the accommodation on their own. But with the pressure mounting, they could not hold on to their suites for long.

Shashi Tharoor not happy with Kerala House (OneIndia News)

SM Krishana Refuses to Leave 5-star Suite (OneIndia News)

Improving Fertilzer

India achieved self-reliance in food production in the 1960s by introducing hybrid varieties of food grains and heavily subsidizing fertilizers. With more than half of the country’s population dependent on agriculture, governments, over the years, have found that they can tinker with fertilizer subsidies only at the risk of forfeiting votes in the next round of elections. But with the increasing prices of hydrocarbons, which are used to make fertilizers, the subsidies are weighing heavily on government finances. In 2010, the government spent $20 billion on fertilizer subsidies. The same year, Prime Minister Manmohan Singh’s cabinet announced a new nutrient-based fertilizer subsidy scheme. Besides increasing competition in the fertilizer market and bringing down prices, the idea was to encourage a balanced use of nutrients to improve soil health, but the exclusion of the overused, nitrogen-rich Urea rendered the scheme ineffective. Experts say high nitrogen content in the soil has caused the yield to decline and that Urea has to brought into the new policy fold.

Towards Reducing Fertiliser Subsidy (by Shashanka Bhide, The Hindu)

Green Revolution in India Wilts as Subsidies Backfire (by Geeta Anand, Wall Street Journal)

Can India Afford the National Food Security Bill

If India’s poor ever matter, it’s during the elections. Mere subsistence being a struggle for a large section of the population, measures to improve its condition get politicians the votes they need. No party knows this better than the country’s oldest, the Congress. One of the points in its manifesto for the 2009 elections was a National Food Security Act that legally guarantees subsidized food for 63.5% of the country’s population (75% and 50% of rural and urban populations respectively). It was easier said than done, the party realized, after the UPA won the elections. The National Food Security Bill met its first hurdle in the union cabinet in December 2011, where some ministers were convinced that the government couldn’t afford to fund the program. When the union cabinet finally cleared the bill and was introduced in the Parliament, the Congress was unable to bring some of the parties in its alliance on board. In early 2012, the bill was still being examined by the Parliamentary Standing Committee on Food, Consumer Affairs and Public Distribution.

Anti-Bill

When the Union Cabinet’s approval was sought for the bill to be tabled in the Parliament, Minister of Agriculture Sharad Pawar dissented. The chief of the Nationalist Congress Party (NCP), one of the Congress’ allies, said he was not opposed to the objective of the bill but that he was concerned about its impact on an already-ailing economy. The bill would mean an extra financial burden on the government and stipulated sale of food grains to the general public at half the Minimum Support Price (the price of grains determined by the government to secure returns for producing farmers) would bring down market prices and affect the farming community. He also called for a revamp of the existing Public Distribution System (PDS) so that it is compatible with scheme proposed in the bill.

While Pawar thought the bill was trying to do too much, others argued that it was not enough. “This is a very important act, an opportunity to do something about malnutrition. India has the highest cases of malnutrition. The basic flaw with it is that there is no clarity in identification of the different socio-economic groups,” said Jean Dreze, an economist and one of the activists championing the Right to Food Campaign. The bill proposes a targeted Public Distribution System whereby food grains will be sold to people in newly defined categories of the needy at rates much lower than those on offer in the current PDS. Some states such as Kerala and Tamil Nadu are wary of the bill undermining their successful universal PDS (that can be accessed by all).

Sharad Pawar Declares Sonia Gandhi’s Food Bill Unpalatable (By DNA Correspondent, Daily News & Analysis)

‘National Food Security Bill is Deeply Flawed’ (Zee News)

Jayalalithaa Opposes National Food Security Bill (Times of India)

Pro-Bill

“As finance minister, when I think of the enormity of the subsidies to be provided, I lose my sleep. There is no doubt,” said Finance Minister Pranab Mukherjee at a conference on the Public Distrubtion System (PDS) and storage, but he was quick to add that the government needed to rise to people’s expectations. According to KV Thomas, minister of state at the Department of Food and Public Distribution, there will only be marginal rise in cost over what is already being spent in the name of food subsidy. Noted journalist Praful Bidwai wrote that “the likely cost will not exceed Rs 27,000 crore ($5.4 billion USD), in addition to the existing Rs 67,000-crore ($13.5 billion USD) food subsidy. The addition works out to a minuscule 0.3 percent of India’s GDP … The amount is about half of what was written off last year via customs duty exemptions for diamond and gold alone.”

Losing Sleep over Enormity of Subsidies, Says Pranab (by BS Reporter, Business Standard)

False Fears about Food Security (by Himanshu, Mint)

Why the Food Security Bill is Fatally Flawed (by Praful Bidwai, Rediff)

Sushama Nath

Sushama Nath (born 1951) was secretary, department of expenditure, from 2008 to 2011. She then went on to become the country’s first woman finance secretary. A graduate in chemistry and law, she joined IAS in 1971.