CHAPTER. 6 General Structure Of The Financial Admin In India
CHAPTER. 6
GENERAL STRUCTURE OF THE FINANCIAL ADMN IN INDIA
Act, 1935, the balances of the Provincial Governments were from 1st April 1937 physically separated from that of the Central Government and a separate Public Account was set up for each Government into which all moneys re- ceived by a Government, whether on revenue or other account, were paid and credited and from which all disbursements of or on behalf of that Govern- ment were met.
71-A. From April 1st, 1950, each State has a separate Consolidated Fund, entitled “the Consolidated Fund of the State” into which the revenues received by the Government of the State, loans raised by that Government by the issue of Treasury Bills, loans or ways and means advances and moneys received by that Government in repayment of loans are credited and from which the ex- penditure of the State, when authorised by the appropriate legislature, is met. Each such State has also a separate “Public Account of the State” into which all other public moneys received by or on behalf of the State are credited and from which disbursements are made in accordance with the prescribed rules. The revenues received by the Government of India, including those received by Union Territories, loans raised by that Government by the issue of Treasury Bills, loans or ways and means advances and moneys received by that Govern- ment in repayment of loans are credited into a separate Consolidated Fund, entitled “the Consolidated Fund of India” and the expenditure of the Govern- ment of India (including Union Territories) when so authorised by Parliament, is met from that Fund. All other public moneys received by or on behalf of the Government of India, including those received by the Union Territories are credited to the “Public account of India” and disbursements therefrom are made in accordance with the prescribed rules.
71-B. The Constitution also provides for the establishment of a Con- tingency Fund of India and a Contingency Fund of each State. The Fund will be at the disposal of the President or the Governor of the State to enable advances to be made by them for meeting unforeseen expenditure, pending authorisation of such expenditure by Parliament or the Legislature of the State, as the case may be. Each such Fund will be financed from time to time by such sums as may be determined by the Act of the appropriate Legis- lature establishing the Fund.
72. The sources of revenue and taxation of States are to a large extent distinct from those of the Government of the Union. The financial arrange- ments embodied in the Constitution provide, however, for
(1) assignment to the States of certain duties levied by the Government of India but collected by the States within which such duties are respectively leviable;
(2) assignment to the States of the net proceeds of certain taxes levied and collected by the Government of India and their distribution among those States in accordance with the prescribed principles;
(3) assignment to the States of a share of the net proceeds of taxes on income other than agricultural income and its distribution among them in the prescribed manner; and (4) payment by the Government of India in each year for a specified period of prescribed sums as grants-in-aid of the revenues of the Jute-growing States, in lieu of assignment of any share of the net proceeds in each year of export duty levied by the Government of India on Jute and Jute products to those States.
Though the net proceeds or a share of net proceeds of certain taxes (e.g., duties on succession to property other than agricultural land, taxes on income other than agricultural income) levied and collected by the Government of India are distributed to the States, Parliament has a right to levy a surcharge for purposes of the Government of India. In the same way, the whole or a share of the net proceeds of Union duties of excise, other than duties of excise on medicinal and toilet preparations, may be paid to the States by an Act of Parliament. Provision has also been made for grants-in-aid to Assam and also to other States in need of such assistance from the Government of India. It has been specifically provided that capital and recurring sums shall be paid by the Government of India as grants-in-aid to States to meet the cost of such schemes of development as may be undertaken by the State with the approval of the Government of India for the purpose of promoting the welfare of the Scheduled Tribes in that State or for raising the level of administration of the Scheduled Areas to that of the administration of the rest of the areas of that State.
73. Treasuries. All the States mentioned in paragraph 68 are divided into a number of “districts” and at the headquarters of each district there is a Government treasury called the “District Treasury” with one or more sub- treasuries distributed throughout the district. The treasuries situated in a State as are controlled by the State Government, are called State treasuries, while such treasuries not under the control of the State Government and treasuries situated in the Union territories are called Union treasuries. The treasuries are the units of the fiscal system and the points at which the public accounts start. Into these treasuries are paid the receipts of Government and from them are disbursed the payments on behalf of Government. Generally, when any one has a payment to make to Government, he presents the money with a chalan at a treasury and receives a receipt for it when he has a pay- ment to receive from Government, he presents at a treasury a receipted bill, or a cheque issued in his favour by a competent officer, and obtains payment on it. Under agreements made by the Union Government and each State Government with the Reserve Bank of India, the treasury business of each of these Governments is conducted for it by the Reserve Bank of India at every station at which the latter has its office or branch or at which there is a branch of the State Bank of India serving as its agent. This decentralisation of treasury work is a feature of the Indian financial system which should be clearly grasped at the outset as it conditions the whole of the subsequent arrangements. It is this feature of the Indian system which marks the essential difference from the financial system in England where the public receipts and payments are all centralised at the Bank of England in London and there are no outlying State treasuries.
NOTE. The Government of Jammu and Kashmir State have not so far entered into agreement with the Reserve Bank for the conduct of their treasury business by the Bank.
74. Treasury Rules. The power to regulate the payment of money into the Consolidated Fund, the Contingency Fund (if and when established) and the Public Account, the withdrawal of moneys therefrom, and the custody of moneys therein is vested in Parliament or the Legislature of the State, as the case may be. Pending legislation by the appropriate Legislature, these matters are regulated by rules made in this behalf by the President or the Governor of the State, as the case may be. These rules are known as the Treasury Rules.
75. Account with the Bank. The Union and State Governments keep their own separate balances and separate accounts with the Reserve Bank of India. The Union Government as a general rule operates on every office and branch of the Reserve Bank and with a few exceptions on every branch of the State Bank of India acting as the agent of the Reserve Bank. But the operations of State are confined to the offices and branches of the two Banks designated as falling within the area of that particular State. At the offices and branches of the Reserve Bank and the State Bank acting as Agent of the Reserve Bank, the procedure is that the Treasury Officers and other officers of Government authorised to draw or pay money, distinctly classify each transac- tion as pertaining to ‘the Union’ or ‘State’. Thus the Bank deals with two groups of accounts, one of the Union and the other of the State in which it is situated, the latter group embracing also the transactions of account of other State Governments. All adjustments between the Union and State Govern- ments or between different States are carried out through a separate organisa- tion of Reserve Bank at Calcutta, namely, the Central Accounts Section of the Bank, which operates as a Central Clearing House and acts on instructions received from various Account Offices. Complete accounts of the Union Government and of each of the State Governments with the Bank are also maintained by the Central Accounts Section of the Bank which sends to the Accountants General concerned a statement of the closing balance of the Government on the books of the Bank at the close of accounts of each month.
NOTE 1. As the general banking business of the State Government of Jammu and Kashmir is not, at present, conducted for them by the Reserve Bank of India. the settlement of transactions between that State and other States/Centre is effected in cash or by bank drafts in accordance with the instructions contained in separate orders.
NOTE 2. The transactions of Railways and Posts and Telegraphs at offices and branches of the Reserve Bank are distinguished from other Central transactions in the initial accounts and are classified separately by each Railway and each D.A.G.P. & T. respectively. These transactions are taken against the Railway Fund and P. & T. Account respectively, in the books of the Reserve Bank direct and do not. therefore, pass through the Treasury Accounts or consequently through the accounts of the Civil Accountant General. Each office and branch of the Bank furnishes the Accounts Officer of each Railway or Posts and Telegraphs circle, as the case may be, every day with a copy of the daily scroll relating to transactions of that Railway or the Posts and Telegraphs circle of account, together with the requisite vouchers.
76. Transactions with other Governments. The Treasury Rules of each State Government provide that moneys may be received and payments may be made on behalf of the Union Government and other State Governments by State Treasuries. Transactions occurring in a State treasury on account of the Union Government and all transactions on behalf of other State Governments arising in a State are carried in the first instance against the balance of the State in which the treasury is situated, and the requisite money settlement between the Governments concerned is subsequently initiated by the Accoun- tant General through the Reserve Bank. Similarly, all State transactions in Central treasuries are carried initially against the balances of the Union Gov- ernment pending adjustment between the balances of the Governments con- cerned through the Reserve Bank.
77. Initial Accounts. The revenue and other receipts received and the payments made at State treasuries and those Central treasuries, which render accounts to State Accountants General, are compiled at each treasury into two separate monthly accounts, one for the transactions of the Union Government and the other for State transactions, which are sent to the State Account Officer. The Central treasuries, which render accounts to the Accountant General, Cen- tral Revenues, however, send only one account each month to him and in this the transactions on account of State Governments taking place at those trea- suries are shown under appropriate heads. Transactions with or on behalf of Railways taking place at a Central or State treasury are included in the accounts of the Union or Part A State Government according as the treasury is a Central or a State treasury, a separate account of the transactions of each Railway being at the same time sent direct to the Railway Accounts Officer concerned.
78. In the case of certain large departments, as for example, the Defence, Posts and Telegraphs and Forest, the payments into treasuries are not made directly by the debtors of Government but in lump through the departmental officers. Similarly, in the case of these departments and of certain others, pay- ments are made by cheques on the treasury or from lump sums drawn from the treasury by departmental officers. In the case of the Public Works De- partment, all payments excepting those relating to the personal claims of gazetted Government servants and establishment and in certain States those relating to contingencies are paid by cheques, while the receipts, realised by Public Works officers are paid into the treasury in lump. In respect, therefore, of these departments, the treasury accounts show lump transactions or payment by cheques. The officers of these departments send monthly detailed accounts of their lump transactions with the treasuries to their respective Account Officers.
79. To enable chalans, bills, vouchers, cheques, etc., pertaining to transac- tions of the Union to be readily distinguished from those pertaining to transac- tions of the State, different coloured forms are used for the two categories of transactions, blue for Union and white for States.
80. 80. Classification. The classification, or the marking of each item of receipt and payment according to the head of account to which it relates, is made by the departmental officers on the chalan or bill presented at the treasury or in the departmental accounts rendered to the Account Officers. This pro- cess is carried out in great detail, and eventually every item of receipt and payment is most carefully and minutely differentiated and classified, as is further explained in Chapter 11.
81. Compilation. The monthly accounts received from the treasuries and the civil departmental officers are compiled by civil Accountants General into consolidated monthly accounts of States and of the Union Government (Civil). The transactions of the Union Government (Civil) taking place throughout India are consolidated from month to month by the Accountant General, Central Revenues, to whom other Account Officers furnish the monthly accounts of Union transactions taking place in their account circles. The transactions of the Posts and Telegraphs, Railways and Defence Services taking place throughout India are similarly consolidated monthly by the Accountant General, Posts and Telegraphs, the Railway Board and the Controller General of Defence Accounts respectively from the figures furnished by their subordinate officers.
82. The transactions on account of the Union and States taking place in the United Kingdom (with the exception of those representing genuine sterling assets and liabilities of the Union which are finally brought to account in the Indian Accounts in the United Kingdom) are passed on monthly to India through the Account Current between England and India and are incorporated in the books of the respective Account Officers.
83. Each Civil Account Officer works out the progressive figures during the year of the Central and State accounts of his circle. On closing the adjust- ments for March Supplementary, a progressive account of State transactions is furnished by him to the State Government and that of Central transactions is submitted to the Accountant General, Central Revenues. A copy of the account of Central transactions is furnished to the Comptroller and Auditor General also. Similarly, the consolidated annual accounts of the Posts and Telegraphs Railways and Defence Services are submitted to the Accountant General, Central Revenues by the Accountant General, Posts and Telegraphs, Railway Board and the Controller General of Defence Accounts respectively. A copy of the consolidated annual accounts is submitted to the Comptroller and Auditor General also.
84. The annual accounts of each Government, known as the Finance Accounts together with an Audit Report thereon are forwarded by the Comp- troller and Auditor General to the Government concerned after the close of each year. Apart from these, the Comptroller and Auditor General consoli- dates the annual accounts submitted to him by all Account Officers, including the Director of Audit, Indian Accounts in the United Kingdom, into one annual account for the whole country for submission to the President. This account is called the Combined Finance and Revenue Accounts of the Central and State Governments in India.
85. Thus it will be noticed that the accounts are built up from below. Each of the numerous district treasuries and sub-treasuries contribute its quota; and these, together with the detailed accounts of their treasury transactions prepared by the departmental officers, proceed monthly to the various account centres, whence, after certain processes, they merge in large streams and finally converge and concentrate in the office of the Comptroller and Auditor General, where they are combined into one consolidated account for the whole of India.
86. This, in broadest outline, is the method of the record, classification and compilation of the public accounts in India from the point at which the initial receipts and payments occur at the district treasuries and sub-treasuries and the Treasury in the United Kingdom to that at which they issue in the form of a classified and consolidated account of the year’s transactions for all the Governments in India.
87. Audit. The audit of Government transactions is fully discussed in Parts III and IV of this Compilation. In a large number of cases it is con- ducted before compilation, either before or after the expenditure is incurred; but in some cases, to ensure expedition in the compilation of the general account of a Government or department, it has to be conducted after the compilation. The audit of revenue receipts is for the most part carried out by the departmental officers who collect the Government revenues; that of ex- penditure apart from the limited check applied at treasuries and the depart- mental check exercised by departments which compile their own accounts, is conducted by the Indian Audit and Accounts Department.
88. Provision of Funds. To complete this preliminary sketch of the finan- cial machinery of India, it is necessary to glance at the arrangements for the provision of funds for the public service which come under the heads known as Budget, Ways and Means and Resources. These subjects are discussed in detail in the next chapter and in Chapter 16.
89. Estimates. In the cold weather of each year, detailed estimates (called budget estimates) are prepared by each State Government and the Union Government of their probable receipts and requirements of all kinds in and outside India during the ensuing financial year (April to March). A full description of system of budget estimates, and of grants and appropriations and their distribution among controlling and disbursing authorities, will be found in Chapter 16. At this stage all that needs to be explained is that, after the esti- mated expenditure has been authorised by competent authorities, the grants and appropriations are sub-divided into a number of allotments, the amounts of which are then communicted to the respective controlling and disbursing authorities by Government which thereby indicates its consent that those authorities should incur expenditure within the limits of the allotments placed at their disposal.
90. Simultaneously with the preparation of the budget estimates for the ensuing year, the budget estimates of the current year are reviewed, and proper authority is obtained for the existing allotments, where necessary, to be increas- ed or reduced, as the case may be.
91. Ways and Means. The consideration of “Ways and Means” aims at arranging that the cash balance of a Government including in the case of the Union Government that portion of it which is held in England shall at all times during the year be sufficient to meet its requirements. Into these cash balances enter not only the multifarious sums due to and by Government which are generally known as revenue and expenditure, but also the very large amounts borrowed by Government for capital expenditure and also other amounts in regard to which Government acts as a banker or remitter, or borrower or lender, such as deposits of all kinds, money order and loan receipts and issues, advances, remittances, etc., etc., which are grouped in the accounts under the “Debt” “Deposit” and “Remittance” Sections. All amounts falling under these headings enter and leave the treasuries and affect the Gov- ernment cash balance, and are technically known as Government receipts and disbursements, or incomings and outgoings, as distinguished from Govern- ment revenue and expenditure proper. It is with these transactions as a whole that “Ways and Means” deal. A forecast is prepared of the opening balances of the year, and of the monthly incomings and outgoings of all kinds, pertain- ing to a Government and it is arranged, by adjusting the one to the other, by raising a loan, for example, or reducing the amounts proposed for expenditure, that the estimated Government cash balance as a whole shall never fall unduly low. With the same object a careful watch is maintained throughout the year on the actual progress of transactions.
92. Resource. “Resource” is the process of distributing the cash balance of a Government between the different treasuries or paying centres so that each shall at all times have sufficient funds to meet the local demands on it. Some treasuries collect more receipts than they require for their payments, others less; and the surplus treasuries have to feed the deficit treasuries. The payments which the High Commissioner of India has to make on behalf of the Union and State Governments far exceed the receipts accruing to those Gov- ernments in the United Kingdom. He has therefore to be placed in funds by remittances from India which are arranged for by the Reserve Bank. Generally, “Resource” is carried out either by remittance of notes and coins between treasuries, or by the establishment of “Currency chests” for utilising for remittance purposes the cash balances held against the note circulation, in a manner which is explained in Chapter 7.
93. Functions of various Authorities. in matters connected with classifi- cation, audit and accounts, the duties and powers of the Comptroller and Auditor General have already been stated in Chapter 3. The Finance Minis- tries or Finance Departments of the Union and State Governments are respon- sible for the Budgets. “Ways and Means” arrangements are under the direct
(iv) From the same causes, namely, the existence of autonomous State Governments, the area and the population involved, necessitating as they do a large delegation of executive authority primarily spring the administrative divisions and arrangements which again react on and condition the financial arrangements, and give India its State and departmental as well as Central finance and budget systems and its various Account and Audit offices.
(v) Finally, in India, where Government still performs many functions which elsewhere are undertaken by private enterprise, Govern- ment acts largely as a banker and remitter, and holds and pays immense sums which are not Government revenue or expenditure proper and greatly complicate the already large problem of “Ways and Means” or the constant adjustment to each other of the fluc- tuating volume of incomings and outgoings.