Understanding the Hierarchy of Financial Administration of India A Project for Public Administration GS F333 By Sudharshan K.Y. (2011B2A4517P)
Contents S.No 1.
2. 3. 4. 5.
Title Indian Financial system through the ages
Page No. 1
The modern Indian financial system The Revenue Department The Expenditure Department The Department of Economic Affairs
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Indian Finance through the ages Indian financial system has a unique stamp of its own.Several Streams of administrative heritage and cultures have left their foot prints on the sands of financial history in India. The system of land revenue administration by Shersha and Akbar found its Way into British administration by the British rule over India. The system of financial control in which was introduced in India during the British period was a highly centralized Version of the British system, but, as an aspect of India administration, it was to designed to serve the basic interest and ambitions of British imperialism . The economic policies of British administration in India was sub serving the deeper economic interests of Britain and its Global designs. The financial policies and the system of financial administration was instrument in safeguarding British interest in India and sub serving ther imperialist expansions in other parts of the world. Financial Administration in Pre-British India India has had a long history of orderly governments. Mauryan, Gupta and Mughal Periods were important landmarks in Indian administration. Public finance reached on advanced stage of development as early as fourth century B.C. This is evidenced by Chanakya’s “Arthshastra” is a treatise on public finance and financial administration. Chanakya attempted a classification of revenue and expenditure. Revenues were classified as tax and nontax revenues. Land tax was the main stay of tax revenue. The main source of non-tax revenues was also classified as defense, administration, Police, Public works, public welfare, and so on. Public borrowing was unknown in pre-British India. Financial Administration under East-India Company Though securing the rights after the battle of buxer in 1765 marked the beginning of company Administration over Indian finance, the British government could only influence its administration indirectly through regulating acts for nearly 100 years. The board of control of the East India Company was the real master of Indian financial administration until the Government of India Act 1833. Normally, they were not so much concerned about the use of political power for the commercial advantage of the company. Financial administration under the Crown
The financial chaos following the sepoy mutiny led to the complete take over of the Indian administration by the British Crown under the Government of India act of 1858. Indian financial system under the Crown: Financial administration in India from 1858- 1935 Reforms introduced from time to time to time These features were: 1. The secretary of state in council was the chief regulator of the financial system. 2. Governor - General in council exercised delegated financial authority. 3. Finance Department was the Custodian of Indian finances 4. Controller general combined responsibility for Indian audit and accounts. Modification of the system before independence: As noted earlier, centralization was the hallmark of financial administration in India. Under ancient and Mughal administration, control was based on decrees by distant authorities directed to every district. Central government came into effect before 1833 when, for the first time the government of Bengal was given supremacy over the other two presidencies. The governor general had power of superintendence and control over the governors. The same system continued under the government of India act of 1858 under which governor general retained complete control. The reforms contemplated up to 1919 didn't alter this basic premise. Provincial authority was gradually augmented through various contracts and settlements made in 1870, 1877, 1882, 1897, 1904,and 1911. What was lost by the central finance department on account of the Montford reforms was partially gained by the newly created finance department in the respective provinces. The memorandum submitted by the central finance department date Dec 31, 1918, envisaged a strong finance department in the provinces for the efficient assessment and collection of revenue. Changes since independence Independence brought in its way certain fundamental changes in the environment of financial administration in India. By this historic event, India snapped all formal political ties with Britain. With the inauguration of the new constitution in 1950, the president replaced the governor-general as
the head of the state (The Indian republic). The basic features of the federal structural introduced in 1935 continued. Governors were retained as formal head of state (Provincial) govenments. The size of public outlay soared a modest figure of less than Rs.2,000 Crores under the first plan to nearly Rs. 40,000 Crore in the fifth plan -an increase by about 20 times in terms of money. The planning commission, administrative reforms commission and the cabinet were lending their weight and support. Hence, the introduction of performance budgeting has been gathering momentum in the government of India and some of the progressive states since 1968-69. The next important Landmark in accounting reform is the separation of audit and accounts in the government of India which was completed in 1976. Currently, efforts are on to make accounting an aid to decision-making in the Government. The system of financial advice has also been progressively internalized. Until 1975 external financial advisers were retained to scrutinize proposals in the non-delegated field. Often gross inefficiencies lurk behind the inflexibilities of the system of normal control. The Financial Administration The Functions of the Financial Administration: 1. Preparing the Budget: Estimation of revenue and expenditure in the coming financial year 2. Getting estimates passed by the Legislature 3. Execution of the Budget: Regulation of expenditure and raising revenue according to it 4. Treasury management: Safe custody of the funds raised 5. Rendering of accounts by the executive and audit of these accounts
The machinery of the Financial Administration comprises of 5 parts: 1. The Legislature: It takes care of appropriation of public money, authorizes taxes or increases current rate, authorizes public loans, enforces accountability of spending authorities 2. The central department concerned with financial administration 3. The principal financial officers
4. The audit organisation 5. Estimates committee and the Public accounts committee
The Modern Indian Financial Administration
The Indian Finance Ministry is headed by the Cabinet Minister (Currently P. Chidambaram) who is assisted by one or more Ministers of state (MoS)(Currently S.S. Palanimanickam (MoS Revenue) and Shri Namo Narain Meena (MoS EB&I). The Finance Secretary (Currently Rajiv Takru I.A.S) is the administrative head of the Ministry. Each of the departments are headed by a secretary, who is assisted by Additional Secretary, Joint Secretary, Deputy Secretary, Director, undersecretary and the Secretarial Staff. The senior ministry positions are mostly held by I.A.S but there is a host of officers belonging to Indian Audit and Accounts Services, Central Revenue Services, Central Customs and Excise Service, The Indian Railway Accounts Services. The middle level most of the positions are held by members of the Central Secretariat Service.
The Revenue Department It is headed by The Revenue Secretary(Currently Shri Sumit Bose) It controls all matters regarding direct and indirect taxes of the Union Government. This is done by the Central Board of Direct Taxes (CBDT) and the Central Board of Excise and Customs (CBEC). Each Board has a chairman and six other members who were ex additional secretaries to the government. The CBDT (Dr. Poonam Kishore Sharma I.R.S. is the chairman) controls the IT department and functions through several attached and subordinate offices. It is responsible for formulating policies regarding tax administration. The CBEC (Mrs. Praveen Mahajan is the agency executive) formulates policies regarding the levy and collection of customs and control of excise duties, prevention of smuggling, and administrationof customs, Central Excise, Narcotics and Gold control departments. Several organisations function under this department: 1. The Settlement Commission 2. Appellate Tribunal For Forfeited Property 3. Regional Gold Control Office 4. Customs, Excise and Gold Appellate Tribunal
There is also an Economic Intelligence Bureau headed by a Director.
It collects revenue intelligence, investigates economic offences and responsible for economic law enforcement.
The Expenditure Department The Office Bearers Ms Vandana Sharma, Chief Controller of Accounts(Finance)
Shri S. Ramanan, Director
Shri S. Kanakambaran, Deputy Secretary
Shri S.L. Meena, Under Secretary
It has Six divisions: 1. Plan (I & II):
Plan I is primarily concerned with administering Central assistance to State Annual Plans. The Division works closely with Planning Commission in assessment of financial resources for Five Year Plans and Annual Plans of States. Division acts as the disbursement division for Central assistance to States for their States Plans by way of untied Normal Central Assistance (NCA) and assistance for earmarked schemes. The division also advises Finance Minister on policy aspects of block and schematic parts of the Central assistance to State Plans.
Plan II is primarily concerned with matters relating to the Central Plan. In respect of development schemes and projects, the focus has
been on improving the equality of development expenditure through better project formulation, emphasis on outputs, deliverables, impact assessment, Mission approach and convergence.
2. Finance:
3. Establishment: The Establishment Division deals with matters like determination of salary structure and service conditions of all Central Government employees, wage policy determination, revision of pay scales, creation of posts, basic principles of fixation of pay, House Rent Allowance, Travelling/Daily Allowance, Dearness Allowance and various other compensatory allowances in respect of Central Government employees. It is also responsible for administrative matters concerning the Department of Expenditure.
It is currently headed by Smt. Sudha Krishnan Joint-Secretary Expenditure Department
4. Cost Accounts:
5. Organisation Of CGI:
The Controller General of Accounts is the apex Accounting Authority of the Central Government and exercises the powers of the President under Article 150 of the constitution for prescribing the forms of Accounts of the Union and State Governments on the advice of the Comptroller & Auditor General of India. The Controller General of Accounts is responsible, inter-alia, a) For the preparation and consolidation of the non government Monthly Accounts. A detailed analytical review of the Union Government Accounts is presented to the Finance Minister every month within 4 weeks from the close of the month. The review covers major aspects of receipts, expenditure, fiscal, deficit, sources of financing, etc. to facilitate during the
year tracking at the highest level. A Provisional Account (Unaudited) for the year is also prepared at the end of the financial year. b) presentation to Parliament of the Annual Appropriation Accounts (Civil) and Finance Accounts of the Union government. These accounts for 1996-97 were laid before Parliament during the Budget Session on 5th June, 1998 along with the Report of the Comptroller and Auditor General of India. c) ensuring a sound and effective internal audit and pre-check system in the Civil Ministries d) enabling prompt and accurate accounting e) ensuring effective and close monitoring of Receipts of the Government of India especially those relating to Income Tax, Customs and Central Excise f) enabling the effective utilisation of accounts as a tool of management by constant upgradation of the quality of accounts, leading to improved financial control within Government. g) The organisation of the Controller General of Accounts is also responsible for government disbursements and banking arrangements of various Ministries/ Departments of the Government of India. The Controller General of Accounts closely monitor the extant system by means of periodical interaction with the Reserve Bank of India and Public Sector Banks on an ongoing basis. h) The Controller General of Accounts also brings out every year, a booklet entitled "Accounts at a Glance", bringing out broad and significant features of Government Receipts and Expenditure. i) The Controller General of Accounts is looking after the computerisation of Government Accounting functions in all the Civil Ministries. 6. Staff Inspection Unit and Finance Commission Division: The SIU is to act as catalyst in assisting the line Ministries and Autonomous Organizations in improving their organizational effectiveness. As per the expanded mandate, in addition to its existing role, SIU would now also undertake organisational analysis primarily to cover the areas of organizational systems, financial management systems, delivery systems, client-customer statifaction, employees concerns etc. and suggest appropriate organizational structure, re-engineering of processes, measures to ensure optimum utilization of resources and overcome the delays besides exploring the possibilities of
outsourcing some of the activities with a view to achieve enhance output/effectiveness with only the minimum essential expenditure.
The DEA (Department of Economic Affairs) The DEA has 8 divisions: 1. Economic: Main activities of the Division include: 1.
Monitoring of Prices, Price Policy
2. 3.
Monitoring of trends in Agricultural and Industrial Production Monitoring of Production, Public Distribution and Foodgrains Stocks held by Government 4. Analyzing developments related to Money and Credit 5. Public Finance 6. Fiscal Policy and Tax Reforms 7. Foreign Trade and Balance of Payments 8. International Economic Institutions: World Bank and IMF related issues 9. Preparation of Annual Economic Survey and Mid Year Review of the Economy 10. Preparation of Macroeconomic backdrop for Quarterly Statement to be placed in Parliament in compliance of the FRBM Act,2003 11. Preparation of Economic and Functional Classification of the Central Government Budget 12. Preparation of Monthly Economic Report and report on State of the Economy 13. Compilation of Statistical Album on Public Finance 14. Organizing Pre-budget meetings of the Finance Minister with stake holders 15. Collection, compilations and quarterly dissemination of External Debt Statistics 2. Banking
3. Insurance
4. Budget: The Budget Division is responsible for the preparation and submission to Parliament of the Central Governments Budget other than Railways, as well as the supplementary Demands for Grants and Demands for Excess Grants. The Budget and Supplementary and Excess Demands of State and Union Territories under the Presidents Rule are also dealt with in this Division. Besides, this Division is responsible for dealing with all issues relating to Public Debt, market loans of the Central
Government and the fixation of terms & conditions of lending by the Central Government, fixing the administered interest rates and keeping a watch on the Ways and Means position of the Central Government The Division also deals with the matters relating to National Savings Organisation and Small Savings Schemes, Duties, Powers and Condition of Service of the Comptroller and Auditor General of India, Accounting procedures and Classification, dealing with issues relating to National Defence Fund, Railways Convention Committee and Central Road Fund.
5. Investment: It is headed by Ms. Sharmila Chavaly Joint Secretary (I&I),Department of Economic Affairs. Its functions are: 1. All policy related issues in infrastructure sectors including those
concerning road, ports, shipping, railways, inland water transport, urban development, power, new and renewable energy, railways and telecommunication sector referred to the Department of Economic Affairs (DEA) by the concerned Administrative Ministries. 2.
3. 4. 5.
6.
7. 8.
Examination of the investment proposals in these infrastructure sectors requires the approval of EFC/ PIB/ CCEA for their viability and justification. Matters relating to infrastructure financing and promotion of investments in infrastructure sectors. Policy matters related to Public Private Partnerships. On the investment front, all proposals for foreign direct investment which are not on the automatic route are processed and put up for approval of FIPB. To facilitate investment abroad, negotiations are undertaken for signing Bilateral Investment Protection and Promotion Agreements .This provides a congenial atmosphere for Overseas Indian investments and facilitates repatriation of profits back home. The foreign investment unit examines sectoral policy issues with respect to other ministries too. All matters relation to currency and coins mediums of exchange in a modern economy.
6. External Finance
7. Currency and Coinage Its main functions are: 1) 2) 3) 4) 5)
Policy formulation regarding design , composition of metals etc. of the coins.2) Matters related to supply of coins to the RBI and reimbursement of cost of coins to SPMCIL. Accounts and Audit matters in respect of C&C Branch. Coins related legislation Issue of Commemorative Coins 8. Administration: It is headed by Shri Rajesh Khullar, Joint Secretary (ABC),Department of Economic Affairs. Its areas of jurisdiction are:
1. 2. 3.
4.
5. 6.
7. 8. 9.
All administrative and pension matters relating to the officers and employees of the Department. Welfare measures for officers and staff of the Department. Administrative matters relating to Economic Wing of the Embassy of India, Washington D.C., Tokyo and Beijing, Grant-in-aid to Economic Research Institutions and domestic training programmes. Implementation of Official Language Policy of the Government in DEA and subordinate offices, functions of Hindi Salahakar Samiti/Official Language Implementation Committee, Hindi Teaching Training Programmes etc. Protocol functions. Public grievances relating to the Department, except for Investor's Grievances. For such grievances, Investor's Grievance Redressal Cell (IGRC) under Capital Market Division may be contacted. Co-ordination works relating to Parliamentary Assurances and on other subject not dealt by any other Division in the Department. Central Registry. General administration except vigilance matters.
Apart from this the DEA has 3 subordinate offices, 3 public undertakings and 3 statutory corporations like the L.I.C under its control.
This in short gives us the gist of the Indian Financial Administration
