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Understanding the Hierarchy of Financial Administration of India

A Project for Public Administration GS F333 By Sudharshan K ! "#$%%B#A&'%(P)

S +o % ,itle Indian Financial system through the ages ,he modern Indian financial system ,he -e.enue /e0artment ,he 120enditure /e0artment ,he /e0artment of 1conomic Affairs Page +o %

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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 centrali ed !ersion 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 #lobal designs. The financial policies and the system of financial administration was instrument in safeguarding British interest in India and sub serving ther imperialist e$pansions in other parts of the world. Financial Administration in Pre-British India India has had a long history of orderly governments. %auryan" #upta and %ughal &eriods were important landmarks in Indian administration. &ublic finance reached on advanced stage of development as early as fourth century B.'. This is evidenced by 'hanakya(s )Arthshastra* is a treatise on public finance and financial administration. 'hanakya attempted a classification of revenue and e$penditure. +evenues were classified as ta$ and nonta$ revenues. ,and ta$ was the main stay of ta$ revenue. The main source of non-ta$ revenues was also classified as defense" administration" &olice" &ublic works" public welfare" and so on. &ublic borrowing was unknown in pre-British India. Financial Administration under East-India Company Though securing the rights after the battle of bu$er in ./01 marked the beginning of company Administration over Indian finance" the British government could only influence its administration indirectly through regulating acts for nearly .22 years. The board of control of the 3ast India 'ompany was the real master of Indian financial administration until the #overnment of India Act .455. 6ormally" 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 'rown under the #overnment of India act of .414. Indian financial system under the 'rown7 Financial administration in India from 1858- 19 5 +eforms introduced from time to time to time These features were7 .. The secretary of state in council was the chief regulator of the financial system. 8. #overnor - #eneral in council e$ercised delegated financial authority. 5. 9inance :epartment was the 'ustodian of Indian finances ;. 'ontroller general combined responsibility for Indian audit and accounts. !odification of the system "efore independence# As noted earlier" centrali ation was the hallmark of financial administration in India. <nder ancient and %ughal administration" control was based on decrees by distant authorities directed to every district. 'entral government came into effect before .455 when" for the first time the government of Bengal was given supremacy over the other two presidencies. The governor general had power of superintendence and control over the governors. The same system continued under the government of India act of .414 under which governor general retained complete control. The reforms contemplated up to .=.= didn>t alter this basic premise. &rovincial authority was gradually augmented through various contracts and settlements made in .4/2" .4//" .448" .4=/" .=2;"and .=... What was lost by the central finance department on account of the %ontford reforms was partially gained by the newly created finance department in the respective provinces. The memorandum submitted by the central finance department date :ec 5." .=.4" envisaged a strong finance department in the provinces for the efficient assessment and collection of revenue. Chan$es 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 .=12" the president replaced the governor-general as

the head of the state ?The Indian republic@. The basic features of the federal structural introduced in .=51 continued. #overnors were retained as formal head of state ?&rovincial@ govenments. The si e of public outlay soared a modest figure of less than +s.8"222 'rores under the first plan to nearly +s. ;2"222 'rore in the fifth plan -an increase by about 82 times in terms of money. The planning commission" administrative reforms commission and the cabinet were lending their weight and support. Aence" the introduction of performance budgeting has been gathering momentum in the government of India and some of the progressive states since .=04-0=. The ne$t important ,andmark in accounting reform is the separation of audit and accounts in the government of India which was completed in .=/0. 'urrently" efforts are on to make accounting an aid to decision-making in the #overnment. The system of financial advice has also been progressively internali ed. <ntil .=/1 e$ternal financial advisers were retained to scrutini e proposals in the non-delegated field. Bften gross inefficiencies lurk behind the infle$ibilities of the system of normal control. ,he Financial Administration ,he Functions of the Financial Administration4 % Preparing the Budget: 1stimation of re.enue and e20enditure in the coming financial year 2. Getting estimates passed by the Legislature 3 Execution of the Budget: -egulation of e20enditure and raising re.enue according to it & Treasury management: Safe custody of the funds raised 5. endering of accounts by the executi!e and audit of these accounts

,he machinery of the Financial Administration com0rises of ' 0arts4 % The Legislature: It ta5es care of a00ro0riation of 0ublic money6 authori7es ta2es or increases current rate6 authori7es 0ublic loans6 enforces accountability of s0ending authorities 2. The central department concerned "ith financial administration #. The principal financial officers

$. The audit organisation 5. Estimates committee and the Public accounts committee

,he 8odern Indian Financial Administration

,he Indian Finance 8inistry is headed by the %abinet &inister "*urrently P. %hidambaram) 9ho is assisted by one or more &inisters of state "8oS)"*urrently '.'. Palanimanic(am "8oS -e.enue) and 'hri )amo )arain &eena "8oS 1B:I) ,he Finance Secretary "*urrently head of the 8inistry a*i! Ta(ru I A S) is the administrati.e

1ach of the de0artments are headed by a secretary6 9ho is assisted by Additional Secretary6 ;oint Secretary6 /e0uty Secretary6 /irector6 under< secretary and the Secretarial Staff ,he senior ministry 0ositions are mostly held by I A S but there is a host of officers belonging to Indian Audit and Accounts Ser.ices6 *entral -e.enue Ser.ices6 *entral *ustoms and 12cise Ser.ice6 ,he Indian -ail9ay Accounts Ser.ices ,he middle le.el most of the 0ositions are held by members of the *entral Secretariat

,he -e.enue /e0artment

It is headed by ,he -e.enue Secretary"*urrently Shri Sumit Bose) It controls all matters regarding direct and indirect ta2es of the Union Go.ernment ,his is done by the *entral Board of /irect ,a2es "*B/,) and the *entral Board of 12cise and *ustoms "*B1*) 1ach Board has a chairman and si2 other members 9ho 9ere e2 additional secretaries to the go.ernment ,he *B/, "/r Poonam Kishore Sharma I - S is the chairman) controls the I, de0artment and functions through se.eral attached and subordinate offices It is res0onsible for formulating 0olicies regarding ta2 administration ,he *B1* "8rs Pra.een 8ahajan is the agency e2ecuti.e) formulates 0olicies regarding the le.y and collection of customs and control of e2cise duties6 0re.ention of smuggling6 and administrationof customs6 *entral 12cise6 +arcotics and Gold control de0artments Se.eral organisations function under this de0artment4 % ,he Settlement *ommission # A00ellate ,ribunal For Forfeited Pro0erty 3 -egional Gold *ontrol =ffice & *ustoms6 12cise and Gold A00ellate ,ribunal

,here is also an 1conomic Intelligence Bureau headed by a /irector

It collects re.enue intelligence6 in.estigates economic offences and res0onsible for economic la9 enforcement

,he 120enditure /e0artment

,he =ffice Bearers !s %andana &harma' 'hief 'ontroller of Accounts?9inance@ &hri &( )amanan' :irector &hri &( *ana+am"aran" :eputy Secretary &hri &(,( !eena" <nder Secretary

It has Si2 di.isions4 % Plan +, - ,,.4

Plan , is 0rimarily concerned 9ith administering *entral assistance to State Annual Plans ,he /i.ision 9or5s closely 9ith Planning *ommission in assessment of financial resources for Fi.e !ear Plans and Annual Plans of States /i.ision acts as the disbursement di.ision for *entral assistance to States for their States Plans by 9ay of untied +ormal *entral Assistance "+*A) and assistance for earmar5ed schemes ,he di.ision also ad.ises Finance 8inister on 0olicy as0ects of bloc5 and schematic 0arts of the *entral assistance to State Plans

Plan ,, is 0rimarily concerned 9ith matters relating to the *entral Plan In res0ect of de.elo0ment schemes and 0rojects6 the focus has

been on the e>uality of de.elo0ment e20enditure through better 0roject formulation6 em0hasis on out0uts6 deli.erables6 im0act assessment6 8ission a00roach and con.ergence

# Finance4

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 ent !llowance, Travelling"Daily !llowance, Dearness !llowance and various other compensatory allowances in respect of Central Government employees# $t is also responsible for administrative matters concerning the Department of Expenditure#

It is currently headed by Smt Sudha Krishnan ;oint<Secretary 120enditure /e0artment

& *ost Accounts4

' /rganisation /f %G,4

,he *ontroller General of Accounts is the a0e2 Accounting Authority of the *entral Go.ernment and e2ercises the 0o9ers of the President under Article %'$ of the constitution for 0rescribing the forms of Accounts of the Union and State Go.ernments on the of the *om0troller : Auditor General of India ,he *ontroller General of Accounts is res0onsible6 inter<alia6 a) 0or the preparation and consolidation of the non 1 go!ernment &onthly 2ccounts A detailed analytical re.ie9 of the Union Go.ernment Accounts is 0resented to the Finance 8inister e.ery month 9ithin & 9ee5s from the close of the month ,he re.ie9 co.ers major as0ects of recei0ts6 e20enditure6 fiscal6 deficit6 sources of financing6 etc to facilitate during the

year trac5ing at the highest le.el A Pro.isional Account "Unaudited) for the year is also 0re0ared at the end of the financial year b) presentation to Parliament of the 2nnual 2ppropriation 2ccounts +%i!il. and 0inance 2ccounts of the 3nion go!ernment. ,hese accounts for %??3<?( 9ere laid before Parliament during the Budget Session on 'th ;une6 %??@ along 9ith the -e0ort of the *om0troller and Auditor General of India c) ensuring a sound and effecti!e internal audit and 0re<chec5 system in the * 8inistries d) enabling prompt and accurate accounting e) ensuring effecti!e and close monitoring of eceipts of the Go!ernment of ,ndia es0ecially those relating to Income ,a26 *ustoms and *entral 12cise f) enabling the effecti!e utilisation of accounts as a tool of management by constant u0gradation of the >uality of accounts6 leading to im0ro.ed financial control 9ithin Go.ernment g) ,he organisation of the *ontroller General of Accounts is also responsible for go!ernment disbursements and ban(ing arrangements of !arious &inistries4 5epartments of the Go!ernment of ,ndia ,he *ontroller General of Accounts closely monitor the e2tant system by means of 0eriodical interaction 9ith the -eser.e Ban5 of India and Public Sector Ban5s on an ongoing basis h) ,he *ontroller General of Accounts also brings out e.ery year6 a boo(let entitled 62ccounts at a Glance66 bringing out broad and significant features of Go.ernment -ecei0ts and 120enditure i) ,he *ontroller General of Accounts is loo(ing after the computerisation of Go!ernment 2ccounting functions in all the %i!il &inistries. 7. 'taff ,nspection 3nit and 0inance %ommission 5i!ision: ,he SIU is to act as catalyst in assisting the line 8inistries and Autonomous =rgani7ations in impro!ing their organi8ational effecti!eness As 0er the e20anded mandate6 in addition to its e2isting role6 SIU 9ould no9 also underta(e organisational analysis primarily to co!er the areas of organi8ational systems9 financial management systems9 deli!ery systems9 client1customer statifaction9 employees concerns etc. and suggest a00ro0riate organi7ational structure6 re<engineering of 0rocesses6 measures to ensure o0timum utili7ation of resources and o.ercome the delays besides exploring the possibilities of

outsourcing some of the acti!ities 9ith a .ie9 to achie.e enhance out0utAeffecti.eness 9ith only the minimum essential e20enditure

,he /1A "/e0artment of 1conomic Affairs)

,he /1A has @ di.isions4 :. Economic: 8ain acti.ities of the /i.ision include4 % 8onitoring of Prices6 Price Policy

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8onitoring of trends in Agricultural and Industrial Production 8onitoring of Production6 Public /istribution and Foodgrains Stoc5s held by Go.ernment & Analy7ing de.elo0ments related to 8oney and *redit ' Public Finance 3 Fiscal Policy and ,a2 -eforms ( Foreign ,rade and Balance of Payments @ International 1conomic Institutions4 Borld Ban5 and I8F related issues ? Pre0aration of Annual 1conomic Sur.ey and 8id !ear -e.ie9 of the 1conomy %$ Pre0aration of 8acroeconomic bac5dro0 for Cuarterly Statement to be 0laced in Parliament in com0liance of the F-B8 Act6#$$3 %% Pre0aration of 1conomic and Functional *lassification of the *entral Go.ernment Budget %# Pre0aration of 8onthly 1conomic -e0ort and re0ort on State of the 1conomy %3 *om0ilation of Statistical Album on Public Finance %& =rgani7ing Pre<budget meetings of the Finance 8inister 9ith sta5e holders %' *ollection6 com0ilations and >uarterly dissemination of 12ternal /ebt Statistics 2. Ban(ing

#. ,nsurance

$. Budget: ,he Budget /i.ision is res0onsible for the preparation and submission to Parliament of the %entral Go!ernments Budget other than -ail9ays6 as 9ell as the su00lementary /emands for Grants and /emands for 12cess Grants ,he Budget and 'upplementary and Excess 5emands of 'tate and 3nion Territories under the Presidents -ule are also dealt 9ith in this /i.ision Besides6 this /i.ision is res0onsible for dealing "ith all issues relating to Public 5ebt9 mar(et loans of the %entral

Go!ernment and the fixation of terms - conditions of lending by the %entral Go!ernment6 fi2ing the administered interest rates and 5ee0ing a 9atch on the Bays and 8eans 0osition of the *entral Go.ernment ,he /i.ision also deals 9ith the matters relating to )ational 'a!ings /rganisation and 'mall 'a!ings 'chemes9 5uties9 Po"ers and %ondition of 'er!ice of the %omptroller and 2uditor General of ,ndia9 2ccounting procedures and %lassification9 dealing "ith issues relating to )ational 5efence 0und9 ail"ays %on!ention %ommittee and %entral oad 0und.

5. ,n!estment: It is headed by 8s Sharmila *ha.aly ;oint Secretary "I:I)6/e0artment of 1conomic Affairs Its functions are4

All 0olicy related issues in infrastructure sectors including those concerning road6 0orts6 shi00ing6 rail9ays6 inland 9ater trans0ort6 urban de.elo0ment6 0o9er6 ne9 and rene9able energy6 rail9ays and telecommunication sector referred to the /e0artment of 1conomic Affairs "/1A) by the concerned Administrati.e 8inistries 12amination of the in.estment 0ro0osals in these infrastructure sectors re>uires the of 1F*A PIBA **1A for their .iability and justification 8atters relating to infrastructure financing and 0romotion of in.estments in infrastructure sectors Policy matters related to Public Pri.ate Partnershi0s =n the in.estment front6 all 0ro0osals for foreign direct in.estment 9hich are not on the automatic route are 0rocessed and 0ut u0 for of FIPB ,o facilitate in.estment abroad6 negotiations are underta5en for signing Bilateral In.estment Protection and Promotion Agreements ,his 0ro.ides a congenial atmos0here for =.erseas Indian in.estments and facilitates re0atriation of 0rofits bac5 home ,he foreign in.estment unit e2amines sectoral 0olicy issues 9ith res0ect to other ministries too All matters relation to currency and coins mediums of e2change in a modern economy

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7. External 0inance

;. %urrency and %oinage Its main functions are4

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Policy formulation regarding design 6 com0osition of metals etc of the coins #) 8atters related to su00ly of coins to the -BI and reimbursement of cost of coins to SP8*ID Accounts and Audit matters in res0ect of *:* Branch *oins related legislation Issue of *ommemorati.e *oins <. 2dministration: It is headed by Shri -ajesh Khullar6 ;oint Secretary "AB*)6/e0artment of 1conomic Affairs Its areas of jurisdiction are4

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All administrati.e and 0ension matters relating to the officers and em0loyees of the /e0artment Belfare measures for officers and staff of the /e0artment Administrati.e matters relating to 1conomic Bing of the 1mbassy of India6 Bashington / * 6 ,o5yo and Beijing6 Grant<in<aid to 1conomic -esearch Institutions and domestic training 0rogrammes Im0lementation of =fficial Danguage Policy of the Go.ernment in /1A and subordinate offices6 functions of Hindi Salaha5ar SamitiA=fficial Danguage Im0lementation *ommittee6 Hindi ,eaching ,raining Programmes etc Protocol functions Public grie.ances relating to the /e0artment6 e2ce0t for In.estorEs Grie.ances For such grie.ances6 In.estorEs Grie.ance -edressal *ell "IG-*) under *a0ital 8ar5et /i.ision may be contacted *o<ordination 9or5s relating to Parliamentary Assurances and on other subject not dealt by any other /i.ision in the /e0artment *entral -egistry General administration e2ce0t .igilance matters

A0art from this the /1A has 3 subordinate offices6 3 0ublic underta5ings and 3 statutory cor0orations li5e the D I * under its control

,his in short us the gist of the Indian Financial Administration