pfm assessment (pefa) for india presentation by pratap jena at dhaka 24 october 2010

8/8/2019 PFM Assessment (PEFA) for India Presentation by Pratap Jena at Dhaka 24 October 2010

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The Background

NIPFP published a PFM Performance Assessment Reportfor India at the Union government level in March 2010

y The coverage is limited to Central Government

y Analysis of performance against the 28 high level indicators of

the PEFA

y Publicly-available data, information and government reports

formed the basis of assessment

y Benefited from the discussions with Government officials

y Peer reviewed by the PEFA secretariat

On June 8-9, 2010, a workshop on PFM systems in India

was held using this Report as a basis for discussion

amongst academics and government officials


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The assessment as a Baseline

PEFA is an integrated monitoring framework

The study is diagnostic in nature and represents an

assessment of current performance only strengths and

weaknesses

It is not intended to provide recommendations to improve

the PFM system in the country in terms of an action plan

It is expected that the assessment would assist policy

makers in identifying subsequent reform efforts


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Six Key Areas

Credibility of the budget: The budget is realistic and is

implemented as intended Comprehensiveness and transparency: The budget and the

fiscal risk oversight are comprehensive, and fiscal and budget

information is accessible to the public

Policy-based budgeting: The budget is prepared with due regardto government policy

Predictability and control in budget execution: The budget isimplemented in an orderly and predictable manner and there are

arrangements for the exercise of control and stewardship in the use of

public funds

Accounting, recording and reporting: Adequate records and

information are produced, maintained and disseminated to meetdecision-making control, management and reporting purpose

External scrutiny and audit: Arrangement for scrutiny of publicfinances and follow up by executive are operating


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Credibility of the Budget

Assessed through expenditure and revenue out-turns as

compared to the budget estimatesy Overall budget credibility is affected by the absence of a hard

budget constraint, thereby allowing substantial adjustments in

the budget during the year through supplementary grants

y Accurate revenue projection has remained a challenge

depending upon the movement of economy, changes in tax

administration, and global market situation

(In Percentage) 2006-07 2007-08 2008-09 (RE)

Deviation in Total Expenditure 12.95 10.52 36.95

Deviation in Revenue Expenditure 17.16 12.38 41.96

Deviation in Capital

Expenditure-10.37 3.64 6.24

Deviation in Revenue Receipts 7.02 10.3 -7.24

C, C, A, NR


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Comprehensiveness and Transparency

Reasonably high level of fiscal transparency

Comprehensiveness of the fiscal information publiclyavailable has improved in recent years

Progress is seen in informing the common citizen about

the policy choices, their implications, and reasons for

preference of choices

Concerns:

y Cash based accounting system

y The distinction between capital and revenue expenditure is

not very clear in transfer to states

y Intergovernmental fiscal transfer system complex with

discretionary elementsy Fiscal risks arising from the activities of public sector

enterprises are not provided in the budget

A, A, A, B+, C, A


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Policy Based Budgeting

Due regard to the Government policies in different sectors

is seen through participation of spending departments Lacking comprehensive expenditure ceilings early in the

budget cycle

A multi-year perspective in expenditure planning and

budgeting is absent

A detailed medium term expenditure framework for sectorsis not worked out by projecting expenditure implications of

programmes undertaken for outward years

y It is maintained that the five year plans provide the basis for a

multi-year perspective for resource allocation

C+, D


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Predictability and Control in Budget Execution

Transparency of Taxpayer Obligations and Liabilities

Effectiveness of Measures for Taxpayer Registration andTax Assessment

Effectiveness in Collection of Tax Payments

Predictability in the Availability of Funds for Commitment of

Expenditure

Recording and Management of Cash Balances, Debt and

Guarantees

Effectiveness of Payroll Controls

Competition, Value for Money and Controls in Procurement

Effectiveness of Internal Controls for Non-SalaryExpenditure

y Expenditure commitment controls

Effectiveness of Internal Audit

C+, B+, D+, C+, A, C+, NR, D+, D+


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Transparency and Effectiveness in Collection of Tax

Payments

While explicit legal provisions and procedural safeguardsexist in central taxes, the scope for administrative

discretion is considerable in practice due to large number

of exemptions and reliefs, and frequent changes in tax

provisions, making the tax laws relatively complex.

A structured taxpayer education programme is absent,which adds to the compliance cost.

Increasing tax arrears

Despite a well laid out tax appeal mechanism, disposal is

time consuming.

Elaborate legal provisions against delinquent taxpayershave not resulted in effective collection of the taxes

assessed due to long running court disputes


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Procurement

Decentralized, managed at departmental level

Exclusive law governing the public procurement absent However, clear rules and directives are provided in the

General Financial Rules (GFR) to be followed by the

departments to procure goods and services in a

competitive manner.

Central Vigilance Commission (CVC) has some role in theoversight functions; Audit by CAG

No central authority to regulate the procurement policies

and oversee the compliance with the established

procedures


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Commitment Controls

The statutory requirements for budget implementation

focus exclusively on controlling expenditures with respectto budget appropriations

Difficult to assess the effectiveness of expenditure

commitment controls

The budget preparation overlooks expenditure arrears as

there is no provision in the budget for the ensuing year todischarge the expenditure arrears of the previous year(s)

The year end financial statement, Appropriation Accounts,

is prepared on a cash basis reporting cash execution of

the expenditure plans approved by parliament and do not

report on commitments


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Internal Audit

Internal audit has remained a weak link in the financial

management system

Internal audit in India is conducted in a routine manner

and the result of this audit on improving the financial

management system is insignificant

Internal audit in India has a restricted mandate, does not

have the ability to evaluate risks.

No standards have been evolved for internal audit and it

did not have the required independence for its effective

functioning


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Accounting, Recording and Reporting

Cash based accounting system; efforts are on to migrate to

accrual based system Well laid out procedures, rules and regulations for

accounts reconciliation

y Needs further simplification to stop increasing number

of suspense accounts

Accounting Standards : Differences are there from cashbasis IPSAS relating to the structure, disclosures and basis

of accounting at present

Year-end financial statements, Finance Accounts and

Appropriation Accounts provide consolidated statements

Financial and reporting management system needs to bemore user friendly, timely to be helpful for decision making

Availability of Information on Resources Received by

Service Delivery Units is not complete

B, A, C+, C+


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External Scrutiny and Audit

Scope, Nature and Follow-up of External Audit

y The scope of external audit by CAG is wide - unitary audit in

federal setup

y Performance audit as independent assessment of organizations

y Audit of local bodies - CAG is responsible for providing

technical guidance and supervision/support

y Timeliness needs improvementy Follow-up of CAG audit report is weak. The PAC examines only

a small portion of the audit reports.

y The Action taken notes submitted by the departments and units

audited by the CAG do not take other audit observations not

examined by the PAC seriously

Legislative Scrutiny of the Annual Budget Law

y The parliamentary scrutiny and approval of budgetary process,

despite having elaborate constitutional provisions, is not

exercised rigorously

D+, A, D+


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Response to the Assessment

Improvement in budgeting process and transparency was

stressed Sectoral MTEF required

Strengthening outcome budget

Procurement process needs to be linked with committedmaintenance funds for various projects

Enabling statutory basis to internal audit and capacitybuilding

Leveraging ICT to strengthen financial management

External audit act needs to be more explicit andimprovement in timeliness

Improved risk analyses and audit reporting to highlightsystemic issues and analyze causes

Legislative Scrutiny of audit report needs improvement andhigher level of transparency in the process of scrutiny


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The Progress

Efforts of the government in strengthening the PFM

systems are evident in many areasy Rule based fiscal management

y Conventional input-based budget to outcome budget

y Initiating the process to move to an accrual based accounting

system

y Improving budget classification

y Reforming internal audit

y Revising the responsibilities and duties of the Financial

Advisors

y Tightening cash management system

y Expenditure tracking system for centrally sponsored

programmes

pfm assessment (pefa) for india presentation by pratap jena at dhaka 24 october 2010

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