summary sundaramurti committee

C ontrollerG eneralofAccounts Reportof theC ommitteeC onstitu tedtoReviewtheListofMajorandMinorHeadsofAccounts (LMMHA)ofUnionandS tates

EX EC UTIVE SUMMARY

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In thewakeofemergingrequ irementsformoreeffectiveManagement

InformationS ystemtobeu sedforbetterplanningandresourceallocation

process, more effective monitoring of application of resources in

G overnmentS chemesandamorerobustPublicF inancialManagementby

G overnment, a needhasbeenfeltforqu itesometimetoreviewthepresent

classification of government transactions which is the basic tool for

capturingtheBudgetingandaccountingdata. Itwas felt that theexisting

C lassificationstructurehassome inadequacieswhich pose limitationson

its effectiveness in capturing relevant budgeting and accounting data

requiredtocopeupwith thenewchallengesin theareaofPublicFinancial

Managementandasystembettersu itedtodisplaythenatureandobjective

ofG overnmentexpenditu reneedstobedeveloped.

Withtheseobjectivesinmind, theG overnmentofIndiahasconstitu ted

acommitteeunderthechairmanshipofC ontrollerG eneralofAccountsto:

C onduct a comprehensive review of the existing system of

expenditu re and receipt classification as contained in the List of

MajorandMinorHeadsandtoevolveasystemwhich cou ldcaterto

the requ irements for policy formulation, allocation of resources

among sectors , compliance with legis la tive au thorizations ,

accountability, policyreviewandperformanceanalysis , and

S uggesta newlistofaccountingheadsin replacementoftheexisting

List of Major and Minor Heads keeping in view the needs for

simplification, rationalization, and standardization across national

and sub-national governments, and improved reporting of transfer

paymentsfromonelevelofgovernancetoanother.

The C ommittee had representation from the Budget D ivision,

Ministry of Finance, Planning C ommission, the C omptroller and Auditor

G eneral of India, S tate G overnments of Assam, Tamilnadu , and

Maharash tra , and National Institu te for Public F inance and Policy

(NIPFM).

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The O ffice order constitu ting the C ommittee, its membership and

termsofreferenceis placedatAnnexure'A'.

The O ffice of the C ontroller G eneral of Accounts provided the

technicalandsecretarialassistancetotheC ommittee.

Abriefaccountof theexistingstructure, theunderlyingreasonsfor

needofits amendment, themajordeviationsfromtheexistingstructurein

theproposedclassificationstructureandthebenefitstobeaccruedfromit

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Box-1

The existing system of classification in the G overnment of India follows a six-tier

h ierarchicalstructurewhich is:

1. MajorHead(4digits)-representingamajorfunctionofthegovernment.

2. S ub-MajorHead(2digits)-representingasub-functionofthegovernment.

3. MinorHead(3digits)-representingaprogrammeofthegovernment.

4. S ubHead(2digits)-representingascheme.

5. DetailedHead(2digits)-representingasub-schemeand;

6. Objecthead(2digits)-representingeconomicnatureofexpenditure.

E xpenditures are classified according to the function, programme, and their

economic nature using a fifteen digit numerical code. Receipts are classified

according to theirnatureand source. The classification systemalsoapplies to the

S tateG overnments, withtheexceptionthattheyaregiventheflexibilitytoopentheir

ownheadsbelowthethirdtierin thesixtierhierarchyaspertheirrespectiveneeds.

The present classification system poses a few limitations. Themainweaknesses/

issuespointedou tbythevariousagenciescanbesummarizedasfollows:

l There is opaqueness in data on transfers to states. The S tate-wise details of

transfers, informationonreleasestostatesunderthevariousfunctionalheads

arenotcaptured.

l Thereislackofstandardizationofschemeclassification. Planschemesarenot

captureduniformlyatonelevel.

l Major Heads, which are supposed to represent government functions do not

reflect true functional character of expenditures and do not correspond to

Headsofdevelopmentusedin theplanningandresourceallocationprocess.

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l Breakup of central transfers into constituent flows such as Finance

C ommissiongrants, NormalC entralAssistance, AdditionalC entralAssistance,

S pecialC entralAssistanceetc. arenotcaptured.

l Thereareemergingspecialrequirementssuchasgenderbudgeting, budgeting

forS C /S T, NorthEasternRegion(NER), thatarenotverywellcateredtobythe

existingsystem.

The proposed classification stru ctu re is a mu lti-segment stru ctu re developed

mainly by rationalizing and reorgan izing the in formation content of the existing

s ix tier h ierarch ical stru ctu re into separate logical dimensions . It has following

seven mu tually exclu sive segments with their own individual h ierarch ical

structu res .

1. AdministrativeS egment

2. FunctionS egment

3. ProgrammecumS chemeS egment

4. RecipientS egment

5. Targetsegment

6. E conomicS egment

7. G eographicS egment

Themutuallyexclusivenatureofthesegmentsmeansthatthevariousconstituents

ofthesystemarestandardized. E achitemis classifiedonlyoncein thesystemandis

identifiablewith auniquecode.

In brief, themainbenefitsperceivedfromthenewC lassificationstructureproposed

bytheC ommitteeareasunder:

l Itwould allow capturing of almost the entire spectrum of data attributes on

publicfinancialoperations

l It wou ld facilitate financial reporting in a variety of ways for meeting

informationrequirementsofdifferentstakeholders.

l Itwouldgreatlysimplifyclassificationandpresentationofbudget.

l Itwou ldbecomputer friendlyandopen theaccountingdatabase tocomplete

slicinganddicing. The retrievalof information from the systemwillbeeasier

andreportingwillbemoreflexible.

l MaintenanceoftheC odedirectorywouldbefarmoreeasier.

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is givenin theBoxbelow.

ThereportoftheC ommitteeis organizedin twoparts.

PartIcontainsthemainreportoftheC ommittee.

Part II contains the document named as "The C ompendium of

AccountingC lassification C odes". It has nine sections; S ection I contains

G eneralD irectionsfortheproposedstructure, S ectionIIcontainsthelistof

Major, sub-Major and S cheme Heads, S ection III to IX contains the

Programme C odes, list of S chemes, Administrative, Recipients, O bject

(E conomic), TargetandG eographicalC odes.

The recommendations contained in the report are the ou tcome of

severa l rou nds of discu ss ion among the C ommittee members ,

consu ltations with various stakeholders and in-depth study of specific

issuesrelatedtobudgeting, accountingandviewsofearlierC ommitteeson

variousaspectsofclassification.

The proposed classification structure is a mu lti-segment structu re

developedmainlybyrationalizingandreorganizingtheinformationcontent

of the existing six tier h ierarchical structure into separate logical

dimensions. It has the following sevenmutually exclusive segmentswith

theirownindividualh ierarchicalstructures.

1. AdministrativeS egment

2. Function S egment

3. ProgrammecumS chemeS egment

4. RecipientS egment

5. Targetsegment

6. E conomicS egment

7. G eographicS egment

The mutually exclusive nature of the segments means that the

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variousconstituentsofthesystemarestandardized. E ach itemisclassified

onlyoncein thesystemandis identifiablewith auniquecode.

Thestructureis in linewith therecommendationoftheE xpertgroup

constitu ted to review the class ification sys tem for G overnment

Transactions also known as 'Lahiri C ommittee' which recommended

adoption of a mu ltidimensional classification structure with linkages

betweentheaccountingclassificationandstandardclassificationsystems

such as G overnment Finance S tatistics(G FS ) and system of National

Accounts.

Theproposed independent segmentsof theproposed structureand

theintendedbenefitsaresummarizedasfollows:

Adm in ist rat ive S egment : This segment is intended to identify the

administrative responsibility for expenditures. It wou ld strengthen

the accountability arrangements for public spending by attribu ting

each budgetlinetoanadministrativeau thority.

F un c t ion segm en t : Th is s egmen t is mean t toc la ss ify fu nction s

of G overnmen t. The exis tin g functiona l c lass ifica tion s tru ctu re

has been rea ligned to Heads of D evelopmen t being u sed by

Plann ing C ommiss ion . Th is will enable the Fu nctiona l h eads to

be u sed as a very effective tool for macro level p lann ing and

sec tora lana lys is .

Programme cum S cheme S egment : This S egment is meant for

classifying all Programmes andPlan andNon-plan S chemes/ S ub-

schemes of G overnment with standard codes for each of them. A

programmecou ldbedefinedasasetofactivitiesthatarerequ iredto

achieve a defined objective. They are important tools for policy and

political intervention and are, therefore, of great importance to the

legislature, the execu tive and the beneficiaries. C lassification of

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expenditure by programs is also necessary for development of an

Outcome oriented budget. This standardization wou ld facilitate

linkingexpenditureunderaprogrammeandschemeacrossdifferent

levels of administration and establishing trails from the Union

G overnmenttothelowestlevel, which wou ldbeparticu larlyusefu lin

caseofmu lti-layered transfers . TheS chemesandS ub-schemesare

grouped into su itable category of programmes. It is important to

clarify that the term 'S cheme C ategory' not only connotes the

developmentschemesoftheG overnmentbu talsocoverstheReceipts

andPublicAccounttransactionswhich arerepresentedbythe'Minor

Head' of the existing List of Major and Minor Heads of Accounts

(LMMHA).

R ec ipient S egment : This segment is proposed to recognize the

externalagenciesandentities thatarerecipientsofpublic fundsas

instruments and channels of public policy delivery. S uch entities

wou ld include sub-national governments and other public and

private agencies. The main benefit of u sing th is segment is that it

wou ldmake it possible to assignunique codes to each such entity.

With the standardization of coding, it shou ld be possible to extract

andcompileinformationon allocations/transferofresourcestoeach

such agency under different government schemes and heads. It

wou ld also facilitate tracking of flow of funds under a scheme from

oneleveltoanother.

Target segment : This segment wou ld be used to identify

expenditurestargetedatspecialpolicyobjectives. Atpresentatleast

five such requ irements are identified, viz. Women C entric (WC )

expenditures, expenditures targeted at development of h ill areas ,

expenditures targeted at development of S chedu le C astes (S C ),

expenditures targeted at development of S chedu le Tribes (S T), and

expenditure targeted at Below Poverty Line (BPL) popu lation. This

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wou ldenablethecaptu ringofBudgetandaccountingdatapertaining

to emerging special requ irements such as gender budgeting,

budgetingforS C /S T, thatarenotverywellcateredtobytheexisting

system.

E c onom ic S egm en t :Th is segment covers the lis t of objectheads

being u sed in the existing system of Budget and accounts to

captu re the economic na tu re of expenditu re. The object

c lassification is cu rrentlyappliedon lytoexpenditu retransactions.

Receipt and Public Account heads do not u se object codes . It is

proposed to develop the cu rrent O bject list in to a fu ll-fledged

financia l c lass ification indicated by the proposed 'E conomic

S egment', which cou ldbeappliedtoa lltransactions . TheE conomic

S egment has been largely developed on the lines of class ification

prescribedin theIMF G FS Manual2001, with theexception thatit

wou ld be tailored to the present cash based accounting and

budgetingsystem .

G eograph ic alsegment :TheG eographicsegmentwou ldidentifythe

physical location of the transaction and allow for inter-regional

comparisons of public spending. This classification identifies such

poli t ic o- geogra ph ic a l d ivis ion s a s s ta tes , d is tr ic t s a n d

towns/villages.

Budget presentat ion :

In the proposed stru ctu re, it is envisaged that the budget

provis ions wou ld now be attribu ted directly to the schemes and

admin istrative un its responsible for implementing/execu ting those

schemes. All budget lines wou ld necessarily have three attribu tes -

admin istrativeun its , programmesandschemes [Plan orNon-Plan], and

economicobject. If thebudget provis ion is meant for transfer payment,

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[su ch as grants , subsidies , contribu tions , loans etc . ]theentityreceiving

thetransferwou ldalsoberecognizedtotheextentpossiblea tthebudget

stage. S imilarly, expenditu re provisions targeted at certain identifiable

groups , su ch as women, S C , S Tetc . wou ldbesu itablyflaggedtoidentify

the target group. If the expenditu re is meant for any special area or a

region , [su ch as North E ast Region , Bundelkhand, B odoland, etc. ] the

area/region wou ld also be recogn ized at the Budget s tage. B esides , the

G eograph ica l segment cou ld a lso be u sed to captu re the geograph ica l

location ofan expenditu reitem .

Tosumup, thenewC lass ification s tru ctu rea ims toaddress alltheissues

relatedtocriticalin formation requ irementoftheG overnmentandwou ld

be a very effective tool for establish ing a very robu st Public F inancia l

Management. Thestru ctu recan beappliedtoS tateG overnments as well.

Themu tuallyexclu s ives tru ctu rewou ldprovideenough flexibilitytothe

S tate G overnments to add or drop a segment or two shou ld it be

considered necessary for their local in formation requ irements . S tates

wou ld a lso have the flexibility to addmore levels in any of the segment

below those provided for in th is structu re. More importantly, the top

three layers of the existing system have not been dis located fu lly. They

havebeen rea lignedwith someadditions andnewsetofs tandardcodes .

Th is wou ldmakethetransition toth is newsystem fromtheexitingonea

less arduou stask .

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C HAPTER -1

INTRODUCTION

1.1 Article 150 of the C onstitu tion provides for maintenance of the

G overnmentaccounts"in suchformasthePresidentmay, ontheadviceof

the C omptroller & Auditor G eneral, prescribe". The execu tive powers to

prescribetheformandcontentofaccountsaredelegatedtotheC ontroller

G eneralofAccounts, MinistryofFinanceundertheAllocationofBusiness

Ru les. In exerciseofthesepowers, theListofMajor& MinorHeads(LMMH),

containing theaccountingclassificationofreceipts anddisbursements , is

maintained by the C ontroller G eneral of Accounts on the advice of the

C omptroller& AuditorG eneralofIndia.

1 . 2 The existing system of classification in the G overnment of India

follows a six-tier h ierarchical structure. E xpenditures are classified

accordingtothe function, programme, andtheireconomicnatureu singa

fifteendigitnumericalcode. Receiptsareclassifiedaccordingtotheirnatu re

and sou rce. The classification system also applies to the S tate

G overnments, with theexceptionthattheyaregiventheflexibilitytoopen

their own heads below the th ird tier in the six tier h ierarchy as per their

respectiveneeds.

1 . 3 Thepresentclassificationstructurewasintroducedin theyear1974

ontherecommendationsofa committeeheadedbyS h . Mukherji, thethen

Deputy C omptroller and Auditor G eneral. It was reviewed in 1987 by

another committee under the chairmanship of S h . R C G hai, J oint

C ontroller G eneral of Accounts. The classification system has remained

unchangedsincethen.

1 . 4 There have been concerns expressed from time to time that th is

classification system is no longer adequately serving the changing

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summary sundaramurti committee

Documents