Financial Thresholds Revision Endorsed by Public Accounts Committee

Context:

The Public Accounts Committee of Parliament has recently endorsed the Finance Ministry’s proposal to increase the financial thresholds for expenditure on ‘New Service’ and ‘New Instruments of Service’ by government ministries and departments. This proposed revision, which marks the 4th instance since Independence, comes after the last revision in 2005, which came into effect in 2006.

Relevance:

GS II: Polity and Governance

Dimensions of the Article:

1. Public Accounts Committee
2. New Financial Limits Proposed by the Finance Ministry
3. Potential Benefits
4. Potential Drawbacks

Public Accounts Committee

The Public Accounts Committee (PAC) is an essential oversight body in the Indian Parliament, tasked with scrutinizing the government’s revenue and expenditure. Here are its key features:

• Mandate: The PAC is responsible for examining the audit reports issued by the Comptroller and Auditor General (CAG) of India. Its primary focus is to ensure accountability and transparency in the government’s financial operations.
• Composition: The PAC comprises members of Parliament, with a maximum of 22 members. Fifteen members are elected by the Lok Sabha (Lower House), and up to seven members are from the Rajya Sabha (Upper House).
• Selection Process: Members of the PAC are chosen annually through proportional representation using a single transferable vote system. This ensures a fair representation of various political parties in the committee.
• Chairperson: The chairperson of the PAC is appointed by the Speaker of the Lok Sabha. Typically, the chairperson is from the opposition party, ensuring impartiality and effective scrutiny of the government’s actions.
• Term of Office: Members of the PAC serve a term of one year, after which new members are elected or appointed. This ensures regular turnover and fresh perspectives in the committee’s work.
• Role of the CAG: The CAG provides assistance to the PAC during its investigations and audits. The reports prepared by the CAG serve as the basis for the PAC’s scrutiny of the government’s financial activities.
• Ministerial Positions: Members of the PAC are not permitted to hold ministerial positions in the government. This ensures independence and prevents conflicts of interest, allowing members to scrutinize government actions objectively.

New Financial Limits Proposed by the Finance Ministry

The Finance Ministry has proposed new financial limits for reporting to Parliament and obtaining approval for expenditures, particularly for New Service (NS) and New Instrument of Service (NIS). Here are the key points:

New Service and New Instruments of Service:

• New Service (NS): Expenditure resulting from a new policy decision not previously brought to Parliament’s notice, including new activities or investments.
• New Instrument of Service (NIS): Significant expenditure arising from a notable expansion of an existing policy.

New Limits Proposed:

• For expenditures ranging between Rs 50 crore and Rs 100 crore, reporting to Parliament is mandatory, but upfront approval is not required.
• Prior parliamentary approval is necessary only if the spending exceeds Rs 100 crore.

Reporting Limit for New Instrument of Service:

• The reporting limit for New Instrument of Service (NIS) has been set at up to 20% of the original appropriation or up to Rs 100 crore, whichever is higher.
• Parliament’s approval becomes mandatory for amounts exceeding 20% of the original appropriation or above Rs 100 crore, subject to savings within the same grant section.

Potential Benefits:

• Streamlined Budgetary Process: Increasing the financing limit reduces the need for Supplementary Demands for Grants, streamlining the budgetary process and reducing administrative burden.
• Efficiency in Decision-Making: Higher limits minimize bureaucratic hurdles, enabling quicker decision-making and implementation within government departments and agencies.
• Accommodating Economic Growth: With expected GDP growth, larger budgets are anticipated. Raised financial limits ensure budgets can meet the evolving needs of a growing economy.

Potential Drawbacks:

• Risk of Misuse or Misallocation: Higher limits may increase the risk of funds being misused or misallocated without proper oversight, leading to corruption or wasteful spending.
• Impact on Fiscal Health: Misallocation or overspending could result in budgetary overshooting or deficits, negatively impacting overall fiscal health.
• Reduced Accountability: Greater financial autonomy for ministries and departments may reduce accountability, making it challenging to track expenditures and ensure alignment with intended purposes.
• Reduced Parliamentary Scrutiny: Higher limits might decrease the frequency of parliamentary scrutiny, limiting opportunities for meaningful debate and oversight over government expenditures.
• Weakness in Checks and Balances: Reduced oversight could weaken the checks and balances necessary for transparent governance, potentially undermining public trust in government spending.

-Source: Indian Express