New accounting mechanism for releasing funds for government schemes

New accounting mechanism for releasing funds for government schemes

Subject: Economy

Section: GDP

Context:

• The government managed to save around ₹10,000 crore of interest cost during 2021-22 (FY22) with the help of a new accounting mechanism that aims to release funds for government schemes ‘just in time’.
• Finance Secretary TV Somanathan disclosed this on the sidelines of an event organised to launch Single Nodal Agency (SNA) Dashboard by Finance Minister Nirmala Sitharaman.

New accounting mechanism:

• The dashboard forms part of a public financial management reform that was initiated in 2021 with regard to the manner in which funds for Centrally Sponsored Schemes (CSS) are released, disbursed and monitored.
• About Rs 4.46-lakh crore go through the Centrally sponsored schemes. The Union government can track the money and help in making governance transparent and the money is also sent just in time.
• Under the new system, each State is to identify and designate a SNA for every scheme.
• All funds for that State in a particular scheme will be credited into that bank account, and all expenses will be made by all other implementing agencies involved in the account.
• It ensures that allocation of funds to States for the CSS are made in a timely manner and after meeting various stipulations. Stating that ‘just in time’ are the three magic words in fund transfer, the SNA would make payments easy.

Trimming expenditure:

• the system would help cut down on the interest expenditure as money would be released at the stage where it is needed.
• If the money is stuck somewhere, the union government would like to minimise what is stuck and hold it where it is more efficiently held. GoI would like to pay as little as possible of public money as interest.
• The SNA and TSA (TreasurySingle Account) help the government to minimise the interest costs borne by the government and that is not a trivial cost. It will be extremely helpful in containing fiscal deficit.

What is TSA (TreasurySingle Account)?

• Earlier, after approval, funds were allocated and disbursed to various minis- tries, departments, autonomous bodies and States. This system needed to be changed because funds were not being utilised and sitting idle in bank accounts, while the government had to borrow and incur interest.
• Accordingly, TSA was designed. According to an International Monetary Fund (IMF) Working Paper, TSA is a unified structure of government bank accounts that gives a consolidated view of government cash resources.
• Based on the principle of unity of cash and the unity of treasury, a TSA is a bank account or a set of linked accounts through which the government transacts all its receipts and payments.
• The principle of unity follows from the fungibility of all cash irrespective of its end use.
• While it is necessary to distinguish individual cash transactions for control and reporting purposes, this purpose is achieved through the accounting system and not by holding/depositing cash in transaction- specific bank accounts.
• This enables the treasury to de-link management of cash from control at a transaction level.