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                                   DEFENCE FINANCIAL MANAGEMENT
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                         STANDARDS OF FINANCIAL PROPRIETY

      Every Officer incurring or authorizing expenditure from public money
should be guided by high standards of financial propriety. Every Officer
should also enforce financial order and strict economy at every step and see
that all relevant financial rules and regulations are observed, by his own office
and by subordinate disbursing officers. Among the principles on which
emphasis is generally laid are the following:
      (i)    Every officer is expected to exercise the same vigilance in respect
             of expenditure incurred from public moneys, as a person of
             ordinary prudence would exercise in respect of expenditure of his
             own money.
      (ii) The expenditure should not be prima facie more than the
             occasion demands.
      (iii) No authority should exercise its powers of sanctioning
             expenditure to pass an order that will be directly or indirectly to its
             own advantage.
      (iv) Expenditure from public moneys should not be incurred for the
             benefit of a particular person or section of the people, unless: -

                           (1)      a claim for the amount could be enforced in a Court of
                                    Law,
                                                            Or
                           (2)      the expenditure is in pursuance of a recognized policy
                                    or custom.

         (v)      The amount of allowances granted to meet expenditure of a
                  particular type, should be so regulated that the allowances are not
                  on the whole a source of profit to the recipient.
         (vi)     The responsibility and accountability of every authority delegated
                  with financial powers to procure any item or services on
                  Government account is total and indivisible. Government expects
                  that the authority concerned will have the public interest
                  uppermost in its mind while making a procurement decision. This
                  responsibility is not discharged merely by the selection of the
                  cheapest offer but must conform to the following yardsticks of
                  financial propriety




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                           Whether the offers have been invited in accordance
                           (1)
                          with governing rules and after following a fair and
                          reasonable procedure in the prevailing circumstances.
                    (2) Whether the authority is satisfied that the selected
                          offer will adequately meet the requirement for which it
                          is being procured.
                    (3) Whether the price on offer is reasonable and
                          consistent with the quality required.
                    (4)    Above all, whether the offer being accepted is the
                          most appropriate one taking all relevant factors into
                          account and in keeping with the standards of financial
                          propriety.
      (vii) Whenever called for, the concerned authority must place on
              record in precise terms, the considerations which weighed with it
              while taking the procurement decision.
Audit Officers shall also be responsible for watching that the above principles
are strictly observed.



Authority:        Rule (6) Financial Regulations- Part-I- volume-I [FR-Part-I, Vol-I (DSR)]
                  General Financial Rule [GFR] 2005– Chapter-2 General System of Financial
                  Management. Rule (21)




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    GOVERNMENT FINANCIAL SYSTEM




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                             GOVERNMENT FINANCIAL SYSTEM


Introduction

       The structure of Government finance system of a country depends on the
functions which the Government wants to discharge as well as on the form of
Government.
       The functions of the Government of India are not confined to maintenance of
law and order and protection from external aggression but extend over numerous
welfare and developmental measures as also manifold industrial and commercial
activities. This naturally requires a vast and highly complex financial system.
       We have a parliamentary system of Government with basic postulate-
accountability of the Executive to the Legislature. The financial structure conforms to
this basic concept so that the Executive Government is made accountable System of
Government with a strong unitary bias. The Parliament has authority to legislate on
matters included in the Union List, while the State Legislatures can legislate on
matters which are listed in the State List. For subjects where both the Union as well
as the States have concurrent legislative powers as listed in the concurrent list, a
provision exists that if both the Parliament and the State Legislatures legislate on a
particular subject, the State legislation, to the extent it is inconsistent with the
parliamentary law is void. The federal form of Government has added an additional
complexity to the financial structure of the Government.

Basic Principles

       Only Parliament and State Legislatures have authority to enact legislation for
raising Government revenues. The Executive has no powers to impose a tax.
       As regards rising of loans the Parliament and the State Legislatures can lay
down the limit upto which loans can be raised by the Executive. No such limit has
been laid down either by Parliament or by any State Legislature. The States can raise
loans only in India and have no authority to raise foreign loans. The Union has
authority to raise loans both within and outside India.
       The revenue collected and the loans raised are credited to the Consolidated
Fund. Besides the Consolidated Fund, there is the Public Account in which the
respect of which Government acts as a banker or creditor, are remitted. There is a
third Fund called the Contingency Fund, with a fixed amount from which money can
be withdrawn on the orders of the President/ Governor, as the case may be to meet
emergent commitments or for meeting the expenditure on ‘new Services’ not


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provided for in the budget, pending authorisation by Parliament or the State
Legislature. Both the Union Government as well as Individual State Government has
their respective Consolidated Funds, Contingency Funds and Public Accounts.
       Under the Constitution, no money can be spend out of the Consolidated Fund
until Parliament or the State Legislature, as the case may be, authorises the drawal by
passing necessary Appropriation Acts. The Appropriation Acts along with the
Demands for Grants indicate the purpose for and the objects on which Parliament or
the State Legislature authorise the Executive to spend money from the Consolidated
Fund. For the drawal from the Public Account, no authorisation by Legislature
enactment is necessary. The President/ Governor, as the case may be, lay down rules
to regulate such drawals.
       The other important provisions are that the Parliament cannot vote money for
any purpose whatsoever, except at the demand and upon the responsibility of the
Executive. Similarly it cannot of its own volition impose a tax or increase a levy.

Financial Structure
The main limbs of the financial structure are as follows:
(a) The Executive, comprising:
      (i) The Ministry of Finance
      (ii) The Administrative Ministries
      (iii) Other Agencies
(b) The Parliament with its following Committees
      (i) Estimates Committee
      (ii) Public Accounts Committee
      (iii) Committee on Public Undertakings
(c) The Comptroller and Auditor General of India

Ministry of Finance
      The pivot in the financial structure is the Ministry of Finance which exercises
overall control over the financial administration of the country. It is organised in three
departments: -
      (a) Department of Economic Affairs
      (b) Department of Expenditure
      (c) Department of Revenue and Insurance
      The Economic Affairs Department deals with Budget, Internal Finance, Capital
Issues, Stock Exchange, and Banking. The Department of Expenditure deals with
Planning, Financial Rules and Regulations relating to conditions of service, gives
financial advice and exercises general financial control over the expenditure of other
Ministries/ Departments. The Department of Revenue and Insurance deals with
Insurance, Income Tax, Customs, Central Excise and other taxes levied by Union and


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administration of the various agencies which are engaged in administering these tax
laws.
       The Ministry of Finance is mainly responsible for and has authority over the
raising of financial resources for the Government in the form of taxes, loans, etc. It
also evolves the principles on which administrative ministries will formulate their
requirements of DEMANDS. It also vets them and includes them in the budget.
       In the States, Finance Department exercises broad control on the Financial
Administration and is divided into different branches varying from State to State.
       All financial powers of the Executive vest in the President who exercises them
through the Finance Department of the State concerned. Other ministries exercise the
financial powers that are delegated to them, the residuary power remaining with the
Finance Ministry. In order to expedite the execution of the plans very large amount of
financial powers have been delegated to the respective ministries and this delegation
is being periodically reviewed for proper execution of the plan and avoidance of
bottlenecks and to see if more financial powers need to be delegated to other
Ministries and Departments. The same process is also operating in the States.

Administrative Ministries

      The structure for finance function in the administrative ministries varies
depending on their function and the size of their budget. For the Defence Ministry,
there is a Financial Adviser (Defence) who advises on various matters involving
finance and whose concurrence is required for items of expenditure, independent
financial powers in respect of which have not been delegated to the Ministry of
Defence or the Service Headquarters.
      The Administrative Ministries are responsible for determining their
requirements for funds, formulating their demands within the guidelines issued by the
Ministry of Finance and for depending their demands on the floor of the Parliament.
They are also responsible for executing the Budget, for keeping primary accounts, for
answering audit objections and dealing with the Committees of Parliament

Other Agencies

Reserve Bank
      The Reserve Bank of India which is a Government institution has a very
important part to play in the financial administration of the country. It is the Central
bank of the country and is the custodian of the Government money both of the Union
and of the States. Like other Central Banks, it exercises overall control over the
banking institutions so that the latter may run and develop on healthy lines. The
Reserve Bank has also been made responsible for issue of notes and for other


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ancillary matters under the overall control of the Finance Ministry. The Reserve Bank
is the main instrument through which the Government executes the monetary policy
in the maintenance of price level, including availability of funds for commerce,
industry and agriculture.

Treasuries
       All the States are divided into a number of districts and at the headquarters of
each district there is a Government Treasury called the `District Treasury' with one or
more sub-treasuries distributed throughout the district. The treasuries situated in a
State and controlled by the State Government are called State Treasuries; while such
treasuries are not under the control of State Government and treasuries situated in the
Union Territories are called Union Treasuries. Into these treasuries are paid the
receipts of Government and from them are disbursed the payments on behalf of the
Government. The treasuries are the primary units of the financial system and the
points at which the public accounts start.

Commercial Banks
       The State Bank of India is a Government Institution and with nationalization of
banks in our country, commercial banking has now become more or less a
Government undertaking. The Government has not got a firmer control over the
distribution of credits to various institutions and people within the country.

Financial Institutions
       Other agencies which also play an important part in the financial structure of
the country are autonomous institutions like the Industrial Finance Corporation, State
Finance Corporations, Life Insurance Corporation, Unit Trust of India etc. These are
not, technically speaking, Government departments but Government has got a very
large measure of control over them and the working of these Institutions very
materially affect the financial climate of the country. The laws which have created
these Institutions have laid down broad lines on which these Institutions are to be run
and by various means, formal and informal, Government can influence the running of
these Institutions so as to conform to the policy which it may like them to pursue.

Public Undertakings
      Apart from the Government Agencies there are undertakings or companies in
which Government has got not less than 51% of the share capital. During the last 25
years, investments of the Government in these undertakings have tremendously
increased, with the result that in many of the fields Government Undertakings now
have attained commanding heights, in our economy. These undertakings carry on



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activities falling under industrial and commercial sphere and are now playing an
increasingly significant role in the development of our economy.
Planning Commission

         The role of the Planning Commission is well known.

Finance Commission
       The distribution of the taxing power between the Union and States should
ideally be made in such a manner so that each gets adequate resources and necessary
elasticity in raising revenue in order to perform the functions that have been imposed
on them, in practice, however, it is almost impossible to devise a system for
distribution of the taxing powers in such a way as to leave both the Union and the
States with adequate and elastic sources of revenue. An innovation to resolve this
problem is the Finance Commission appointed every five years. Its responsibility is to
make recommendations to the President on the following:

         (a) The distribution between the Union and the States, of the net proceeds of
         taxes which are or may be shared between them and the allocation among the
         States of the States shares of the proceed.
         (b) The principles which should govern grants-in-aid of the revenues of the
         States out of the Consolidated Fund of India.
         (c) Any other matter referred to it by the President

Parliament
             The Parliament’s role will be discussed under Financial Process.

Estimates Committee
       The Estimates Committee which was first established in 1950 is elected every
year from amongst the Members of Lok Sabha (in the States, the Vidhan Sabha) only,
according to the principle of the proportional representation by means of the single
transferable vote. A minister is not eligible for election. The Central Committee
consists of 30 members and the term of office is sought by a convention according to
which only a third of the members retire every year. The Chairman of the committee
is nominated by the speaker from amongst the member of the committee- normally a
senior member of ruling party. The main function of the committee is to examine the
estimates after they have been passed, whether economies consistent with the policy
underlying the estimates may be effected and to suggest the form to which the
estimates shall be presented to the legislature. The Committee takes up for its review
a number of demands each year and looks into the functions of the departments



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concerned along with the monetary allocations made on their behalf as also the actual
working of the department in carrying on the financial administration relating to
them. In U.K. the Estimates Committee normally has no power to look into policy
matters but in India the committee can go into the policy matter also. Normally the
committee issues a questionnaire and calls for evidence of the officers and also visits
the institutions or installations under examination. Its reports dealing with work of the
various departments are submitted to Parliament or State Legislatures.

Public Accounts Committee

       The Public Accounts Committee (PAC) first created in 1921, now consists of
27 members, 15 members elected by the Lok Sabha and 7 members from the Rajya
Sabha. The election is done on the principle of proportional representation by means
of the single transferable vote. A minister is not eligible for election as a member.
The term of office of the members of the Committee is one year, but as continuity of
experience is a valuable asset in the work of the Committee, it is generally the
practice to let a member continue in office for two years. The main function of the
committee is to examine the accounts showing the utilization of the sums granted by
the Legislature to meet the expenditure of the Government and such other accounts
laid before the Legislature as the committee may think fit. Reports of the Comptroller
and Auditor General are examined in detail by the Public Accounts Committee of the
Parliament or of the State Legislature. Financial irregularities, defects in control over
expenditure, defects in budgeting and large savings and excess, are examined with the
help of the departmental witnesses and recommendations made to the Parliament or
the State Legislature in due course with the recommendations for regularizing all
cases of excess over voted grants and charged appropriations. Until 1996-97, the
Chairman of this committee used to be from ruling party since then he/she is from an
opposition party.

Committee on Public Undertakings

       The Committee on Public Undertakings came into being on 01st May, 1964. It
acts more or less on the lines of the Estimates Committee and the Public Accounts
Committee. It not only considers the reports of the Comptroller and Auditor General
on the various undertakings but on its own initiative may undertake examination of
specific companies selected by them. This Committee also makes recommendations
like the Estimates Committee and the Public Accounts Committee. The Government
companies and the concerned Ministries take appropriate action to implement the
recommendations of this Committee.



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Comptroller and Auditor General (C&AG)

       The third limb of Financial System is Comptroller and Auditor General of
India (C&AG). The Comptroller and Auditor General is appointed by the President
under his hand and seal and can only be removed from office on an address from both
Houses of Parliament on grounds of proved misbehavior or incapacity. He would not
be eligible for any other office under the Government after retirement. His oath of
office requires him to uphold the constitution and the laws and to discharge his duties
without fear or favour, affection or ill-will.
       In October, 1976, an Organisation named Controller General of Accounts
(CGA) was set up to administer matters pertaining to the departmentalization of
accounts of the Union Government. This organisation which works as a part of the
Ministry of Finance performs interalia, the following main functions:

         (a)  Prescribe the forms of accounts relating to Union and State Governments
         (b)  Lay down accounting procedures
         (c)  Oversee the maintenance of adequate standards of accounting by Central
              Accounts Office
      (d) Consolidation of the monthly and annual accounts of the Government of
              India
      (e) Administration of rules under Article 283 of the Constitution relating to
              the Custody of the Consolidated Fund of India, the Contingency Fund
              and the Public Accounts
      (f)     Prepare the condensed form of the Appropriation Accounts and the
              Finance of the Union Government.
      It is necessary to verify the accuracy and completeness of accounts prepared by
the CGA and ensure that the expenditure incurred has been sanctioned by the
Parliament. The accounts prepared by the CGA are therefore audited by C&AG. The
audited accounts are placed on the table of both the Houses of Parliament along with
the C&AG Report. The Powers and duties of the C&AG are described in Article 148
and 151 of the Constitution. In 1971 the Parliament enacted the Comptroller and
Auditor General’s (Duties, Powers and Conditions of Series) Act 1971, which after
amendment in 1976 relieved him of his duty to prepare the accounts of the Union.
The important functions of the C&AG are:
      (a) To audit and report on all expenditure from the Consolidated Fund of
              India and of each State, as to whether such expenditure has been in
              accordance with the law.
      (b) To audit and report on all expenditure from the Contingency Funds and
              Public Accounts of the Union and of the States.



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         (c)      To audit and report on all training, manufacturing, profit and loss
                  accounts kept by any Department of the Union or a State.


       The Comptroller and Auditor General is the sole authority for auditing the
accounts of the Union and the States. The scope and extent of audit are left to the sole
discretion of the Comptroller and Auditor General. For the purpose of audit he and
his staff have right of access to all documents, papers and files of Government having
a bearing on the transactions under his audit and he has the right to inspect any office
or institution where Government accounts are kept and to raise such queries as he
considers necessary for the discharge of his functions. He is competent to disallow
any sanction which in his opinion violates the provision of the Constitution or its
laws. His examination extends beyond the formality of the expenditure, to its
wisdom, faithfulness and economy. Important irregularities which are proposed to be
included in the Audit Report are issued to the Administrative Ministries/ Departments
as Draft Audit Paras; Draft Paras which are not dropped as a result of the
Department's replies are incorporated in the Audit Report, which is submitted to the
President/ Governors.

         All the reports of the C&AG are presented to the concerned legislature.




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      ORGANISATION AND FUNCTIONS OF
         THE RAKSHA MANTRALAYA
          (MINISTRY OF DEFENCE)




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   ORGANISATION AND FUNCTIONS OF THE RAKSHA MANTRALAYA
                   (MINISTRY OF DEFENCE)

       The Defence of India and every part thereof including preparation for Defence
and all such acts as may be conducive in times of war to its prosecution and, after its
termination, to effective demobilization, is the responsibility of the Raksha
Mantralaya (Ministry of Defence). The administration of the Armed Forces of the
Union, namely, the Army, the Navy and the Air Force is, therefore, the main function
of the Ministry. Matters relating to other organizations, like the Territorial Army,
Coast Guard, the Auxiliary Air Force and the National Cadet Corps are also looked
after by the Ministry.
       Administration of matters relating to the Armed Forces includes acquisition
and management of land and property for Defence purposes and works items relating
to the various Services - the Army, the Navy and the Air Force - are under the general
control of the Ministry, they normally function directly under their respective Chiefs
of Staff who are assisted by their Principal Staff Officers. It is, however, one of the
important functions of the Ministry to ensure that the development and activities of
the three Services are coordinated and adequate liaison with other Ministries is
maintained. The Ministry is responsible for obtaining policy decisions of Government
and for transmitting them to and progressing their implementation by the three
Services Headquarters and in particular, for obtaining the necessary finance for
Defence expenditure and for its allocation among the Planning Division in the
Ministry of Defence which processes the plans and programmes recommended by the
three Services and the Departments of Defence Production and Supplies and Defence
Research and Development. The Planning Division draws up integrated Defence Plan
and monitors its implementation in various ways after getting it approved. Planning
also helps in better and timely allocation of priorities and funds on various schemes.
       There are certain organizations, however, which are of an inter-Service
character whose administration is the direct responsibility of the Ministry. This direct
responsibility also extends to the Public Sector Undertakings, which are under the
administrative control of the Ministry.
       While much of the work is dealt within the normal way, as in other Ministries,
by notes and discussions, a network of committees has been established at different
levels, with a view to ensure expeditious and efficient handling of work of great
complexity and extending over many subjects. There is a Defence Minister's
Committee, which deals with, the more important of the inter-services problems.
       The Defence Minister’s Committee has two Sub-Committees viz. Principal
Personnel Officers Committee and Principal Supply Officers Committee with the
Ministry of Defence, Ministry of Defence (Finance) and Services Headquarters
representation at a minimum Joint Secretary level. These Sub-Committees are


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presided over by the senior most Services representative on the Sub-Committee on
rotational basis. These Sub-Committees meet regularly at the direction of the Defence
Minister's Committee or at the request of any member of the Sub-Committee or to the
Government in that regard. The Chiefs of Staff Committee (referred to in Para 6) are
afforded an opportunity to consider all the recommendations of these Sub-
Committees before these are submitted to the Defence Minister’s Committee.
       Another Committee has known as the Defence Minister’s (Production &
Supply) Committee deals with matters relating to indigenous production of Defence
Stores, equipment and import substitution in the field of Defence. It also reviews
from time to time the mobilisation plans for Defence Production. In addition to the
above two Committees, there is a Defence Minister's Appellate Committee on
Pensions to consider appeals in respect of claims to disability and family pensions of
the personnel of: Armed Forces.
       The Defence Research and Development Council is responsible for
coordinating and. indicating general direction of policy for scientific research relating
to Defence and the development of or improvement in material required by the
Armed Forces.
       The ‘Chief of Staff’ of each Service is in complete command of the service
under him subject to rules, regulations, procedures and orders issued by Government.
In the context of the modern concept of Defence and more particularly with the rapid
technological development, it is obvious that Defence of the country involves a joint
effort by all the three services. Hence a committee consisting of the three Chiefs of
Staff is constituted, with the member having been the longest in the committee as
Chairman, to consider all important Defence matters and more particularly those
which concern more than one Service. The Chiefs of Staff Committee thus advises
the Government on matters relating to general Defence strategy, Defence builds up
and such questions as are referred to it by the Government.
       The Production Wing of the Department of Defence Production and Supplies
control the chain of Ordnance Factories in the country producing arms, ammunition,
fighting and transport vehicles, clothing items and general stores etc. for the Armed
Forces. The Ordnance Factory Board with a Chairman and 7 members controls all the
Ordnance Factories. The group of Ordnance Equipment Factories is looked after by
an Officer of the rank of Additional DGOF and the Armored Vehicles Factories by
another such officer under the overall control of Ordnance Factory Board. This Board
has the overall responsibility of planning, policymaking, monitoring and
implementation of the production programme. In addition, there are 8 Public Sector
undertakings, out of which 7 are in production and are engaged in the manufacture
and repair of aircraft, naval vessels and electronic and engineering equipment. The
8th undertaking viz. Mishra Dhatu Nigam Limited (Superalloys Project) has also
gone into commercial production.


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       The Supplies Wing of the Department of Defence Production and Supplies
functions through a number of Technical Committees. The Department is concerned
with indigenous development and production of items hitherto imported or being
introduced into the services for the first time. It also procures components and sub-
assemblies to supplement the capacity of Ordnance Factories. Production of such
items is established in units in Private as also in Public Sector Undertakings, outside
the Defence fold.
       The Directorate of Planning and coordination is entrusted with the task of
assisting in preparation and implementation of perspective planning of defence
Production for the three services. It is also to identify areas where surplus capacity
exists in order to utilise it for civil sector. In addition, it has to assist in the setting up
of ancillary estates in all Defence Factories where -less sophisticated operations can
be off-loaded to the private sector.
       The Defence Exhibition Organisation under this Department deals with matters
relating to participation of Ministry of Exhibition and Trade Fairs in India and
abroad. A permanent Defence Exhibition has been set up at Pragati Maidan, New
Delhi since November, 1981. The Directorate of Standardisation under Department of
Defence Production is responsible for standardization of all Defence Equipment.
       There is a quality assurance Organisation responsible for the drawings and
specifications of all Defence stores and equipment, development of indigenous
sources in the civil trade and inspections of Stores relating to Army and Navy (except
Naval Armament) known as Directorate of Technical Development and Production
(Air) is responsible for inspection of the Defence Air Crafts, accessories etc. and
development and establishment of aeronautical stores and ground support equipment
of imported origin.
       Raksha Anusandhan Tatha Vikas Vibhag (Department of Defence Research
and Development) renders advice to Raksha Mantri and to Organizations in the
Ministry of Defence on all Scientific and technological aspects of Military operations,
logistics, weapons systems and equipment. In addition, the Department undertakes
research, design and development of weapons, weapons systems, equipment,
materials and stores. The Department is the nodal agency responsible for planning
and management of all Defence research and development progratames. This work is
undertaking through a national network of well established Defence laboratories
specializing in a wide variety of areas and discipline's in defence science and
technology. This includes work in the fields of armaments, explosives, electronics,
guided missiles, vehicles aeronautics structural engineering and naval weapon
systems, problems connected with food, clothing, medical physiological and fire
fighting for the Armed Forces is also dealt with. The Department also sponsors
defence research work in universities and higher technological institutes in the
country, and has its own training and educational institutions in defence science and


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technology, and work study. While the majority of defence research projects are
inter-departmental, the Department is progressively embarking on major, integrated
programmes involving many large and small industries in the public and private
sectors. The work of defence laboratories is administered by the DRDO Headquarters
located in New Delhi, and the programmes are, as whole, coordinated under the
unified direction of the Department of Defence Research and Development.




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     ORGANISATION AND FUNCTIONS OF THE FINANCE DIVISION O
     ORGANISATION AND FUNCTIONS OF
                    MINISTRY OF DEFENCE
   THE FINANCE DIVISION OF MINISTRY
             OF DEFENCE




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    ORGANISATION AND FUNCTIONS OF THE FINANCE DIVISION OF
                    MINISTRY OF DEFENCE

        There is a separate Finance Division of the Raksha Mandalay (Ministry of
Defence) for dealing with all defence matters having a financial bearing. The head of
this Division is the Financial Adviser. In order to bring about the closer association
between the Administrative Ministries and their Financial Advisers, and to enable the
latter to play a more effective and constructive role, Government had introduced in
October 1975 the Scheme of Integrated Financial Adviser under which the Financial
Advisers become a part and parcel of the Administrative Ministry concerned and are
therefore, more closely associated with formulation and implementation of proposals.
In accordance with that policy, the scheme of Integrated Financial Adviser was
introduced in the Department of Defence Supplies and Defence Production (including
Research and Development Organisation and Director General of Quality Assurance)
in May 1976. The question of introducing the system in the Department of Defence
had been under consideration of the Government and it was ultimately decided to
introduce the -Integrated Financial Advice system in the Department of Defence as
well with effect from let. August 1983. Thus there is now complete integration of the
former Defence Division of the Ministry of Finance with the Defence Ministry. The
designation of the Financial Adviser emphasizes the Advisory as distinct from the
restrictive function of treasury control and it is in the capacity that the Financial
Adviser (or his representative) is a member of the various Committees of the Raksha
Mantralaya (Defence Ministry) and the Services Headquarters. The Financial Adviser
also normally attends meetings of high level committees dealing with defence matters
whenever proposals having a financial bearing are discussed.
        With a view to ensuring greater efficiency in administration and quicker
disposal of the cases, Ministry of Defence has been delegated enhanced financial
powers in regard to expenditure met from the Defence Service Estimates. In matters
within the delegated powers of the Ministry of Defence, Financial Adviser (Defence
Services) or his officers are to be consulted before exercise of financial powers. In
such cases, it is open to the Defence Secretary to over-rule the advice of the Financial
Adviser (Defence Services) by an order in writing, but it will also be open for the
Financial Adviser (Defence Services) to request that the matter be placed before the
Raksha Mantri.
        In all matters beyond the powers delegated to the Ministry, Financial Adviser
(Defence Services) and his officers function as Associate Finance and are responsible
to have the right of access to the Ministry of Finance and the Finance Minister
through Secretary (Expenditure). If any important change in the duties and functions
of the Financial Adviser (Defence Services) or the Defence Accounts Department is
contemplated, approval of the Finance Ministry is necessary.


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       The financial control exercised by the Financial Adviser and his officers is
really a careful and intelligent scrutiny of all proposals involving expenditure from
the public funds, the objective being the safeguarding of economy, efficiency and
property in public finance. Before according financial concurrence to any proposal
involving fresh expenditure, it is the duty of the Finance Officer to seek justification
for the proposal. - He may even challenge the necessity for spending so much money
or on such a scale to secure a given object. He asks whether the proposal is really
scale to secure a given object. He asks whether the proposal is really necessary,
whether the same results could not be obtained otherwise with greater economy,
whether the expenditure involved is justified in the circumstances, whether individual
items are in furtherance of the general Government policy, whether the canons, of
financial propriety have been observed. These Canons are:
       (i)   Every Public officer should exercise the same vigilance in respect of
             expenditure incurred from Government Revenues as a person of
             ordinary' prudence would exercise in respect of the expenditure of his
             own money.
       (ii) No authority should exercise its power of sanctioning expenditure to
             pass an order, which will be indirectly or directly to its own advantage.
       (iii) The amount of allowances such as traveling allowances, granted to meet
             expenditure of a particular type, should be so regulated that an allowance
             is not on the whole a source of profit to the recipient.
       (iv) Government Revenues should not be utilised for benefit of a particular
             person or section of the community unless-

                  (a)     the amount of expenditure involved is insignificant or
                  (b)     a claim for the amount could be enforced in a court of law or
                  (c)    the expenditure is in pursuance of a recognised policy
                         or custom.

      In fact he asks every question that might be expected from an intelligent
taxpayer bent on getting the best value for his money.
      The rules provide that no expenditure which has not been provided for in the
Budget or which having been provided, has not been sanctioned shall be authorised
without the concurrence of the Financial Adviser or representative. The strict
observance of this rule is automatically ensured as the Controllers of Defence
Accounts will not make any disbursement in respect of charges not covered by
regulations or Government orders.
      The according of financial concurrence by the Finance Division of the Ministry
of Defence falls generally in three more or less well defined. Stages:



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         (i)      the examination of the proposal on its merits.
         (ii)     the assessment of the financial effect.
         (iii)    If the proposal is accepted, the careful examination and vetting of the
                  final orders before issue.

       Sometimes two or more of these stages are combined, but all proposals having
a financial bearing inevitable follow through this process. This procedure ensures not
only close and adequate control by Finance, but also enables them to give
constructive suggestions and advice from the financial point of view at a fairly early
stage of the consideration of a proposal.
              The Financial Adviser prepares the budget and other estimates for the
Defence Services and also furnishes the Heads of the Branches of the Armed Forces
Headquarters with all information at his disposal to enable them to discharge their
financial responsibilities in respect of the grants allotted to them and advises them in
regard to the preparation of proposals and the disposal of financial business generally.
He is also fully associated with formation and implementation of Defence Plans.
       In addition to these functions, the Financial Adviser is also the Chief
Accounting Officer for Defence Services. It is in this capacity that he prepares the
Appropriation Accounts for the Defence Services. The Financial Adviser is also
ultimately responsible for the internal audit and accounting of Defence Expenditure,
but this responsibility is discharged through the Controller General of Defence
Accounts.
       Defence Accounts Department, with the Controller General of Defence
Accounts as its head, functions under the administrative Control of Financial Adviser
(Defence Services). The duties of Defence Accounts Department are broadly audit,
payment and accounting of all charges pertaining to the Armed Forces, including bills
for supplies and services rendered and for constructions/repair works, pay and
allowances, miscellaneous charges, provision etc. The Department is also responsible
for the audit of cash and stores account kept by the various units and formations
(including arsenals, workshops and storage depots) in the three services and
maintenance of pay accounts of Army, Officers and combatants, of the Army. The
manufacturing Accounts of Ordnance Factories and the Naval Dockyard and the store
accounts of the Ordnance factories are also kept by the Defence Accounts
Department. They also maintain Accounts relating to works services and audit the
construction and other accounts relating to works project maintained by Military
Engineer Services.
       In addition-to the duties mentioned above, the Controllers of Defence Accounts
function as Local Financial Advisers to the General Officers Commanding-in-Chief
of Commands, Area Commanders and various other establishments. The Defence



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Accounts Department has also positioned Internal Financial Advisors at Service HQrs
to render financial advice on powers delegated to them.
       The Defence Accounts Department comes under the Ministry of Defence with
the Controller General of Defence Accounts as the Head of the Department. The
organization of the Defence Accounts Department corresponds broadly to the
organisation of the three services. In addition, it also caters for the Ordnance
Factories, Defence Research & Development Organisation, the Canteen Stores
Department, the Coast Guard, the Border Roads Organisation and Inter-services
Organisation under the Ministry of Defence.
       The field organisation of the department dealing with the Army has been
structured by and large on the pattern of Army Commands/Areas. The location of
these Controllers Offices is in close proximity to the Command Headquarters/Area
Headquarters, in order to enable them to render prompt services to the
units/formations located in these areas. Under some of the Controller’s offices, there
are also Area Accounts Offices to render prompt services to the Sub-Areas. In
addition, there are Local Audit Offices to audit the accounts of the units and
formations and the Unit Accountants are attached to each Garrison Engineer. The Pay
Accounts Offices (JCO / ORs) are also under the jurisdiction of the nearest Regional
Controller. In all there are 12 Regional Controllers. In addition, one Controller of
Defence Accounts at Pune specifically deals with the pay and allowances of the
Commissioned Officers.
       The remaining Controllers' Offices are patterned to service a particular Service
or function except for CDA (Headquarters) at Delhi which covers all the services,
Inter-Services Organisations and the Ministry of Defence. The Controller of Defence
Accounts covering the Navy is located at Bombay. In the case of the Air Force, there
are two Controllers of Defence Accounts, one at Dehradun covering all the
Commands and field areas and one at New Delhi covering the units located in Delhi
including Air Headquarters. The Defence Research & Development Organisation has
expanded considerably and there are a number of projects being handled by the
Defence Laboratories. Accordingly, there are Controller for R&D at New Delhi &
Hyderabad to deal with all matters connected with R&D Organisations with regional
Joint Controllers of Defence Accounts at Pune, Delhi and Dehradun. Another
Controller for R&D functioning at Bangalore provides service to Laboratories/
Establishments located in Tamil Nadu, Karnataka and Kerala States. There is a
Controller, for dealing with the Border Roads Organisation at New Delhi assisted by
the regional Joint Controllers of Defence Accounts at Chandigarh, Jammu, Guwahati,
Pune and Patna. For the Canteen Stores Department, the Controller is located at
Bombay.
       The organization of the Ordnance Factories has 39 Factories. This is managed
by the Ordnance Factories Board but the entire account, Internal Audit and financial


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advice functions for these factories is looked after by the Chief Controller of
Accounts (Factories) at Calcutta. He is assisted by a Controller of Accounts in the
headquarters and ten Controllers located alongside major Ordnance and Clothing
Factories. This complex accounts set up is a highly specialised segment of the
department dealing with the cost accounts of the Ordnance and Clothing Factories.
       The pension; establishment of Defence has been growing substantially.
Consequently, the responsibility of the department to determine the entitlement and
make prompt payments of pensions has increased. In order to handle this complex
task, there is a Chief Controller of Defence Accounts located at Allahabad to deal
With the sanction of pensions in respect of the Service personnel (excluding Air
Force and Navy personnel which are sanctioned by CDA (Air Force) and CDA
(Navy) respectively defence civilians and the staff' of the Defence Accounts
Department. He is assisted by a Controller of Defence Accounts in the Main Office.
In addition, there is a Controller at Meerut dealing with disbursement of pensions
through 49 Defence Pension Disbursing Officers (DPDOs) located in various States.
11 (Eleven) DPDOs also function under CDA (Madras), who is responsible-for
disbursement of pension in four Southern States.
       The General Provident Fund Accounts of the civilian personnel of the Army as
well as the staff of the Defence Accounts Department are maintained by the Joint
Controller of Defence Accounts (Funds) who functions under the administrative
control of CDA (Army) Meerut. The GPF Accounts of other defence civilians are
maintained by the concerned functional Controllers such as Controllers of Finance &
Accounts (Fys), Controller of Defence Accounts (R&D), CDA (Navy) and CDA
(Border Roads). In addition there is a Controller of Defence Accounts (Training) at
Meerut to take care of the training requirement of the personnel of the department.
       The Controller of Defence Accounts (Headquarters) New Delhi deals with
the pay and allowances, traveling allowances claims and fund account of civilian
staff of Ministry of Defence, the Army and Navy Headquarters and the Inter -
services Organisation located at Delhi. Claims pertaining to contingency and
miscellaneous charges of the above said organizations are also dealt with by this
Controller. In addition, this Controller also handles all work relating to payments
of foreign contracts including contracts entered into by the Department of
Defence Supply, payments for purchases made by Army Purchase Organisation
and the work relating to London Account Current.




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      MATTERS DEALT WITH BY THE
    DEPARTMENTS OF THE MINISTRY OF
              DEFENCE




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                        MATTERS DEALT WITH BY THE
                  DEPARTMENTS OF THE MINISTRY OF DEFENCE


A.       Department of Defence

1.       Department of Defence of India and every part thereof including preparation
         for defence and all such acts as may be conducive in times of war to its
         prosecution and, after its termination, to effective demobilisation.
2.       The Armed Forces of the Union, namely, the Army, the Navy, the Air Force.
3.       The Reserves of the Army, Navy and Air Force.
4.       Territorial Army
5.       The National Cadet Corps
6.       Works relating to Army, Navy, Air Force and Ordnance Factories.
7.       Remounts, Veterinary and Farms Organisation.
8.       Canteen Stores Department (India).
9.       Civilian Services paid from Defence Estimates.
10.      Hydrographic Surveys and preparation of navigational charts.
11.      Formation of Cantonments, delimitation/ excision of Cantonment areas, local
         self government in such areas, the constitution and powers within such areas of
         Cantonment Boards authorities and the regulation of house accommodation
         (including the control of rents) in such areas.
12.      Acquisition, requisitioning, custody and relinquishment of land and property
        for defence purposes and eviction of unauthorized occupants from defence land
        and property.
13.      Matters relating to ex-servicemen including Pensioners.
14.      Defence Accounts Department
15.      Purchase of foodstuffs for military requirements and their disposal excluding
         those entrusted to Ministry of Food and Civil Supplies (Department of Food).
16.      Coast Guard Organisation.
17.      Matters relating to diving and related activities in the country.
18.      The following Inter-Service Organisations function under the Ministry of
         Defence:

                  (i)      Office of the Chief Administrative Officer.
                  (ii)     Armed Forces Medical Services.
                  (iii)    National Defence College.
                  (iv)     Directorate of Public Relations.
                  (v)      Armed Forces Film and Photo Division.
                  (vi)     School of Foreign Languages.


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                  (vii)    Historical Section.
                  (Viii)   Directorate General of Defence Estates.
                  (ix)     Services Sports Control Board.
                  (x)      College of Defence Management, Secunderabad; and
                  (xi)     Ministry of Defence Library.

B. Department of Defence Productions & Supplies.

19.      Ordnance Factory Board and Ordnance Factories.
20.      Hindustan Aeronautics Limited (HAL).
21.      Bharat Electronics Limited (BEL).
22.      Mazagon Docks Limited (MDL).
23.      Garden Reach Shipbuilders and Engineers Limited (GRSE)
24.      Dgoa Shipyard Limited (GSL).
25.      Bharat Dynamics Limited (BDL)
26.      Mishra Dhatu Nigarm Limited (MIDHANI).
27.      Directorate General of Quality Assurance (DGQA) including Directorate of
         Technical Development and Production (Air)
28.      Standardisation of Defence Equipments and stores including Directorate of
         Standardisation.
29.      Bharat Earth Movers Limited (BRML).
30.      Development of aeronautics industry and co-ordination among users other than
         those concerned with the Department of Civil Aviation and Department of
         Space.
31.      Indigenisation, development and production of items required for defence
         purposes.
32.      Procurement exclusive to the defence services.

C.       Department of Defence Research & Development.

33.      Apprising, assessing and advising Raksha Mantri on the influence on National
         Security of emerging developments in Science and Technology.
34.       Rendering advice of Raksha Mantri and to the three services and inter-
         Services organisations on all scientific aspects of weapons: weapon platforms;
         military operations; surveillance; support and logistics, in all likely theatres of
         conflict.
35.      To function, with the concurrence of the Ministry of External Affairs, as the
         nodal coordinating agency of the Ministry of Defence on all matters relating to
         instruments of Accord with foreign Governments relating to the acquisition of



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         technologies whose export to India is the subject of national security related
         controls of foreign Governments.
36.      Formulation and execution of programmes of scientific research and design,
         development, test and evaluation, in fields of relevance to national security.
37.      Direction and administration agencies, laboratories, establishments, range
         facilities, programmes and projects of the department.
38.      Aeronautical Development Agency.
39.       All matters relating to certification of the design, air worthiness of military
         aircraft, their equipment and stores.
40.      All matters relating to the protection end transfer of technology generated by
         the activities of the Department.
41.       Scientific analysis, support and participation in acquisition and evaluation
         proceedings of all weapon systems and related technologies proposed to be
         acquired by the Ministry of Defence.
42.      To render advice on the technological and intellectual property aspects of the
         import of technology by production units and enterprises manufacturing or
         proposing to manufacture, equipment and stores for Armed Services.
43.      To deal with reference `made under section 35 of the Patents Act, 1970 (39 of
         1970).
44.      Financial and other material assistance to individuals, institutions and bodies
         corporate, for study and for the training of manpower on aspects of Science
         and Technology that bear on national security.
45.      In consultation with the Ministry of External Affairs, on international relations
         in matters connected with the role of Science and Technology in national
         security including:
                 (i)    Matters relating to relations with Research Organisations of other
                        countries with and with Inter-Governmental agencies, particularly
                        those which concern themselves, interalia, with the scientific and
                        technological aspects of national security.
                 (ii) Arrangement with universities, educational and research oriented
                        institutions or bodies corporate abroad to provide fore foreign
                        scholarships and the training of Indian scientists and technologists
                        under the administrative control of the Department.

46.      Execution of works and purchase of lands debitable to budget of he
         Department.
47.      All matters relating to personnel under the Control of Department.
48.      Acquisition of all types of stores, equipment and services debitable to the
         budget of the Department.



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49.      Any other activity assigned to, accepted by, the Department through
         understanding or arrangements with any other Ministry, Department, Agency
         of the Government of India whose activities have a bearing on the scientific
         and technological aspect of national security.

D. Defence (Finance) Division.

1.       To examine all Defence matters having a financial bearing.
2.       To render financial advice to the various functionaries of the Ministry of
         Defence and the Service Headquarters.
3.       To act as integrated finance Division of Ministry of Defence.
4.       To assist in the formulation and implementation of all Scheme/ Proposals
         involving expenditure.
5.       To assist in the formulation and implementation of Defence Plans.
6.       To prepare Defence budget and other estimates for the Defence Services and to
         monitor the progress of the schemes against the budget.
7.       To exercise post-budget and other estimates for the Defence Services and to
         monitor the progress of the Schemes against the budget.
8.       To advise Heads of branches of the Armed Forces Headquarters in the
         discharge of their financial responsibility.
9.       To function as accounting authority for Defence Services.
10.      To prepare Appropriation Accounts for the Defence Services.
11.      To discharge the responsibility of payments and internal audit of Defence
         Expenditure through the Controller General of Defence Accounts.



(Source: Min. of Defence GOI, Annual Report (1998-99)




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      THE BUDGETARY SYSTEM IN INDIA




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                            THE BUDEGETARY SYSTEM IN INDIA
                                           By
                                     Dr. K.L. Handa

       The genesis of the budget system in the Government of India can be traced to
the year 1800 when Sir James Wilson, the First Finance Member of the Viceroy’s
Council, introduced the first budget. The system of financial administration as
developed in England was taken as a model and its features transplanted to the Indian
scene. In the process of evolving a system of financial control for the Government of
India, the British inducted in India some of the institutions already functioning in
their country. Some modifications were, however, made in these institutions to suit
the requirements of a colonial administration. The system of financial control as
introduced in India also incorporated features to cater to the constitutional
requirements and the pattern of division of powers and responsibilities between the
Secretary of State and the Viceroy.

Legislative Financial Control:

       In England, the system of financial administration was developed as part of the
democratic process. Budget was used as an instrument to ensure accountability of the
Executive to Parliament. By showing the agencies for which funds were required and
the details of such expenditure (detailed heads of account), the budget provided a
basis for Parliamentary legislative control.
       In India, however, there was no legislature in the beginning and the
administrative authorities were accountable to the Secretary of State in London. The
budget system introduced in India was meant to ensure accountability of one level of
Executive to another. Even the audit set-up as originally created in India was an
instrument of Executive Control as contra distinguished from the position of such an
institution in England where it was meant to serve the purposes of legislative control.
       The executive and Audit Department Act of 1866, in United Kingdom had
created a statutory authority in Comptroller and Auditor General who was made
independent of the Executive. The Act also provided for the preparation of
appropriation accounts by all departments for presentation to Parliament. The
statutory duties of the Comptroller and Auditor General included audit and
examination of the accounts and submission of report thereon to the House. He has to
scrutinise accounts to ensure that Parliamentary grants were applied to the purposes
as intended, the actual amount of expenditure was in conformity with the vote of the
Legislature, and moneys were spent in accordance with laws, rules and regulations.
The Act of 1866 further provided for the examination of the reports of the
Comptroller and Auditor General, submitted to Parliament, by a committee of the

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House, known as Public Accounts Committee. The rationale for creating such a
Committee was that Parliament as a whole could not spare enough time for detailed
examination of these reports. Also, the type of scrutiny needed was of a technical
nature which could best be done by a select committee of the House; moreover, these
reports required an examination of a non-party character which was not possible if
they were to be debated in the full House.
       In India, initially, the Auditor-General submitted his reports to the Secretary of
State for India and not to the Legislature. It was on the introduction of the Moneague
Chelmsford Reforms in 1921 that the Central Legislature was given the right to vote
supplies, except for block of expenditure including Defence estimates, which are
treated as non-voted and, therefore, not subject to legislative approval. The Central
Legislature had also been given an elected majority. Along with these reforms the
U.K. system of audit of public accounts by an independent statutory authority was
adopted in India. The Auditor General was made an authority independent of the
Executive. Provision was also made for the examination of his reports on the
financial tran6actions of the Government, by a Legislative Committee called the
Public Accounts Committee. The Public Accounts Committee comprised of both
elected and nominated members and had the Finance member as its Chairman, ex-
officio.
       After independence of the country in 1947, the Public Accounts Committee
was made a wholly elected body with the Finance Minister continuing as its
Chairman, it was, however, felt that as the Chairman of the Committee was from the
Executive, it tended to restrict free expression of view in the deliberations of the
Committee. The situation was remedied on the introduction of the Constitution Act in
1950 when P.A.C. was made a completely Parliamentary Committee with a Chairman
appointed by the Speaker from amongst the members of the Lok Sabha.
       The Public Accounts Committee examines the report of the Comptroller and
Auditor General to ensure that the funds granted by Parliament have been spend by
the Executive within the scope of the demand'. The Committee has been gradually
encouraging the Audit, which was originally confined to testing the accuracy of
accounting and estimating, to encompass in its scrutiny assessment of the propriety
and utility of expenditure in addition to ensuring its regularity and proper
compilation. It is no more sufficient to ensure that funds are applied to purposes as
approved by Parliament and appropriation is not exceeded. The committee expects
the Comptroller and Auditor General to extend his examination of accounts beyond
the formality of expenditure to its wisdom, faithfulness, and economy. The P.A.C.
has further required the C&AG to look into the efficiency of public expenditures.




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The Centralized Financial Administration:

On taking over the administration of the country from the East India Company in
1858, the British Rulers introduced a highly centralized system of financial
administration in India. This was in line with the British Policy of consolidating their
hold on the country, and also to meet the requirements of the situation. The British
wanted to introduce order and discipline in the system of financial control which had
been quite loose during the regime of the East India Company. Also, the British
Government was interesting in undertaking in India a few activities only, namely,
collection of revenues, maintenance of law and order, and some economic activities
primarily for the protection and furtherance of British trade, like development of
transport and communications. A centralized system of financial control suited the
interests of the foreign rulers, which, based on lack of trust of functionaries, was
made a characteristic feature of the colonial administration.
       A striking feature of the system of financial control as introduced by the British
in India had been that it was centralized in the Department of Finance. Such a
centralization was further pronounced by effecting a divorce between administrative
and financial functions. It was maintained that the administrative departments could
not be depended upon for the exercise of financial prudence in their expenditure. The
departments were neither suitably organised for the purpose nor possessed the
necessary personnel for the job. It was the Finance Department which was considered
as the sole repository of financial wisdom. Such an attitude was further strengthened
when in 1938 the Government of India constituted a special Finance Commerce Pool
centrally administered to provide personnel for manning posts in the field of
economic and financial administration. As the administrative departments were not
considered competent to exercise financial scrutiny, internally, with a view to effect
economies in expenditure, itemized control by the Department of Finance of the
expenditure proposals submitted by the administrative departments was instituted.
       The remote control of the Secretary of State for India also accounted for an
extreme centralization of the system of financial administration. The control of the
Secretary of State over the finance of the Government of India was ensured by
requiring the budget of the colonial Government to be submitted for his approval and
acceptance. Also, he issued various codes and executive orders binding the spending
authorities in India to specified limits and prescribed manner for incurring
expenditure. The Finance Department of the Government of India was entrusted with
the responsibility of enforcing these codes and regulations.
       The Department of Finance, thus, came to assume the responsibility for
protecting the interests of economy and financial propriety in Government. It used the
budgetary system of exercising the necessary financial control over the spending
authorities. At the stage of budget formulation, the Finance Department reviewed the

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revenue and expenditure proposals of the administrative departments. It carried out a
thorough pre-budget scrutiny of the expenditure proposals submitted by the
administrative departments, from the point of view of economy and to examine their
consistency with the accepted policies of the Government. The Finance Department
did not restrict its control to the pre-budget scrutiny only. It got another opportunity
for a detailed scrutiny of the expenditure proposals after the budget was passed and
when references came to it for expenditure sanctions before the administrative
authorities could incur expenditure. The inclusion of an item of expenditure in the
budget did not by itself give authority to the concerned administrative agency to
spend money on it. The administrative authority had to approach the Department of
Finance again with a full justification of the proposed expenditure, and to obtain its
concurrence to the issue of expenditure sanction.
       It had been provided in the rules of business that no proposal involving
expenditure could be taken up for execution without the concurrence of the
Department of Finance. These rules continue to exist even after the Reforms of 1919
and 1935. It has survived even in the present system which came into existence after
the promulgation of the Indian Constitution, 1950. In the rules framed by the
President of India `for the more convenient transaction of the business of Government
of India' under Article 77(3) of the Constitution, the Ministry of Finance has been
assigned a special position in regard to the management of the financial affairs of
Government. The existing rules of business provide that, subject to general or special
orders made by the Min. of Finance, no department shall, without the previous
concurrence of the Ministry of Finance, issue any orders which may:

         (a)      involve any abandonment of revenue or involve any expenditure for
                  which no provision has been made in Appropriation Act;
         (b)      involve any grant of land or assignment of revenue or concession, grant
                  lease or license of mineral or forests rights or a right to water, power or
                  any easement or privilege in respect of such concession;
         (c)      relate to the number of grades of posts or to the strength of a Service or
                  to the pay or allowances of Government servants or to any other
                  conditions of their service having financial implications, or
         (d)      otherwise have a financial bearing whether involving expenditure or not.

       These rules of business hardly leave any financial powers for the
administrative ministries to exercise. However, there is a provision in the rules that
they are exercisable subject to general or special orders made by the Ministry of
Finance. Under this provision, the Ministry of Finance can delegate financial powers
to the administrative authorities and share its responsibility for financial control with
them. The various types of financial delegations made by the Ministry of Finance to

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the administrative authorities flow from this provision and the rules framed on the
subject, like Delegation of Financial Powers Rules, derive their authority there from.
       Under the Indian Budgetary system, the position till the late 1950s had been
that the executing agencies needed specific expenditure sanction from the Ministry of
Finance before they could implement a programme even though budget provision had
been made for it. Such a situation deprived the implementing agencies of a feeling of
participation in the processes of financial control and blunted their financial
consciousness.
       This system of extreme centralisation of financial powers in the Department/
Ministry of Finance was adversely commented upon, from to time, in the reports of
various experts and expert body. These included reports of : Sir Richard Tottenham
(1945-46), the Secretariat Reorganisation Committee (August 1947), the Economy
Committee (1949), N Gopalaswami Ayyangar's Report on Reorganisation of the
Machinery of Government (1949), Second Report of the Estimates Committee of the
First Lok Sabha on Reorganisation of the Secretariat and Departments of the
Government of India (1951). The First Five Year Plan (1952) A.D. Gorwala’s Report
on Public Administration in India (1951), Paul H Appleby's Report on Public
Administration in India (1953), Ninth Report of the Estimates Committee of the First
Lok Sabha (195354) and the Second Five Year Plan (1956). It was advocated by the
experts that for achieving efficiency and economy in public expenditure, greater
financial powers were needed to be delegated by the Ministry of Finance to the
administrative ministries and executing agencies.
       As a result of the pressing demands for reforms in the system of financial
control, particularly when the Government had launched upon programmes of
planned socio-economic development, greater powers came to be delegated to the
administrative ministries. A scheme of significance was introduced from August
1950 whereby the Ministry of Finance delegated considerably larger powers to the
administrative ministries. This was followed by other delegation schemes introduced
in June 1962, October 1968, April 1975 and January 1979, which vested the
administrative authorities with enhanced financial powers. Also, a scheme of
integrated financial advisor was introduced in October, 1975, whereby financial
Advisor has been made a part of the administrative ministry and designated as
Integrated Financial Advisor.

Lump-sum Cuts:
      A practice started during the British times which has its echo in the present day
system of financial control pertains to the application of lump-sum cuts by the
Finance Department while carrying out scrutiny of budget estimates prepared by the
administrative authorities. Whereas the Department of Finance had assumed the role


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of custodian of efficiency and economy in public expenditure, it did not make use of
rational planning and management techniques in its exercise of financial control.
       In the absence of scientific Yardsticks and norms for conducting financial
scrutiny, the administrative departments tried to take recourse to various tactics for
obtaining more and more funds from the Department of Finance. The result of such
an attitude was that the administrative departments over-estimated their requirements
of funds and later under spent the sanctioned grants. A wide gap was generally
observed between the approved budget estimates and the actual expenditure. The
main concern of the Department of Finance after the reforms of 1919, therefore, was
to ensure that the budget estimates prepared by the administrative departments
reflected realistically their spending capacities so that the actual expenditure
remained as close as possible to the budget estimates framed by the administrative
departments owes its origin during these period.
       The Finance Department was encouraged by the Public Accounts Committee
in resorting to the practice of applying arbitrary or ad-hoc cut to the demand for grant
as a whole while scrutinizing the budget estimates formulated by an administrative
department. This reduction was effected in addition to the cuts which were already
being applied on the individual estimates of the administrative authorities. Such an
approach was thought to remedy the problem of loose budgeting by the
administrative departments and to bring the gap between their actual expenditure and
the sanctioned grants. As mentioned earlier, the practice of making ad-hoc cuts by the
Ministry of Finance on the budget estimates prepared by the administrative
authorities continues even today.

The Combined System of Audit and Accounts:
       In 1857, Lord Canning brought about a Reorganisation of the accounting
system of the East India Company by amalgamating separate accounting
organizations existing in the three Presidencies of Bengal, Madras and Bombay, into
one imperial establishment were put under the charge of an Accountant General. On
taking over the Indian Administration in 1858, the British Crown created a
complementary post of Accountant General at the India Office in London for the
preparation of the accounts of the expenditure incurred in England. At the same time,
the Crown appointed an independent Auditor for the audit of those accounts. This
way, the accounts and audit authorities were kept separate, and the same pattern was
reproduced in the machinery of the reconstituted Government of India. The
arrangement however, did not last for long, and the accounting and auditing functions
in the Government of India were amalgamated in 1860. The combined offices for
audit and accounts functions were put under the charge of the Accountant General to
the Government of India, whose designation was changed to Auditor General. Later,
exception was made in the case of the Military Accounts which was separated from

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audit in 1864. The separation of accounts from audit was also introduced in the
Indian Railways in 1925, and was completed in 1929.
       A scheme for the separation of audit and accounts was introduced from 1st
April 1955 in the ministries of Food, Rehabilitation and Department of Supply. This
scheme was later extended to the Lok Sabha and Rajya Sabha Secretariat from
October 1955 and to the Department of Printing and Stationery from December,
1955. In 1967, accounts relating to Telecommunication wing of the Posts and
Telegraphs Department were separated from Audit. But, by and large, the combined
system of audit and accounts continued as a peculiar feature of the Indian Financial
System. It was retained in the enactment of 1935 and continued to exist even after the
promulgation of the Indian Constitution in 1950.
       The Comptroller and Auditor General and his predecessors have, for more than
a century, been responsible for the compilation, maintenance and audit of the
accounts of the civil departments of the Government of India. In the financial system
of India, the treasuries played a vital role. They functioned as the common payment
and receipt offices for almost all departments of Government located in their
jurisdictions. They were responsible for making payment of claims against
Government on bills or cheques or other instruments presented in the prescribed form
by duly authorised persons. It had also been their responsibility to receive money
from the public and the government departments and agencies for credit to
Government. Further-more the treasuries were responsible for preparing the initial
accounts of all payments and receipts taking place at them. The statements of these
transactions had to be rendered by the treasuries to the concerned Accountant
General. These statements (accompanied by the necessary documents and vouchers)
formed the main basis for the detailed compilation and consolidation of accounts by
the Accountants General.
       The vesting of accounts function in the Comptroller and Auditor General left
the departments without adequately maintaining the basic accounts necessary for
ensuring effective financial control and for other management purposes. The
departments were not able to follow properly the progress of their expenditure. There
occurred a considerable time lag between the disbursement of funds by the
departments and the time they got accounts figures from the Audit and Accounts
Department.
       Accounting being essentially a management function the logical approach is
that the responsibility for the maintenance and compilation of accounts should rest in
the administrative departments and executing agencies. The imperative of integrating
accounting function with the administrative departments has assumed greater
significance with the adoption of performance budgeting by the Government of India.
It has been felt that accounting needs of the administrative departments and agencies
for speedy, accurate and adequate information would increase manifold with the

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introduction of the scheme of performance budgeting. The new style of management
as envisaged under the system of performance budgeting would necessitate easy
availability of accounting data internally.
       In the circumstances, retaining accounting function, in any form, with the
Comptroller and Auditor General was considered a retrograde step. It was thought
that accounts should be completely separated from the audit function of the Audit and
Accounts Department and vested with the administrative departments. The
administrative departments should be assigned full responsibility for the compilation
and maintenance of their accounts. Efforts should be made to develop accounting
competence within the administrative departments and agencies to fully support the
system of performance budgeting. A view, therefore, strongly gained ground that the
administrative departments which are entrusted with funds for expenditure should
also be assigned full responsibility for the maintenance and compilation of the
accounts relating to such expenditure.
       In 1971, the Comptroller and Auditor General’s (Duties, Powers and
Conditions of Service) Act was passed which did visualise the need for separating
accounts from audit. Section 10 of the Act empowered the President, after
consultation with the Comptroller and Auditor General to relieve the Comptroller and
Auditor General from the responsibility of maintaining and compiling the accounts of
any department of the Union Government.
       A scheme for the separation of accounts from audit was approved by the
Government of India in June, 1975. An ordinance was issued by the President, which
was followed by passing an Act which amended the Comptroller and Auditor
General's (Duties, Powers and Conditions of Service) Act of 1971. The amendment
amplified the scope of the provision under section 10 of the Act of 1971 to enable the
Government of India to relieve the Comptroller and Auditor General of the
responsibility for compiling the accounts of the Union Government. Section 11 of the
same Act was also amended to authorize the President after consultation with the
Comptroller and Auditor General, to relieve the Comptroller and Auditor General
from the responsibility for preparation and submission of annual accounts of the
Union. The separation of accounts from audit has already been completed in three
phases effective from 1st April, 1976 (covering three Ministries), 1st July (covering
nine more Ministries), 1st October (remaining Ministries/ Departments).
       Under the new departmentalized accounting system the role of the treasuries in
respect of payments and receipts has been eliminated. All payments are stipulated to
be made by the departments by cheques drawn on public sector banks. In addition to
the Reserve Bank of India and the State Bank of India, nationalized banks have also
been authorized to handle cash business of Government departments.



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       A new feature had been introduced in the Indian system of financial control
after the reforms of 1919. It pertained to making each head of department responsible
for the control of expenditure against the portion of the budget grant specifically
assigned to his department. The departmental controlling officer was required to
ensure that each expenditure was incurred in accordance with proper sanctions, rules,
regulations, and the accepted principles of financial propriety. Also he was to make
sure that the expenditure was covered by a sanctioned grant. For these purposes, a
controlling officer needed to maintain his departmental accounts which he
periodically reviewed to keep a watch on the progress of expenditure. To ensure
correctness of his accounts, he also got them verified and reconciled, periodically,
with the accounts maintained by the Accountant General. This practice of the
departments maintaining duplicate accounts and reconciling them periodically with
those compiled in the Accountant General’s office finds its echo even today when the
accounting function has been departmentalized and placed under the charge of the
departmental administrative Secretary. The departments continue to maintain parallel
accounts which they periodically reconcile with those prepared in their own
accounting organization.
       Another development of interest which took place after the Reforms of 1935
pertained to the publication of a set of financial Rules, known as, the General
Financial Rules, Treasury Rules, Account Code, Audit Code, etc. These publications
removed the overlapping of subjects in the then existing codes and brought about
much needed simplification, clarification and grouping of subjects.

The Budget year:
       The rationale of our present financial year (April to March) has been a subject
of debate ever since it was adopted by the Government of India in 1866 in conformity
with the British practice. It has been argued that the existing budget period is
responsible for the late start of public works. Under the present arrangements, soon
after the expenditure sanctions reached the executing agencies, monsoon would break
in most parts of the country rendering it difficult to start construction of the budget
works. These works could be started only after the rains were over. The
commencement of the budget year on 1st of April affected the speed of works
because of the monsoon season coming in immediately after the preparatory work for
works projects was complete. It has further been made out that the delayed execution
of public works under the existing system results in rush of expenditure towards the
end of the year leading to surrender of sizable funds at the close of the financial year.
       Another criticism against the existing financial year is that it is not based on
the customs and needs of our country. Our economy is till predominantly agricultural
and is dependent on the behaviour of the monsoon. The budget year does not enable a


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realistic assessment of Kharif revenues as the agricultural picture dependent on the
behaviour of rains is not known when the budget is formulated. Therefore, different
dates have been advocated for the commencement of the financial year, namely, the
1st of July, the 1st of October or the 1st of November, and the 1st of January, it has
been pointed out that a budget year should be such as would enable: (i) accuracy of
revenue estimates, (ii) accuracy of expenditure estimates, (iii) efficacy of
performance, and (iv) budget timing to suit convenience of Legislators and
administrators.
        After analyzing the various suggestions advocated for the commencement of
the financial year, it has been found that none of the solutions offered would
reconcile all the criteria mentioned for better budgeting. None of the alternatives
suggested, i.e. the 1st of July, the 1st of October or the 1st of November, and the 1st
of January ensures fulfillment of all the desired criteria even if such an alternative is
considered from the point of view of any one particular State. Considering alone the
criterion of predictability of revenues, we find that no single alternative budget year
allows the various States a realistic assessment for both Kharif and Rabi crops. If a
particular budget year makes it possible to know about the behavior of south-west
monsoon before framing estimates of revenues, it may not do so for the crop to a
complete guess work. It may be mentioned that Rabi Crop is financially more
important for some of the States in India. It would, thus, be difficult to reconcile the
interests of various States of India on any one alternative date suggested for the
commencement of the budget year. Moreover, it has been argued that in certain
respects the criticism against the present budget year has been over-done and is not
fully justified.
        A case has, therefore, been made for retaining statuesque. It has been argued
that there is not particular advantage to be gained by disturbing the existing
arrangements. A revision of the present financial year is to be set with dislocations in
statistical, accounting and administrative fields. Though these difficulties are not
insurmountable, the advantages to be gained from any such change may not
compensate for all the troubles taken and the problems faced. Moreover, different
states of India view differently the suitability of various alternatives to their
respective climatic and other conditions. It is not possible to reconcile the interests of
all the states to any one alternative budget year. It is, however, accepted by all
concerned that we should have an uniform financial year- both for the Union and the
States. In the circumstances, therefore, the best practicable approach would be to
retain the existing budget year.




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Expenditure Finance Committee & Public Investment Board
       There had been in existence a Standing Finance Committee of Parliament
presided over by the Finance Minister which considered and approved for inclusion
in the budget, estimates in respect of ‘new services’ and individual items of
expenditure costing over Rs.5 lakhs. Since its abolition in 1952, the expenditure
proposals of large schemes were being referred to a Departmental Finance Committee
in the Ministry of Finance, which comprised the Minister concerned in the Ministry
of Finance and officials from the Finance Ministry and the Administrative Ministry
concerned. On 10th August, 1956 the Ministry of Finance changed the name of the
Departmental Finance Committee to Expenditure Finance Committee.
       The expenditure Finance Committee has the Expenditure Secretary as its
Chairman and includes as members, the Integrated Financial Advisor of the
administrative Ministry concerned with the proposal, a representative of the Planning
Commission, and a representative of the Bureau of Public Enterprises. The E.F.C.
provides the Ministry of Finance with an opportunity to consider expenditure
proposal of amounts ranging between Rs.5 crones and Rs.20 crores, in their various
aspects both in regard to policy and details, before a formal sanction is accorded by
the Finance Ministry to the cost estimates of such projects. Investment proposals
involving expenditure of Rs.20 crores and above are examined by a Public
Investment Board set up in 1972, which is also presided over by the Expenditure
Secretary as its Chairman. Other members of the P.I.L. include the Secretary,
Economic Affairs, and the Secretary of the Planning Commission, the Secretary,
Industrial Development, the Principal Secretary to the Prime Minister, the Director
General, Bureau of Public Enterprises, and the Secretary of the administrative
Ministry concerned with the proposal. The Board examines the proposed projects
both from the point of view of their financial and economic aspects.

The existing Budgetary Process:
       The essential features of our country's budget and its budgetary process are
derived from the Constitutional requirements and the rules of business framed there
under. The relevant provisions of the Constitution are contained in Article 112 to 117,
202 to 206 and 260 and 267 of the Constitution of India.
       Article 112 (1) of the Constitution of India requires the Government to present
to both Houses of Parliament before the commencement of each financial year an
annual financial statement, known as budget, showing the estimated receipts and
expenditures of the Union Government in respect to that year. The President causes to
be laid before Parliament the annual financial statement. The Annual Financial
Statement or the Budget of the Union Government is presented to Parliament in two
parts; (1) The Central Budget, and (ii) The Railway Budget. Under the Indian


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Constitution, no expenditure can be incurred except in the manner as provided in the
Constitution, and in accordance with the law made by Parliament.
       The Railway Budget is prepared by the Ministry of Railways (Railway Board).
It is presented to Parliament preceding the General Budget. Under the Financial
Rules, it is the responsibility of the Ministry of Finance to formulate the
Government's budget for presentation to Parliament. The formulation of the budget is
done by the Ministry of Finance with the active assistance of the administrative and
executing authorities. The administrative departments frame their estimates of
receipts and expenditures and submit the same to the Ministry of Finance for
approval and incorporation in the budget.
       There are various types of decisions involved in budget formulation. The first
one is in regard to the size of the budget i.e. total expenditures and total receipts to be
included in the budget. This decision has to be taken keeping in view the state of the
economy and the prevailing economic conditions in the country. There would be a
number of problems in estimating various factors and consequently in making a broad
judgment in deciding on the size of the budget. The next decision which would need
to be made is in regard to a proper allocation of resources among various purposes.
       Decision-making in budget formulation has to be done within the existing
constraints. There are certain types of expenditure, like debt repayment, interest
payment, defence, salaries, food subsidies, export subsidies, etc. There are also `on
going' projects which cannot be stopped. These items of expenditure make a
considerable portion of the budget, already committed. This committed expenditure,
which is relatively no controllable part of the budget, constitutes more than seventy-
five percent of the total expenditure for the fiscal year. Therefore, whatever leverage
is available in budget formulation is confined to new projects or to rephrasing of the
Projects already under implementation. Decision making which gets confined to
allocating less than twenty-five percent of the budget provision available, needs to be
done with utmost care as these decisions are going to forestall future choices in the
subsequent budgets.
       According to constitutional requirements, estimates have to be prepared by the
Government for each Vote separately. The estimates of expenditure in the budget
show two types of amounts. One type pertains to the sums required to meet the
expenditure “charged” on the Consolidated Fund of India. The items of expenditure
covered by this category are set out in Article 122 (3) of the Constitution, and include
expenditure like the salary of the President, Presiding Officers of Parliament, the
Comptroller and Auditor General, and the Supreme Court Judges. This type of
expenditure is not submitted to the vote of the Lok Sabha. The other type of
expenditure, also met from the Consolidated Fund requires Vote of the Lok Sabha
after obtaining the recommendation of the President of India. A Vote on Account


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passed by Parliament gives authority to the Executive to spend money till the regular
budget is passed.
       The review and approval of the Budget proposals by Parliament proceeds in
four stages, i.e. (i) general discussion on the budget, (ii) discussion and voting on the
demands for grants, (iii) passing of the Appropriation Bill, and (iv) passing of the
Finance Bill. The occasion of the general discussion on the budget in Parliament is
meant to provide an opportunity to the members to discuss the financial and other
policies of the government. During this stage the members are free to discuss the
budget as a whole or any question or principle involved therein. Generally 20 to 24
hours are allotted for discussion at this stage.
       The second stage in the legislative approval of the budget commences with the
start of the debate on the demands for grants. At this stage the members may resort to
cut motions, like disapproval or policy cut, economy cut and token cut, to make the
Ministries aware of certain problems. About 120 to 140 hours are allotted for the
purpose of debate during this stage. However, at this stage of the discussion the
members can raise only those issues with which the administrative ministry, whose
demands for grants are under consideration, is concerned. It is Lok Sabha which is
empowered to discuss and vote demands for grants. It may, however, be mentioned
that during the allotted time for discussion, it is only a few Ministries demands for
grants which are discussed. The remaining demands for grants are put to the vote of
the Lok Sabha on the last day of the allotted period.
       After the demands for grants are approved by the Lok Sabha, a bill is
introduced to provide for the appropriation of moneys required to meet the grants.
According to Article 114 of the Constitution of India, the provision in the
Appropriation Bill is not to exceed, in any case the amount as previously asked for by
the government while presenting the demands for grants. Before the Appropriation
Bill is passed, a debate takes place again which is, however, restricted to matters of
public importance or Administrative policy relevant to the grants but not already
raised during the prior discussions. The passing of the appropriation bill completes
the authorization by Parliament of the Government expenditure.
       The Parliament then sets to approve the Finance Bill which contains the
proposals of Government for raising the required revenue. A General discussion on
the Bill takes place, which is followed by clause by clause discussion. This forms the
fourth stage in the approval of the budget by Parliament. The Budget is said to be
passed with the passing of the Finance Bill. It may be stated that the initiative in
regard to financial matters lies with the Executive in as much as the Demands for
Grants and Finance Bill are framed by it for presentation to Parliament.
       A budget implementation has to be accompanied by a proper accounting of
transactions. A revised accounts classification on functional lines to suit the needs of
the scheme of performance budgeting has been in use since April 1, 1974. The

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accounts are duly audited by an independent agency based by the Comptroller and
Auditor General. In the post-budget stage, parliament exercises financial control
through the appointment of three financial committees, namely the Public Accounts
Committee, the Estimates Committee, and the Committee on Public Undertakings.
       The Public Accounts Committee which discusses reports of the Comptroller
and Auditor General is generally able to cover because of paucity of time, only a
small percentage of the audit Paras. It comprises of members from both the Houses of
Parliament 15 from Lok Sabha and 7 from Rajya Sabha. The Estimates Committee,
first constituted in 1950, is composed of 30 members, all of whom are from Lok
Sabha.
       The Committee is mainly concerned with the efficiency appraisal of
departments. It examines the budget estimates of the departments of the Government
of India with a view to find out what economy and efficiency could be effected in
their functioning. The Committee on Public Undertakings, which was set up in 1964,
combines the functions of Public Accounts Committee and Estimates Committee in
relation to Public Undertakings. It is composed of 22 members, of whom 15 are from
Lok Sabha and 7 from Rajya Sabha.
       The financial committee of Parliament receives information from government
departments as well as from various other agencies. These committees have been
submitting unanimous reports. However, the recommendations of the financial
committees are advisory in nature, their rules being recommendatory and not
mandatory.




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                                           BUDGET




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                                                    BUDGET

ORIGIN
      In India, the first budget was introduced in the year 1800 by Sir James Wilson,
Finance Member of Viceroy's Council - British Model was transplanted.

A1M:
         (1)      Budget was introduced as an instrument to ensure accountability of
                  Executives to Parliament.
         (2)      In 1921, the post of C&AG was created and his report on the financial
                  transactions of the Govt. was brought under scrutiny by legislative
                  committee called Public Accounts Committee.
         (3)      The Deptt of Finance used budgeting system for exercising necessary
                  financial control over spending authorities.
         (4)      With the separation of “Accounting Functions” from audit in 1975,
                  C&AG was relieved of his responsibility of compiling of accounts. As
                  far as DAD was concerned in the year 1964, accounting work was
                  separated from Audit.

PROCEDURE FOR BUDGETING:
(1) Article 112 (I) of constitution, requires the Govt. to present to both houses of
Parliament before commencement of each financial year an "Annual Financial
Statement" known as Budget showing estimated receipts & expenditure of Union
Govt. for that year. It is submitted in two parts: (a) General Budget & (b) Railway
Budget. The formulation of Budget is done by Minister of Finance with the assistance
of admin & executive authorities, keeping in view the state of economy & prevailing
economic conditions in the country.
(2) Provision for committed expenditure which is not controllable, viz. debt
repayment, interest payment, defence, salaries, food subsidies, etc. (This accounts for
75% of the budget) Balance 25% only is available for plan expenditure.
(3) Stages of approval of Budget by Parliament:

         (a)      General discussion on the Budget.
         (b)      Discussion & voting on the demands for grants
         (c)      Passing of Appropriation Bill, &
         (d)      Passing of Finance Bill.




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The third stage, viz. “Appropriation Bill” is generally not to exceed the amount
included ‘demands for grants’. Passing of appropriation bill marks the authorisation
by Parliament to Govt. expenditure.
      Finance Bill contains proposals of Govt. for raising the required revenue to
meet the proposed expenditure.

(4) BUDGETARY CONTROL BY PARLIAMENT:
    (a) Parliament exercises financial control through three financial committees, viz:

         (i)      Public Accounts Committee,
         (ii)     Estimates Committees, &
         (iii)    Committee on Public Undertakings

    (b) (i) PAC discuss the reports of C&AG, i.e. a small percentage of audit Para.
       (ii) Estimates Committee discusses and debates the efficiency appraisal of
    Depts., i.e. finding out where economy and efficiency could be effected in
    functioning Deptts, &
       (iii) Committee on Public Undertakings (set up in 1964) combines the
    functions of PAC with Estimates committee.

(5)      PERFORMANCE BUDGETING:

         (a)       Concept/ Definitions:
         (i)      Budget is now an exercise for marshalling of fiscal and organisational
                  resources for attainment of benefits - i.e. secure the goal of efficiency
                  with economy.
         (ii)      It is a process for systematically relating the spending of funds to the
                  accomplishment of planned objectives
         (iii)     The annual budget is in essence of a work plan specifying the
                  programme targets to be achieved during the financial year.

         (b) Method
         The essence of P.B. lies in formulation of objectives which should be
         operational and capable of being converted into work assignments.
         (i)   Object/Line Item Classification serves the purpose of financial
               accountability and ensuring legality 8y regularity of expenditure.
         (ii) Functional classification relates to budgeting in terms of functions,
               programmes, activities and projects.



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Illustration

FUNCTION                   :        Agriculture, Education, Public Health


PROGRAMME                  :        High Yielding Variety


ACTIVITY                   :        Development of Rice Crop


      While objective classification lays emphasis on inputs on which money is
proposed to be spent thereby indicating the nature of expenditure viz. salaries, TA,
Minor Works, etc. programme/ activity classification highlights the purpose of
budgeted expenditure.

         (iii)    Essence of P.B. is to fix physical targets for accomplishment in respect
                  of each programme and activity to enable working out of corresponding
                  financial estimates. For this purpose, pre-determined norms/yardsticks/
                  standards for measuring inputs 8 outputs are to be carefully fixed.
         (iv)     Drawbacks of P.B: Qualitative output cannot be measured easily

         (v)    The P.B. has close links with new scheme of classification.
         (i)    Major Head -      Assigned to each function -
                                   E.G. Medicines
         (i-a) Sub Major Head - Sub Functions:
                                  (a) allopathic
                                  (b) Other systems of Medicine
         (ii) Minor Head -        Each Programme

         (iii) Sub-Heads            -        Activities, Schemes,
                                             Organizations covered by programme.

         (iv) Detailed Head -                Item wise.

      The above classification has a link between budget account heads, plan heads
of development and to facilitate monitoring, analysis of expenditure on functions,
programme activities to aid management functions.



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         (vi)  For successful operation of P.B. a style of management based on
               decentralized responsibility is, necessary by laying emphasis on
               operating levels where resources are utilized, services are rendered and
               work is accomplished.
       (vii) P.B. also requires efficient control and reporting systems, at top
               level, middle level and operational (lower level) in order to obtain a
               correct picture of physical accomplishment and related cost of each
               programme / activity. This could otherwise be called Management
               Accounting System.
       However, under present Government, account system, which is done on cash
basis, it is difficult to know the cost assignable to an activity.
       (viii) Zero Based Budgeting (ZBB): It requires, should not take earlier years
               expenditure as base, but should start
               on a clean slate, i.e. for ensuing year's budget and ground balance should
               be zero.

(a) Implications:

         (i)      Every year activities of an organisation should be viewed afresh and
                  priorities among competing claims for allocation of funds settled by
                  using techniques like cost benefit-cost effective analysis. It means that
                  complete re-examination of all ongoing programmes and activities
                  should be carried out by taking a total look instead of following
                  incremental approach to budgeting.
         (ii)     Identity and remove duplication or multiplication of activity by a
                  number of agencies of the same organisation. This is to eliminate
                  multiplication of infrastructural operations by various agencies.
         (iii)    Looking for a better alternative for incurring expenditure like solar
                  equipment instead of election gadget.
         (iv)     Aims of optimising expenditure by making it productive and efficient.
                  Evaluation of actual achievement by a sound system of monitoring and
                  review performance. Performance budgeting as an essential adjunct of
                  ZBB would ensure productivity and efficiency of expenditure.




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(b) How Being Followed:

         (i)      In the economic surveys for 1985-86 & 1986-87 presented to Parliament
                  embodies the requirement of initiating ZBB in all Government
                  Departments from 1987-88.
         (ii)     (a)    Identification of decision units.
                  (b)    Formulation & development of decision packages
                  (c)    Evaluation of ranking of decision package in order of priority.
                  (d)    Preparation of budget by allocating resources to activities or
                         decision packages by utilising hierarchical funding cut off levels.

What is Decision Unit?
      It consists of programme, scheme, project or an operation. Discretions &
options available should be suitably made use of by analytical study 8v review of
expenditure.

Decision Package
      It comprises         of comprehensive justification for budget estimates of an activity
by enquiring
             (a)           into the need for proposed expenditure
             (b)           specific purpose it will serve
             (c)           better alternative way of incurring expenditure.

(C) Methodology 8s Problems:
     (i)   Need for ZBB has arisen because of resource crunch and to solve the
           problems of allocating scarce resources among competing demands.
     (ii) Financing high priority decisions packages at the cost of low priority
           packages.

Problems
         (i)      Too much paperwork of unmanageable proportions. Linking of ZBB
                  with PB is necessary to increase the usefulness of the latter.
         (ii)     Involves extensive review of expenditure roughly 1/3 in a year
         (iii)    Constraints: Non-availability of trained person for applying evaluative
                  analysis/techniques like cost benefit - cost - effective analysis. Designing
                  a sound M.I.S. (Management Information System) so as to achieve the
                  desired objective.
         (iv)     Results of such analysis would lead to re-deployment of manpower,
                  material, machining, equipment which may become redundant.


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     BUDGET DOCUMENTS PRESENTED TO
           INDIAN PARLIAMENT




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                                   BUDGBT DOCUMENTS
                             PRESENTED TO INDIAN PARLIAMENT


Annual Financial Statement
1.  Under article 112 of the constitution, a statement of estimated receipts and
    expenditure of the Government of India has to be laid before parliament in
    respect of every financial year, which runs from Ist April to 31 March. This
    statement is the main budget document and is normally laid in Parliament in
    (the current year) in the month of February for the following financial year.
    The Annual financial statement shows the estimated receipts and payments of
    Government under the three parts in which Government accounts are kept.
    (i) Consolidated fund, (ii) Contingency Fund and (iii) Public Account
2.  All revenues received by Government, loans raised by it, and its receipts from
    recoveries of loans granted by it, from the Consolidated Fund. All expenditure
    of Government is incurred from the Consolidated Fund and no amount can be
    withdrawn from the fund without authorization from Parliament.
3.  Occasions may arise when Government may have to meet urgent unforeseen
    expenditure pending authorization from Parliament. The Contingency Fund is
    an imprest placed at the disposal of the President to incur such expenditure.
    Parliamentary approval for such expenditure and for withdrawal of an
    equivalent amount from the Consolidated Fund is subsequently obtained and
    the amount spent from Contingency fund is recouped to the Fund. The corpus
    of the Fund authorized by the Parliament, at present is Rs. 50crores.
4.   Besides the normal receipts and expenditures of Government which relate to
    the Consolidated Fund, certain other transactions enter Government accounts,
    in respect of which the Government acts more as a banker. For example,
    transactions relating to provident funds, small savings collections, other
    deposits, etc. The moneys thus received are kept in the Public Account and the
    connected disbursements are also made there from. Generally speaking, Public
    Account funds do not belong to Government and have to be paid back some
    time or the other to the persons and authorities who deposited them. A

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         parliamentary authorization for payments from the Public Account is,
         therefore, not required. In a few cases, a part of the revenue of Government is
         set apart in separate funds for expenditure on specific objects like sugar
         development, replacement of depreciated assets of commercial undertakings,
         etc. These amounts are withdrawn from the consolidated Fund with the
         approval of Parliament and department in the Public Account for expenditure
         on the specific objects. The actual expenditure on the specific objects is,
         however, again submitted for vote of parliament even though the moneys have
         already been earmarked by parliament for transfer to the funds.
5.        Under the Constitution, Budget has to distinguish expenditure on revenue
         account from other expenditure. Government budget, therefore, comprises (i)
         Revenue Budget and (ii) Capital Budget.
6.        Revenue Budget consists of the revenue receipts of Government (tax revenues
         and other revenues) and the expenditure met from these revenues. Tax
         revenues comprise proceeds of taxes and other duties levied by the Union. The
         estimates of revenue receipts shown in the Annual Financial Statement take
         into account the effect of the taxation proposals made in the Finance Bill.
         Other receipts of Government mainly consist of interest and dividend on
         investments made by Government. Revenue expenditure is for the normal
         running of Government departments and various services, interest charges on
         debt incurred by Government, subsidies, etc. Broadly speaking, expenditure,
         which does not result in creation of assets, is treated as revenue expenditure.
         All grants given to State Governments and other parties are also treated as
         revenue expenditure even though some of the grants may be for creation of
         assets.
7.       Capital Budget consists of capital receipts and payments. The main items of
         capital receipts are loans raised by Government from the public which are
         called Market loans, borrowings by Government from Reserve Bank and other
         parties through sale of Treasury Bills, loans received from foreign
         Governments and bodies and recoveries of loans granted by Central
         Government to State and Union territory Governments and other parties.
         Capital payments consist of capital expenditure on State and Union territory
         Governments, Government companies, Corporations and other parties. Capital
         Budget also incorporates transactions in the Public Account.

Accounting Classification
8.   The estimates of receipts and disbursements in the Annual Financial Statement
     and of expenditure in the Demands for Grants are shown according to the
     accounting classification prescribed under article 150 of the Constitution. This


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         classification is intended to allow Parliament and the public to make a
         meaningful expenditure.
9.       Under the constitution, certain items of expenditure like emoluments of the
         President, salaries and allowances of the Chairman and the Deputy Chairman
         of the Rajya Sabha and the Speaker and the Deputy Speaker of the Lok Sabha,
         salaries, allowances and pensions of Judges of the Supreme Court and the
         Comptroller and Auditor General of India, interest on the repayment of loans
         raised by Government and payments made to satisfy decrees of courts etc. are
         charged on the Consolidated Fund and are not required to be voted by the Lok
         Sabha. The Annual Financial Statement shows the expenditure charged on the
         Consolidated Fund separately.

Demands for Grants
10. The estimates of expenditure from the Consolidated Fund included in the
    Annual Financial Statement and required to be voted by the Lok Sabha are
    submitted in the form of Demands for Grants in pursuance of article 113 of the
    Constitution. Generally, one Demand for grant is presented in respect of each
    Ministry or Department. However, in respect of large Ministries or
    Departments more than one Demand is presented. Each Demand normally
    includes the total provisions required for a service, that is, provisions on
    account of revenue expenditure, capital expenditure, Grants to state and union
    territory Governments and also loans and advances to the service. In regard to
    Union Territories without Legislature, a separate Demand is presented for each
    of the Union territories. Where the provision for a service is entirely for
    expenditure charged on the charged on the Consolidated Fund, for example
    interest- payments, a separate Appropriation, as distinct from a Demand, is
    presented for that expenditure and it is not required to be voted by the
    Parliament. Where, however, expenditure on a service includes both ‘Voted
    and ‘Charged’ items of expenditure, the latter are also included in the Demand
    presented for that service but the ‘voted’ and `charged' provisions are shown
    separately in that Demand.
11. The Demands for Grants are presented to the Lok Sabha along with the Annual
    Financial Statement. Each Demand first gives the totals of `voted' and
    `charged' expenditure as also the 'revenue' and `capital' expenditure included in
    the Demand separately and also the grand total of the amount of expenditure
    for which Demand is presented. This is followed by the estimates of
    expenditure under different major heads of account. The break up of the
    expenditure under each major head between “Plan” and “Non-Plan” is also
    given. The amounts of recoveries taken in reduction of expenditure in the
    accounts are also shown. A summary of Demands for grants is given at the

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         beginning of thus document, while details of ‘New Service’ or ‘New
         Instrument of Service’ such as formation of a new company, undertaking a new
         scheme etc., if any, are indicated at the end of the document.

Finance Bill
12.   The proposals of government for levy of new taxes, modification of the
     existing tax structure or continuance of the existing tax structure beyond the
     period approved by Parliament are submitted to Parliament through the
     Finance Bill.
13   The Budget documents presented in terms of the Constitution have to fulfill
     certain legal and procedural requirements and hence may not by themselves
     give a clear indication of the major features of the Budget. To facilitate and
     easy comprehension of the Budget, these are described now. The same have
     been elucidated below to facilitate an easy comprehension of the budget.

Budget at a Glance
14. The document Budget at a Glance shows in brief receipts and disbursements
     along with broad details of tax revenues and other receipts. This document also
     exhibits broad break-up of expenditure - Plan and Non-Plan, allocation of Plan
     Outlays by Sectors as well as by Ministries/Departments and details of
     resources transferred by the Central Government to State and Union Territory
     Governments. This document also shows the revenue deficit, the primary
     deficit, the budgetary deficit and the fiscal deficit of the Central Government.
     The excess of Government's revenue expenditure over revenue receipts
     constitutes revenue deficit of Government. Taking into account the capital
     expenditure and capital receipts also there is a gap between receipts and
     expenditure of a year. This gap which is covered by issue of 91 days Treasury
     Bills, (mostly held by Reserve Bank), constitutes overall budgetary deficit.
     Apart from, this borrowing through Treasury Bills, Government also borrows
     funds under many schemes, which form part of capital receipts. The difference
     between the total expenditure of Government by way of revenue, capital and
     loans net of repayments on the one hand, and revenue receipts of Government
     and Capital receipts which are not in the nature of borrowing but which finally
     accrue to Government on the other, constitutes fiscal deficit. Primary deficit is
     measured by fiscal deficit reduced by gross interest payments.

Expenditure Budget Vol. 1
15. Expenditure Budget Vol. I deals with revenue and capital disbursements of
    various Ministries/ Departments and gives the estimates in respect of each


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         under `Plan' and `Non Plan'. This also gives analysis of various types of
         expenditure and broad reasons for the variations in estimates.
16.      Under the present accounting and budgetary procedures, certain classes of
         receipts, like payments made by one department to another and receipts of
         capital projects` or schemes are taken in reduction of the expenditure of the
         receiving department. The estimates of expenditure included in the Annual
         Financial Statement are for the net expenditure as will be reflected in the
         accounts, that is, after taking into account the recoveries. The document
         Expenditure Budget makes certain other refinements like netting expenditure
         of related receipts so that inflation of receipts and expenditure figure are
         avoided and there can be a better appreciation of the magnitudes of various
         expenditure. In separate annexure guarantees given by Central Government
         and outstanding as at the end of and contributions to International bodies are
         shown. A statement showing the estimated strength of establishment of various
         Government Departments and provision made therefore is also included in the
         documents.

Expenditure Budget Vo1.2
17. To understand the objectives underlying the expenditure proposed in the
     Demands for Grants a brief description of the various items of expenditure on
     major programmes included in the Demands together with the reasons for
     variation between the original budget and revised budget for the current year,
     and the requirements for the budget year are given in this volume.

Receipts Budget
18.   Estimates of receipts included in the “Annual Financial Statement are further
     analyzed in the Document "Receipts Budget”. The document gives details of
     revenue receipts and capital receipts and explains the estimates. Trend of
     receipts over the years and details of External Assistance received are also
     included.
19. To facilitate understanding of the taxation, proposals made in the Finance Bill,
     the provisions of the Bill are explained in the document titled Memorandum
     explaining the provisions in the Finance Bill.

Detailed Demands for Grants
20. The Demands for Grants are followed by the Detailed Demands for Grants laid
      on the table of the Lok Sabha some time after the presentation of the Budget,
      but before the discussion on Demands for Grants commences. These Detailed
      Demands for Grants show further details of the provisions included in the
      Demands of Grant as also of actual expenditure during the previous year. A

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         break up of the estimates relating to each programme/organization, wherever
         the amount involved is not less than Rs.10lakhs, is given under a number of
         detailed heads which indicate the categories and nature of expenditure Incurred
         on that programme, like salaries, wages, travel expenses, material and
         equipment, grants-in-aid, etc. At the end of these Detailed Demands are shown
         the details of recoveries' taken in reduction of expenditure in the accounts.
         Physical and financial aspects of major programmes and schemes are included
         in the Performance Budgets presented to Parliament separately by the
         Ministries/ Departments.

Resources transferred to States
21.   The Sate Governments are paid grants and loans for various Plan and Non-
     Plan schemes. Besides, sizeable amounts of tax revenues collected by the
     Central Government in the form of income tax, union excise duties and estate
     duty are also transferred to the State Governments. Some of the States also get
     grants to cover the gap in their revenue resources, as recommended by the
     Finance Commission. The total resources transferred to State and Union
     territory Governments are indicated in a statement incorporated in the
     document Budget at a Glance. Further details of these transfers by way of share
     of tax, grants-in-aid and loans are given in Expenditure Budget Vol. 1. The
     share of Union excise duties and bulk of the grants and loans are paid by the
     Ministry of Finance and are included in the Demand “Transfers to State
     Governments” presented on its behalf. The grants and loans paid by other
     Ministries are provided for in the Demands of respective Ministries.

Plan Outlay
22. Plan expenditure forms a sizeable proportion of the total expenditure of the
     Central Government. These Demands for Grants of the various Ministries show
     the Plan expenditure under each head separately from the non-Plan
     expenditure. The Expenditure Budget Vol. 1 also gives the total Plan
     provisions for each of the Ministries arranged under the various heads of
     development and highlights the budget provisions for the more important Plan
     programmes and schemes. A description of important schemes included in the
     Plan along with the objectives targets and achievements is given in the
     Performance Budget of the respective Ministry. Variations in the estimates of
     Plan expenditure are also explained in this document.

Performance Budget
23.   Performance Budgets are prepared and circulated to Members of Parliament
      by all Ministries/ Departments dealing with developmental activities. The

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         Performance Budget presents the budget of the Ministry/ Department in terms
         of functions, programmes and activities and gives appraised reports separately
         in respect of major central sector projects/ programmes estimated to cost
         Rs.100crores or more. It also includes a statement on the programmes and
         performance of the various public sector undertakings under the Ministry/
         Department indicating, among other things, the capacity installed and utilized,
         physical targets and achievements, results of operation, return on capital etc.
         Performance Budget serves the management as a tool of administrative and
         financial control in the implementation of development programmes.

Public Sector Enterprises

24.      A large part of the Plan expenditure incurred by the Central Government is
         through public sector enterprises. Budgetary support for financing outlays of
         these enterprises is provided by Government either through investment in share
         capital or through loans. Expenditure Budget Vol. 1 shows the estimates of
         capital and loan disbursements to public sector enterprises for both the current
         and the following financial years for Plan and Non-Plan purposes and also the
         extra-budgetary resources available for financing their Plans. A detailed report
         on the working of public sector enterprises is given in the document titled
         Public Enterprises. A report on the working of the enterprises under the control
         of the various administrative Ministries' is circulated to members of Parliament
         separately. The annual reports along with the audited accounts of each of the
         Government companies are also separately laid before Parliament. Besides, the
         reports of the Comptroller and Auditor-General; of India on the working of
         various public sector enterprises are also laid before Parliament. .

Commercial Department
25. The Railways and Telecommunication services are the principal
    departmentally-run commercial undertakings of Government. The Budget of
    the Railways and the Demands for Grants relating to Railway expenditure are
    presented to Parliament separately. The total receipts and expenditure of the
    Railways are incorporated in the Annual Financial Statement of the
    Government of India. However, to portray to actual working of these
    departments and not inflate either receipts or expenditure, the expenditure as
    reflected in the Receipts Budget 8b Expenditure Budget Vol. 1 and 2 has been
    taken net of receipts. The Demands for Grants of the Department of
    Telecommunications are presented along with other Demands of the Central
    Government.


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26. The receipts and expenditure of the Defence Department shown in the Annual
    Financial Statement are explained in greater detail in the document Defence
    Services Estimates presented along with the Detailed Demands for Grants of
    the Ministry of Defence.
27. The details of grants given to bodies other than State and Union territory
    Governments are given in the statements of Grants-in-aid paid to non-
    Government bodies appended to Detailed Demands for Grants of the various
    Ministries.
Annual report
28.  A descriptive account of the activities of each Ministry/ Department during the
    current year is given in the document Annual Report which is brought out
    separately by each Ministry/ department and circulated to Members of
    parliament at the time of discussion on the Demands for Grants.

Economic Survey
29.   The Budget of the Central Government is not merely a statement of receipts
     and expenditure. Since independence, with the launching of Five-Year Plans, it
     has also become a significant statement of government policy. The Budget
     reflects and shapes, and is, in turn, shaped by the country’s economic life. A
     background of the economic trends in the country during the current year will
     enable a better appreciation of the mobilization of, resources and their
     allocation reflected in the Budget. The document Economic Survey circulated
     to members of parliament in advance provides this background. The Economic
     Survey analyses the trends in agricultural, industrial production, money supply,
     prices, imports slid exports and other relevant economic factors having a
     bearing on the Budget.
30. The Budget of the Government has an impact on the economy as a whole. For
     a better appreciation of the impact of governmental receipts and expenditure on
     the other sectors of the economy, it is necessary to group them in terms of
     economic magnitudes, for example, how much is set side for capital formation,
     how much is spent directly by the Government and how much is transferred by
     Government to other sectors of the economy by way of grants, loans etc. This
     analysis is contained in the document Economic and Functional Classification
     of the Central Government Budget, which is brought out by the Ministry of
     Finance separately.

Appropriation Bills
31. After the Demands for Grants are voted by the Lok Sabha, Parliament's
     approval to the withdrawal from the Consolidated Fund of the amounts so
     voted and of the amount required to meet the expenditure charged on the

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         consolidated Fund is sought through the Appropriation Bill. Under article 114
         of the constitution, no -amount can be withdrawn from the consolidated Fund
         without the enactment of such a law by Parliament.
32.      The process of detailed consideration of the Demands for Grants is not
         completed before the commencement of the new financial year. To enable
         Government to carry on its normal activities from Ist April till such time as the
         Appropriation Bill is enacted, a Vote on Account is obtained from parliament
         through an Appropriation (Vote on Account) Bill.




   ZERO-BASED BUDGETING IN INDIA-A
   TOOL FOR PLANNING CONTROLLING
    AND RATIONAL ALLOCATIONAL OF
             RESOURCES




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          ZERO-BASE BUDGETING IN INDIA - A TOOL FOR PLANNING
         CONTROLLING AND RATIONAL ALLOCATION OF RESOURCES

1. INTRODUCTION
       India, a developing country at last has adopted the concept of Zero-Base
Budgeting (ZBB) in Budget of its own as well as those of Public Sector and other
Government Organisations. The obvious reason may be to make a departure from
ritualistic, mechanical budgeting which was bereft from rationale. The ZBB is
definitely a better management tool which involves an operating manager directly in
the budgeting process who identifies what are the different means available for
performing a function with identification of clear incremental effort level. Through
this process, the management or owner becomes aware of consequences of funding or
not funding a function or project and thereby assessing the cost-benefits. The final
ranking of decision packages ultimately identifies the funding direction and priority
decision for the year. Hence, ZBB is an effective Management tool which in addition
to planning and guiding, controlling and motivating, incorporates accountability of
the operating manager preparing the budget scheme, which is to be justified from
“Zero Base”.
       ZBB is a tool and so it is applicable to all the activities of an organisation
wherever there is discretion and can be applied to all units of all type and sizes.
       ZBB even though applied in India for the first time (at least openly by name),
the techniques have been practiced in countries like USA and Europe (to name some
places). But the indirect application of this technique can be traced to many
professionally managed companies in the private sector. In spite of that, the concept
ZBB is still considered to be at a developing stage and therefore the knowledge
development in this field is ever changing and expanding to a better one.

2. HISTORY OF DEVELOPMENT
       In 1964 while preparing the Budget for the US Department of Agriculture,
Zero-base Budgeting was used in the world for the first time by the Secretary. But
their experiment was not so successful because of various problems in implementing


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the same and so it was later discontinued. Later, an organisation named Texas
Instruments has since 1969 pioneered the thought of adoption of ZBB in their annual
budget which helped them in adopting Discretionary costs on a Zero-Base Budgeting
system and to implement Zero-Base Budgeting in selective divisions since 1970.
      In 1970, Jimmy Carter, as Governor of Georgia, appointed Peter A. Phyrr as
Consultant and introduced Zero-base Budgeting System in that state after making
some changes and made it more relevant to Planning, Budgeting and Control
functions of the Government. At present many a corporation has adopted ZBB and is
running it to the satisfaction of the organisation.
Zero Base Budgeting as a term may be defined as a process of allocation according to
the projected result. This demands each manager to justify in detail his entire
budgeted activities known as Decision Packages which are systematically analyzed,
evaluated and ranked in order of priorities. The focus here is on Decision' Making
with respect to a specific project identified with effectiveness (both cost and return).
Compared to traditional budgeting system, this new technique involves the
Operational Manager more in the entire planning and decision making activity which
automatically secures his commitments and therefore is implemented better with
attainment of corporate objectives.

3. THE TECHNIQUES
      As regard the technique, it is very simple. For every organisation, there are
various kinds of routine and non-routine activities, there are discretionary expenses
and nondiscretionary expenses, there are jobs where `standards can be determined,
there are non-standard jobs. For routine standard, non-discretionary, activities, '
input-output relationships can be controlled by standard costing or other cost control
system. It is the discretionary cost-non-routine activities, where input management is
required to be done based on expected output.

There are four specific steps in ZBB technique. These are:
(A) Determining and Analysing Objectives of the Firm,
(B) Identification of Decision Units,
(C) Determining the Decision packages,
(D) Formulating the Decision Packages (each discrete activity)
(E) Evaluating and Ranking the Decision Package by Cost/ Benefit Analysis,
(F) Implementation through Resource Allocation.

To explain further –
(A) Determining and Analysing Objectives of Firm: To establish an effective ZBB
      System, the organisational objective must be laid down very specifically. There


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         must be strategic planning and operational planning atmosphere. The top
         management may
              -     determine objectives for each organisational entity,
              -     establish operational guidelines,
              -     establish acceptable expenditure guidelines for the upcoming
                    budget year.

         Having fulfilled these tasks, the operational Managers identify the decision
         units of formulation of Decision Packages.
(B)      Identification of Decision Units: A Decision Unit is a tangible activity or group
         of activities for which a single manager has the responsibility for successful
         performance or achievement. The Decision Unit may be identified in different
         ways in different areas under different managers. A Decision Unit may be the
         traditional cost centre, a group of people (e.g. Accounts Staff or Maintenance
         Staff), projects, R&D, etc. But the necessary condition is that there should be a
         measurable output commensurate with resources committed during the
         budgeted year.

(C)       Determining the Decision Packages: Determining Decision Packages will lead
         to preparation of documents identifying the following:
                -     Description of function,
                -     Goals hold objectives of the function,
                -     Specific measures of the performance,
                -     The benefits to be derived from its funding,
                -     The consequence to result from its non-funding,
                -     The projected cost of the package,
                -     Alternative ways of performing the same activity.

         The Decision packages can be either mutually exclusive packages or
         incremental packages. The first one will be identifying the alternative way of
         performing of the same functions which are ranked according to priority vide
         which some packages are chosen and the others are discarded. The incremental
         packages identify the sequential level of output and funding which may be
         expanded on a particular function.

(D)      Formulating the Decision Packages: For formulation, one has to identify the
         functions, which may be a department, cost centre, a division or a project
         having several separate objectives which may be related or unrelated. Each
         objective would call for a separate activity which can be identified as a
         decision unit. The decision packages for each decision unit are formulated at

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         the lowest operational -level with cost benefit data. The manager of the
         decision unit must justify his proposal from a base or zero. Theoretically for
         each decision unit the manager must –
               (a) Analyse all proposed activities into decision packages,
               (b) Identify them as minimum activity or incremental similar activity
                      or new activity
               (c) Determine a rank-order for alternative decision packages.

Once developed and justified the decision packages are ready for ranking.
(E) Evaluating and Ranking the Decision package by Cost/Benefit Analysis: This
     is the most crucial part for the ZBB system. Here all the packages are ranked in
     order of decreasing benefit. The Packages are identified at each successive
     expenditure level and the disadvantages of all non-funding the additional
     decision packages below a cut-off level.
            This ranking process begins at the lowest managerial level where the
     decision packages are developed which are then forwarded to the next higher
     management level where they are merged with other comparable level decision
     packages for review and re -ranking with respect to the proper level of goal of
     the organisation as perceived at the organisational level.
            The same process is repeated till the final ranking is done at the top most
     level and those final ranking becomes the basis for resources allocation, i.e. for
     determining the final budget.

(F)      Implementation through Resource Allocation: The final decision packages
         which forms the basis of resource allocation is implemented through
         forecasting the available resources and initiating the action. If any change in
         funding decision occurs during the budgeted year, the ranking of the decision
         packages can be reexamined to determine whether re-ranking should be made,
         whether additional decision packages can be accepted or whether decision
         packages in. the process should be re-evaluated for termination.
               Adequate feed-backs must be supplemented for effective operation of
         Zero-base Budgeting System in any organisation. There should also be
         appropriate discussions amongst the managers regarding the reasons for those
         funding decisions.

4.       BENEFITS AND LIMITATIONS OF THE ZBB SYSTEM
                Zero Base Budgeting is applicable for any kind of organisation whether
         industrial, government or services and non-profit making organisations.
         Though, this is not a cure of ineffective budgeting system but it provides
         significant benefits at the discretionary spending areas. Zero-Base Budgeting is

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         appropriate for all kinds of functions but less applicable where no direct cost
         benefit ratio exists. There is no denying the fact that every level of
         management benefits from the ZBB Process and System, whether sharpening
         the planning and control tools, or evaluating the results of different limitations
         like the time required to implement and maintain the system that is considered
         to be uneconomical in many cases.
                In the initial years the process takes a long time which subsequently
         reduces as the organisation gains experience. The expenses that are required
         for introducing ZBB as compared to conventional budgeting might be higher in
         most of the cases. There may be greater amount of paper work associated with
         ZBB compared to the conventional system that also gets reduced over the
         years. Lastly, the political and other behavioral characteristics of the
         organisation may dilute the positive benefits available from ZBB System.
                Ultimately it is the human factor, which has to be taken into
         consideration for effective implementation of the system. Once people in the
         organisation are convinced of the benefits they will come forward and extend
         their cooperation to make it a success.




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                SANCTION OF PENSIONARY
                  AWARDS TO DEFENCE
                      PENSIONERS




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SANCTION OF PENSIONARY AWARDS TO DEFENCE PENSIONERS

PENSION SANCTION

       Sanction of Pensionary awards to service Officers and personnel of three
services including Defence Civilians is made by Chief CDA (P) Allahabad, CDA
(AF) New Delhi, CDA (Navy) Mumbai based on the relevant Government orders.
       At present, three are approximately 18.5lakhs Defence Pensioners. The annual
retire ment/wastage (Officers,' JCO (ORs) and equivalent in Navy and Air Force
including Defence Civilians) is approximately 55000 per annum.
       The annual expenditure on pension, from 1985/86 onwards is as under: -


                    Year                                    Pension Paid (Rs. In Crores)
                   1985-86                                            531.97
                   1986-87                                            689.29
                   1987-88                                            1214.80
                   1988-89                                            1589.61
                   1989-90                                            1878.59
                   1990-91                                            1670.11
                   1991-92                                            1840.08
                   1992-93                                            2312.69
                   1993-94                                            2530.76
                   1994-95                                            2704.10
                   1995-96                                            3197.12
                   1996-97                                            3682.61
                   1997-98                                            4947.42
                   1998-99                                            5923.58
                  1999-2000                                          11023.75
                  2000-2001                                          10243.73

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    SIMPLIFICATION OF PROCEDURES FOR SANCTION OF PENSION AND
            COMPUTERISATION OF PENSION SANCTION WORK

       As per existing orders on the subject, the work regarding sanction of pension
has been simplified with computerization Transmittal of bulky records such as sheet
rolls to the Pension Sanction Authority has been dispensed with. Instead, the Head of
the Offices/Record Offices of the service personnel are preparing the pension claims
on a simplified Last Pay Certificate-cum-Data Sheet and submitting them after due
verification by PAOs/Senior Accounts Officers. Pensioning Sanctioning Authority
scrutinizes these claims and issues Pension Payment Orders. Over 95% of the Cases
are sanctioned before the date of retirement of the pensioners. The remaining 5%
cases are those where the claims are not submitted in time to CCDA (P) due to
various factors like incomplete documents cases of permanent absorption in Public
Sector Undertaking/ State Govt. cases of premature retirement from service etc.

SIMPLIFICATION OF SANCTION OF FAMILY PENSION BY JOINT
NOTIFICATION

       At present family pension to families of pensioners including Service
pensioners, Armed Forces personnel is being notified simultaneously at the time of
retirement along with pensionary awards or is endorsed subsequently. This has
eliminated the delay in notifying the family pensionary awards on the death of the
pensioner.

DISBURSEMENT OF PENSION

      Pension to Commissioned Officers, Personnel below officer’s rank of Armed
Forces and Defence Civilians (including DAD and GREF) and their families are
payable through one of the following agencies:

1. Treasury Officers/ PAOs.
2. Defence Pension Disbursement Offices (DPDOs)

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3. Banks
4. Post Office (now only Kathua in J&K)

      In the past the role of pension disbursement was carried out mainly by
Treasuries and Post Offices. However, due to reluctance of Post Offices in handling
this work; the network of DPDOs was expanded in the eighties to take over this work.
There are 61 DPDOs all over the country covering 6.4 Lakh Pensioners (50 DPDOs
in the Northern States and 11 DPDOs are in the Southern States). Total No. of
various Pension Disbursing Agencies is as under

                  Public Sector Banks                          = 25000
                  Treasury Officers / PROs                     = 545
                  Post Offices                                 = 02
                  DPDOs                                        = 61

SIMPLIFICATION OF PROCEDURES AND COMPUTERISATION OF PENSION
DISBURSEMENT

       In order to streamline the pension disbursement in New Pension Disbursement
Scheme was introduced with the twin advantages of computerization and payment
through Public Sector Banks. A database in respect of Pensioners drawing Pension
through DPDOs has been created and the monthly pension payment journals are
being generated through computer for payment by DPDOs either in cash or through
the New Banking Scheme whichever is desired by the pensioner. The system among
other features also has incorporated adjustment of arrears on computer to avoid any
delay in its disbursement. The scheme with the cooperation of Public Sector Banks
has been working satisfactorily. Pensioners can also choose an alternative scheme, for
payment of pensions by Public Sector Banks through the nodal bank selected in each
district. Under both these schemes, pensioners have the option to draw their pension
through the nearest authorized branch of public sector banks. Their pension amount is
automatically credited monthly into their Saving Bank Account.

DISABILITY PENSION

      Disability pension is payable to Service Officers and JCOs / ORs on account of
disease or injury that is accepted as attributable to or aggravated by military service.
      The degree of disablement in the case of Service Officers is adjudicated by
Ministry of Defence and award is notified by the Pension Sanctioning Authority
concerned viz. CCDA (P), Allahabad, CDA (Navy), Mumbai and DCDA (AF), New
Delhi. In case of personnel below officer's rank the Medical Board proceedings along

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with pension papers are sent to CCDA (P) Allahabad for adjudication. The
percentage of disability as recommended by the Medical Board is reviewed by the
Award Panel of Officers on the recommendations of Medical Advisor (Pension)
Allahabad who is the representative of Director General of Armed Forces Medical
Services (DGAMS). It is a MA (P)'s responsibility to determine the degree of
disablement and ensure and ensure uniform application of the Entitlement Rules
1982. The CCDA (Pensions) on the recommendations of the Medical Adviser
(Pensions) then fixes the disability pension proportionate to the degree of disablement
and issues the Pension Payment Orders.
       Disability Pension is sanctioned and notified for a limited period varying from
1 to 5 years where the disablement is considered capable of improvement. The
pensioner is required to appear before a Re-Survey Medical Board (RSMB) for re-
assessment of the disability for a further period. On receipt of the Re-survey Medical
Board proceedings and the pension papers, the procedure outlined above is followed
by CCA (Pensions) for further continuation/ discontinuation of disability pension.
       Consequent upon the implementation of the 5th Central Pay Commission
minimum disability element of disability pension has been enhanced from Rs. 375/-
per month to Rs.1350/- per month.

IMPLEMENTATION OF VTH CPC RECOMMENDATIONS
      In pursuance of the decisions taken by the Government on the
recommendations of the 5th Central Pay Commission, orders have already been
issued by the Ministry of Defence for revision of pension with effect from January
01, 1996 of pre-January 01/ pre and post January 1996 Defence Pensioners/ Family
Pensioners. The important features of these orders inter-alia include grant of
minimum retiring pension/ family pension of Rs. 1275/- per month, enhancement of
the maximum limit of service/ death gratuity from 2.5 lakh to 3.5 lakh and payment
of a medical allowance at the rate of Rs. 100/- per month to all Armed Forces
Pensioners who are not provided medical facilities as out-door patients in Armed
Forces hospitals/ MI Rooms.




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              ORGANISATION OF CGDA AND
              REGIONAL CONTROLLERS OF
              DEFENCE ACCOUNTS AND IFAs,
              PIFs TO CROP LEVEL IFAs




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Historical Background
       In 1776 a Military Department was created in the Supreme Government of the
East India Company. Over a period of twenty two decades, the Military Department
underwent several changes. The Charter Act of 1833 brought about a number of
changes in the functioning of the Govt. of India. The Secretariat of the Government
was reorganized in four Departments, including a “Military Department”. In 1854,
the Military Accounts Departments of the three Presidencies, viz. Bengal, Bombay
and Madras were merged with the Military Department. In order to bring about a
closer association between the Adrninistrative Ministries and their Financial Advisers
and to enable the latter to play a more effective and constructive role, Government
had introduced the Scheme of Internal Financial Adviser, under which the Financial
Advisers became a part and parcel of the Administrative Ministry, thereby enabling
closer association in formulation and implementation of proposals. In May 1976, the
IFA system was introduced in the Deptt. of Defence Supplies and Defence
production. The system was extended to the Department of Defence in 1983. With
this, the complete integration of the former Defence Division of the Ministry of
Finance with the Defence Ministry was achieved

Present Organisational Setup

       The Ministry of Defence (Finance) is responsible for financial scrutiny,
vetting, advice and concurrence of all proposals of the Ministry of Defence, both
from the Defence Service Estimates, and the Civil Estimates. The above role and
functions are exercised through a hierarchical structure headed by the Financial
Adviser (Defence Services) and officers of the Finance Division. The SDF/FADS is
assisted by five Addl. Financial Advisers, about 20 Directors /Deputy Financial
Advisers, and about 30 Assistant Financial Advisers and 30 Sections. On the Defence
Acquisitions side, the SDF/ FADS is assisted by a Financial Adviser (Acquisitions), 3
Finance Managers, 3 Directors/ DFAs. The AFAs/Sections are common to both
Revenue and Capital side proposal examination/ vetting and scrutiny.

Role & Functions of the Finance Division

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       There is a separate Finance Division of the Raksha Mantralaya (Ministry of
Defence) for dealing with all defence matters having a financial bearing. The head, of
this division is the Financial Adviser (Defence Services).
       With a view to ensuring greater efficiency in administration and        quicker
disposal of the cases, Ministry of Defence has been delegated enhanced financial
powers in regard to expenditure met from the Defence Services Estimates. In matters
within the delegated powers of the Ministry of Defence, Financial Adviser (Defence
Services) or authorised Representatives of Finance Division are to be consulted
before exercise of financial powers. In all matters beyond the powers delegated to the
Ministry, the Finance Division functions as Associate Finance and is responsible to
and have the right of access to the Ministry of Finance and to the Finance Minister
through Secretary (Expenditure). If any important change in the duties grid functions
of Finance division or the Defence Accounts Department is contemplated, approval
of the Finance Ministry is necessary.
       The financial control exercised by the Finance Division is really a careful and
intelligent scrutiny of all proposals involving expenditure from the public funds, the
objective being the .safeguarding of economy, efficiency and propriety in public
finance. Before according financial concurrence to any proposals it involving fresh
expenditure, it is the duty Of the Finance Division to seek complete and
comprehensive justification for the proposals. The division may even challenge the
necessity for spending so much money or on such a scale to secure a given object. In
fact the Division may ask every question that might be expected from an intelligent
taxpayer for obtaining best value for Money.
       The rules provide, that no expenditure which has not been provided for in the
Budget or which having been provided, has not been sanctioned shall be authorized
without the concurrence of the Finance Division. The strict observance of this rule is
automatically ensured as the Controllers of Defence Accounts will not make any
disbursement in respect of charges not covered by regulations or Government orders.
       The according of financial concurrence by the Finance Division of the Ministry
of Defence falls generally in three, more or less, well defined stages:
       (1) the examination of the proposal on its merits.
       (2) the assessment of the financial effect.
       (3) if the proposal is accepted, the careful examination and Vetting of the
              final orders before issue.
       Sometimes two or more of these stages are combined; but all proposals having
a financial bearing inevitably follow through this process. This procedure ensures not
only close and adequate control by Finance, but also enables them to give
constructive suggestions and advice from the financial point of view a fairly early
stage of the consideration of a proposal.

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      The Finance Division prepares the Defence Budget and the Civil estimates for
the Civilian, Establishments of the Ministry of Defence. It also furnishes the Heads of
the Branches of the Armed Forces Headquarters and Heads of Civilian Deptts
/Organisations with all information necessary to enable them to discharge their
financial responsibilities in respect of the grants allotted to there and advises them in
regard to the preparation of proposals and the disposal of financial business generally.
Finance Division is also fully associated with formulation and implementation of
Defence Plans.
      The Financial Adviser (Defence Services) is assisted by Financial Adviser
(Acquisition) and 3 Finance Managers and 3 Directors with corresponding staff, for
processing Capital Acquisition cases of the Armed Forces of the Union. On the
Revenue Expenditure sides, FA (DS) is assisted by 5 Addl. Financial Advisers, and
about 22 Directors/Deputy Financial Advisers along
with corresponding complement of Assistant Financial Advisers and Sections to
carry out the examination, scrutiny, vetting and concurrence of all proposals of the
Defence Services Estimates and the Civil Estimates of the Ministry of Defence
having a Financial implication.
      In addition to these functions, the FA (DS) is also the Chief Accounting
Officer for Defence Services. It is in this capacity that he prepares the Appropriation
Accounts for the Defence Services Expenditure, and this responsibility is
dischararged through the Controller General of Defence Accounts

Controller General of Defence Accounts (CGDA)

      Defence Accounts Department, with the Controller General of Defence
Accounts at its head, functions under the administrative control of the Financial
Adviser (Defence Services). The duties of the Defence Accounts Department are
broadly audit, payment and accounting of all charges pertaining to the Armed Forces,
including bills for supplies. and services rendered and for construction/repair works,
pay and allowances miscellaneous charges, pensions, etc. , The Department is also
responsible for the audit of cash and stores account kept by the various units and
formations (including arsenals , workshops and storage depots) in the three services
and maintenance of pay accounts of Army Officers and combatants of Army. The
manufacturing accounts of Ordnance factories and the Naval Dockyard and the store
accounts of the Ordnance factories are also kept by the Defence Accounts
Department. They also maintain Accounts relating to works services and audit the
construction and other accounts relating to works project maintained by Military
Engineer Services. In addition to the duties mentioned above, the Controller of
Defence Accounts functions as Local Financial Advisers to the General Officers
Commanding-in-Chief of Commands, Area Commanders, etc.

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       The Defence Accounts Department comes under the Ministry of Defence with
the Controller General of Defence Accounts as the Head of the Department. The
organization of the Defence Accounts Department corresponds broadly to the
organization of the three Services. In addition, it also caters for the Ordinance
Factories. Defence Research & Development Organisation, the Canteen Store
Department, the Coast Guard, the Border Roads Organisation and inter-Service
Organisations under the Ministry of Defence.
       The field organization of the department dealing with the Army has been
structured by and large on the pattern of Army Commands/Areas. The location of
these Controller Offices is in close proximity to the Command Headquarters/Area
Headquarters in order to enable them to render prompt services to the
units/formations located in these areas. Under some of the Controllers' offices, there
are also Area Accounts Offices to render prompt services to the Sub-Areas. In
addition, there are Local Audit Offices to audit the accounts of the units and
formations and one Unit Accountants (AAO) is attached to each Garrison Engineer.
The Pay Accounts Offices (JCOS/Ors) are also under the jurisdiction of the nearest
Regional Controller. In all there are 12 Regional Controllers. In addition, one
Controller of Defence Accounts at Pune specifically deals with the pay and
allowances of the Commissioned officers.
       The remaining Controllers' Offices are patterned to serve a particular Service
or function except for CDA (Headquarters) at Delhi which covers all the Services,
Inter-Services Organisations and the Ministry of Defence. The Principal Controller of
Defence Accounts covering the Navy is located at Bombay. In the case of the Air
Force, there are two Controller of Defence Accounts, one Principal Controller at
Dehra Dun covering all the Commands and field areas and one Controller at New
Delhi covering the units located in Delhi including Air Headquarters. The Defence
Research & Development organization has expanded considerably, and there are a
number of projects being handled by the Defence Laboratories. Accordingly, there is
a Principal Controller for R&D at New Delhi and one Controller each at Bangalore
and Hyderabad to deal with all matters connected with the R&D Organisation with
regional Joint Controller of R&D functioning at Pune, Dehradun and Balasore. For
the Canteen Stores Department; the Controller is located at Bombay. Similarly one
Controller is separately established at Delhi for Border Roads.
       The organization of the Ordnance Factories has 39 Factories under the
Ordnance Factories Board. The entire payments, accounting, internal audit and
financial advice functions for these factories are looked after by the Chief Controller
of Finance & Accounts (Factories) at Kolkata. A Controller of Accounts in the
Headquarters and ten Controllers (Fys) located alongside major Ordnance and
Clothing Factories assist him. This complex accounts set up is a highly specialized


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segment of the department dealing with the cost accounts of the Ordnance and
Clothing Factories.
       The pension establishment of Defence has been growing substantially.
Consequently, the responsibility of the department to determine the entitlement and
make-prompt payments of pensions has increased. In order to handle this complex
task, there is a Chief Controller of Defence Accounts located at Allahabad to deal
with the sanctions of pensions in respect of the Service personnel (excluding Air
Force and Navy personnel which are sanctioned , by CDA (Air Force) and CDA
(Navy) respectively ) defend civilians and the staff of the Defence Accounts
Department. He is assisted by a Controller of Defence Accounts in the Main Office.
In addition, there is a Controller at Meerut dealing with the disbursement of pensions
through 49 Defence Pension Disbursing Offices (DPDOs) located in various States,
11 DPDOs also function under the CDA (Chennai), who is responsible for
disbursement of pension in four Southern States.
       The General Provident Fund Accounts of the civilian personnel of the Army as
well as the staff of the Defence Accounts Department are maintained by the joint
Controller of Defence Accounts (Funds) who functions under the administrative
control of CDA (Army), Meerut The GPF Accounts of other defence civilians are
maintained by the concerned functional Controllers such as Controllers of Finance &
Accounts (Fys), Controller of Defence Accounts (R&D), CDA (Navy) and CDA
(Border Roads). In addition, there is a Controller of Defence Accounts (Training) at
Meerut to take care of the training requirements of the personnel of the department.
       The Principal Controller of Defence Accounts (Headquarters) New Delhi deals
with the pay and allowances, traveling allowance claims and fund accounts of civilian
staff of Ministry of Defence, the Army and Navy Headquarters and the inter-Services
Organisations located at Delhi. Claims pertaining to contingent and rniscellaneous
charges of the above said organizations are also dealt with by this Controller; in
addition, this Controller also handles all Work relating to payments of foreign
contracts including contracts entered into by the Department of Defence supply,
payments for purchases made by Army Purchase Organisation and the work relating
to London Account Current.




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            INTEGRATED FINANCIAL ADVICE
                    (IFA) SYSTEM




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                               IFA SYSTEM
                                    IN
                   DEFENCE ACCOUNTS DEPARTMENT (DAD)

Evolution of IFA System in Govt. of India:
       The Integrated financial Advice system was introduced in various Ministries of
Govt. of India after October 1975. The basic aim of the scheme is to expedite
decision making by delegation of financial powers to the executive authorities which
are to be exercised in consultation with the Integrated Financial Advisors to bring in
the concept of authority with responsibility and accountability. The IFA system was
introduced in the Department of Defence Production in 1976 and in the Department
of Defence in August 1983.

Introduction of IFA System in Service Headquarters:
      In the light of recommendations of a sub Committee of the Committee on
Defence Expenditure, the Ministry of Defence decided in Nov. 1991 that exercise of
delegated financial powers by the authorities lower than Ministry of Defence should
also be with the advice of local financial advisors. The 19th Estimate Committee of
Parliament was also assured in this regard in 1992-93. These developments
culminated in the introduction of IFA system in the three Service Headquarters,
Headquarters Maintenance Command and Director General Border Roads as follows:

         i.        IFA Naval HQrs                     -           March 1994
         ii.       IFA Air HQrs                       -           April 1994
         iii.      IFA Army HQrs                      -           August 1994
         iv.       IFA (BR)                           -           March 1995
         v.        IFA (MC) Nagpur                    -           September 1995


Objective of IFA System:

     The objective of IFA system is to provide independent financial inputs to the
competent financial authorities (CFAs) in exercise of delegated financial powers to

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expedite decision making thereby providing greater satisfaction to the troops
deployed in the field as well as enhancing operational preparedness.




Historical Overview:
          IFA system introduced in Ministries in 1975
          Introduced in Ministry of Defence in 1983
          Introduced in three Services HQrs. in 1994
          Prior to April 2002, Commands & below had limited powers for
           procurements.
          Delegation of Financial Powers to Commands & below from April 2002
          IFA system created to help the lower formations in exercise of enhanced
           financial powers.

Evolution of IFA System in DAD:

First Phase: -
        IFA Naval HQ                                          :March            1994
        IFA Air HQ                                            :April            1994
        IFA Army HQ                                           :August           1994
        IFA(BR)                                               :March            1995
        IFA(MC) Nagpur                                        :September        1995

Present position: -
       Three IFAs at Army HQ                                  : (JS level 18400-22400)
       Seven IFAs at Command HQ                               : (JS Level 18400-22400)
       IFA AT CORPS HQ (13)                                   : (Accredited Joint CDA)
       Tri –service institutions                              : (Accredited Joint CDA)
       IFA AT DEPOTS (6)

Financial Advice

     IFAs available to provide financial advice to TLBH & HLBH at Army HQ and
      also at Command HQ
     Seek their advice for



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         o To ensure that appropriate financial accounting and procedures have
            been established
         o Instructions and guidance on financial matters issued to all, including
            plans & projects formulation
         o Intermediate & lower BH receive guidance in budget preparation and
            review of expenditure
     IFAs primarily accountable to HLBH for advice given / action taken on
      expenditure proposals or budget management- also accountable to MoD
      Finance and CGDA for integrity of financial system in their AOR

                                               Structure of IFA

                                                      MoD Finance


                               Integ HQ Army                                              Pr IFA


              IFA M                 IFA Q               IFA Ord                IFA                     IFA
                                                                             Command               Navy, AF, etc


                                                                         IFA COD/ CVD etc


                      POSITIONING OF IFAs IN THREE SERVICES
                           (i) ARMY (ii) NAVY and (iii) AIR FORCE

                                      (i) ARMY
       Dedicated IFAs in the Army HQrs. and Command Hqrs. have been posted at
the level of senior administrative Grade (SAG) level whereas IFAs in CODs have
been posted at the level of Senior/Junior Time Scale STS/JTS officers as per details
given below:
      Army HQrs.              Command Headquarters           Other Formations
     IFA Army/O       IFA Western Command
                                                             COD Kandivali
                      (Chandimandir).
     IFA Army/Q       IFA Southern Command (Pune)            COD Dehu Road
     IFA Army/M       IFA Central Command (Lucknow)          COD Delhi Cantt.
                      IFA (Northern Command)
                                                             COD Agra
                      Udhampur
                      IFA (Eastern Command) Kolkatta         CAFVD Kirkee


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                              IFA South Western Command
                                                                                      COD Chheoki
                              (Jaipur)
                              IFA Army Training Command
                              (Simla)


                                                    (ii) NAVY

      IFAs at SAG level have been posted at Naval HQrs., Western Naval Command
Mumbai and Southern Naval command Kochi and an Officer at Junior
Administrative Grade (JAG) level has been posted as IFA at ENC. IFAs have been
provided in ASDs/MS depots at Vizag and Mumbai at JAG/STS/JTS level

                       Naval Headquarters and
         Sr. No.                                                    Naval Depots/Dockyards
                          Command Hqrs.
         i            IFA Naval Hqrs (SAG).                  FA to MS Mumbai (STS)
         ii           IFA WNC(SAG)                           FA to ASD Mumbai (JAG)
         iii          IFA SNC(SAG)                           FA to ASD Vizag(JTS)
                      IFA ENC (JAG)                          FA to MS Vizag (JTS)
         iv                                                  FA to Flag officer of Goa Area.
                                                             And Flag officer of naval aviation
                                                             (STS)

                                                   (iv)     AIR FORCE

      IFAs at SAG level have been posted at Air HQrs. New Delhi and Maintenance
Command, Nagpur. The IFAs at other Commands are at JAG/STS level. Dedicated
IFAs have been positioned to provide finance cover to nine BRDs / EDs. IFAs have
also been nominated for providing IFA cover to Air Force Wings, and other Units
and formations numbering 133.

        Sr.
                 Air Headquarters               Command Hqrs.                       IFA to Depots
        No.
               IFA                                                         9 IFAs (STS/JTS)in
         I                                    IFA MC(SAG)
               (Air HQrs.) (SAG)                                           EDs/BRDs
                                                                           IFAs Nominated for 133
         ii                                   IFA WAC (JAG)                units &formations of Air
                                                                           Force at JTS& STS level
         iii                                  IFA SWAC (JTS)

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         iv                                   IFA CAC (JAG)
          v                                   IFA EAC (JAG)
         vi                                   IFA SAC (JAG)
                                              IFA Training
        vii
                                              Command (JAG)

                                                  (iv) OTHERS

       In DGBR, an IFA of SAG level has been posted. IFA at CIDS HQrs New
Delhi is also an SAG level officer and the IFA Andaman Nicobar Command (ANC)
is a JAG level officer. SAG level officers have also been positioned as IFA (R&D)
and IFA Project 75.

                          (V) Principal CsDA and CsDA working as IFAs

     The following PCsDA / CsDA are also functioning as IFAs in addition to their
normal functions of payment and audit:

         PCDA (CC) Lucknow                            CDA (Army) Meerut                  CDA Bangalore
         PCDA (SC) Pune                               CDA Jabalpur                       CDA Patna
         PCDA (AF) Dehradun                           CDA Chennai                        CDA Guwahati
         PCDA (Navy) Mumbai                           CDA Secunderabad                   CDA (SWC) Jaipur
         PCDA (NC) Jammu




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   DELEGATION OF FINANCIAL POWERS TO ARMY AUTHORITIES FOR
 REVENUE AND CAPITAL EXPENDITURE VIDE MoD LETTER DATED 26-7-
                             2006

                                  No A/89591/FP-1/1974 /2006/D (GS-I)
                                          Government of India
                                          Ministry of Defence
                                              New Delhi
                                          Dated 26 July 2006
To

The Chief of the Army Staff

DELEGATION OF FINANCIAL POWERS TO ARMY AUTHORITIES FOR REVENUE AND
CAPITAL EXPENDITURE

Sir,
       I am directed to convey the sanction of the President for delegation of financial
powers to the Army Authorities as contained in the Schedules to this letter for incurring
expenditure under the Revenue and Capital heads of account.
2.       The delegated financial powers in respect of the authorities specified in the
Schedules will supersede the financial powers laid down in respect of the authorities for
the specified purpose in the FRs and Schedules to MoD letter No A/89591/693/FP-
1/2002/D (GS-I) dt. 22 Apr 2002 or any other previous orders/ instructions on the subject.
Any delegated powers conferred by Regulations other than Financial Regulations or
Government or Army Instructions will, however, continue to remain in force. Powers
conferred for Projects specifically sanctioned by the Government will also continue to be
operative for the duration of such projects.
3.     The delegation of financial powers for Capital procurements is to be exercised as per
the procedures laid down in DPP 2005, as amended from time to time. The Competent



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authority to accord various stage approvals as per DPP procedure and the composition of
Contract Negotiation Committees will be laid down separately by Army HQ with the
approval of MoD.
4.       The exercise of the financial powers will be governed by existing orders and
instructions on the subject, as amended by the Government from time to time, and
instructions /guidelines contained in the enclosed Appendix as also those given in Notes in
the Schedules. Standard Operating Procedures (SOPs) relating to the exercise of the
financial powers as issued and amended from time to time will be strictly followed.
However, where SOPs conflict with the Govt. Rules / Instructions, the latter will prevail.
Cases not covered by the delegated financial powers will be referred for sanction of the
Ministry of Defence.
5.    The expenditure incurred in exercise of financial powers contained in Schedules I to
XXII (except for Capital Works) will be debited to Major Head 2076, and relevant Minor
Heads under this Major Head i.e. the expenditure covered by the delegated financial
powers in these Schedules largely relates to Revenue Expenditure of the Army. The
delegation of financial powers to the Army CFAs and DGAFMS given in Schedule XXIII
pertains to Capital acquisitions / procurements and expenditure thereon will be debited to
Major Head 4076, Sub Major Head 01- Army and relevant Minor Heads there under.
6.       All purchases exceeding Rupees five lakhs in value will be made on the advice of
the Tender Purchase Committee to be constituted by the CFA and will include the IFA or
his rep as a member. The composition of the TPCs in conformity with the foregoing will be
specified in relevant SOPs/AIs. Further, the TPC / PNC will only be a recommendatory
body for procurements which will be sanctioned at the next higher level by the CFAs in the
Services, with the concurrence of respective IFA.
7.       The requirement of TPCs does not apply to procurement of equipment/items made
against DG S & D Rate Contracts or Rate Contracts finalised by the nominated Services
authorities or DGAFMS under their delegated powers. All CFAs delegated financial powers
to incur expenditure as indicated in the Schedules will be Direct Demanding Officers for
placement of orders against DGS & D rate contracts to the extent of the respective
financial powers and in respect of the items for which the financial powers have been
delegated.


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8.     The powers to sanction indents, contracts and purchases in respect of central
procurement of revenue stores on PAC basis and on non PAC single tender basis have
been laid down in Schedule XIV C and D. The powers to purchase items/services on PAC
basis in respect of Schedules I, XIX and XX will be 50 % of the powers provided to CFAs
in the respective Schedules. The PAC certificate is, however, to be given at the level of
PSO/APSO /DG /ADG at Army HQ and by the GOC-in-C/Corps Commander and Heads of
Establishment /Formations or Units not below the rank of Maj Gen in the Commands. In
the case of purchase on single tender basis for non-proprietary items, the financial limits in
the Schedules (other than Schedule XIV) will be Rs.15,000/- per transaction without
consultation of IFA and Rs.1,20, 000/- with the consultation of IFA.
9.    Purchase of goods up to the value of Rs.15.000/- (Rupees Fifteen thousand only) on
each occasion may be made without inviting quotations or bids on the basis of a certificate
to be recorded by the competent authority in terms of Rule 145 of GFR 2005.
10.         The financial powers to be exercised in consultation with CDA/ IFA shall be
exercised by authorities in Army Headquarters in prior consultation with the IFAs and by
authorities      below      Services      Headquarters           in   prior   consultation        with    accredited
PCsDA/CsDA/ officers specified by CGDA till IFAs are placed in the Commands at the
level of Corps Commanders and below and the requisite structure for rendition of financial
advice is created.
11.        Financial advice/ concurrence will be provided in writing and will be based on
regular noting on file. However, in cases of extreme urgency, where time does not permit
floating of regular files, decision could be taken in meetings/discussions for which detailed
deliberations/minutes will be recorded. Proper briefing papers with the approval of the CFA
will be made available to the IFA / CDA sufficiently in advance of the meeting/discussions.
All such cases should be followed up immediately by regular noting on file where the
decisions taken during meetings/discussions will be recorded and financial advice
recorded in writing. With a view to avoid or reduce cross- noting and back references, the
proposals initiated on files should be comprehensive and self contained and include all
relevant facts and data pertaining to the case. The administrative authorities are required
to make available any information, data or documents relevant to the case as asked for by
the IFA / CDA for rendition of financial advice in the proper perspective.


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12.     In matters within the delegated powers, it is open to the CFA to overrule the advice
of the CDA/IFA by an order recorded in writing containing a gist of the objection of
CDA/IFA and reasons for overruling the advice. A copy of the order overruling the financial
advice will be endorsed to the next higher CFA and the IFA. In such cases it will be open
to the IFA to report the matter to the next higher IFA for pursuing the matter further with
the higher CFA or dropping it as deemed fit.
13.     The financial powers contained in the Schedules are in respect of each transaction
and may cover procurement of one or more items within the financial powers specified.
Further the purchase orders will not be split up in order to bring them within the delegated
financial powers of a lower CFA. The exercise of the financial powers is also subject to
availability of funds in the sanctioned budgetary allotment under the relevant Budget Head.
14.     Powers delegated to specified Army Authorities for exercise during war, hostilities
and special operations without consultation of IFAs will become operative only on the
issue of a Govt. order declaring such a situation or ordering of a Special Operation by the
Army HQ, inter-alia indicating the overall ceiling of funds for this purpose.
15.      In the case of import purchases under various Schedules (Capital and Revenue)
separate approval for release of FFE will not be required and release of FFE will only be
noted at Addl Directorate General of Financial Planning/FP-3 at Army HQ after
expenditure angle approval for the purchase has been granted by the CFA.
16. CVC guidelines issued from time to time on purchase/procurements/other financial
dealings by Central Govt. Departments will be strictly complied with while processing
cases in exercise of the delegated financial powers.
17.     The financial powers contained in the Schedules will take effect from the date
of issue of this letter. However, in respect of powers for ‘Write off of Losses’ given
in Schedules V, VI & VII and ‘Regularization of Audit Objections’ given in Schedule
XVI the cases / objections outstanding as on date of issue of this letter may be
settled under the enhanced financial powers conferred herein. This will be subject to
the concerned CDA submitting an audit report to the CFA.
18.      Further amendments, if any, to the provisions of various Schedules will be
processed by the concerned administrative sections in the MoD dealing with the subject
matter.


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19.      This issues with the concurrence of Ministry of Defence (Fin) vide their Dy No 4894/
Addl FA (M) dated 18 Jul 2006.
                                                               Yours faithfully,
                                                                     -SD-
                                                                  (T Rajeswari)
                                                                    Director
Encls: 1. Detailed Guidelines for Exercise of Delegated Financial Powers
           2. Twenty three Schedules (Pages 1 to 76)

Copy to:-

CGDA: - 20 copies including one ink signed copy for dissemination to CsDA
DG ADS - 5 copies
S.O. to Def Secy
PPS to Secy (Def Fin)
PPS to Spl Secy (Acq)
PPS to Addl Secy (P)/ Addl Secy (T)
All Joint Secretaries in MOD
All Addl FAs & JSs in MoD (Fin)
All IFAs
All HQ Commands
All PSOs


Detailed Guidelines: Appendix to the Govt. letter dated 26-7-2006 (Refers to Para 4 of GOI MoD
letter No A/89591/FP-1/1974/D (GS-I) Dated 26 Jul 2006)




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                                                                                 Appendix

(Refers to Para 4 of GOI MoD letter No A/89591/FP-1/1974/D (GS-I)
Dated 26 Jul 2006)

                   DETAILED GUIDELINES FOR EXERCISE OF DELEGATED
                            FINANCIAL POWERS IN THE ARMY

General
1.   The Committee on Defence Expenditure in 1990 had recommended substantial
delegation of financial powers to the Services in a number of areas of functioning. In line
with these recommendations, the New Financial Management Strategy was implemented
in the Services during the period 1995 to1997 and the concept of Authority cum
Responsibility Centres introduced selectively for the Field Logistics units.                         Subsequently,
a major review of the financial powers of the three Services was undertaken by the
Committee on Delegation of Financial Powers set up in 2001, based on the
recommendations of the Group of Minister (GoM) Report on Higher Defence Management.
The outcome of their recommendations was the Govt of India, Min of Def letter issued on
Enhanced Delegation of Financial Powers to Army Authorities vide MoD letter No
A/89591/693/FP-1/2002/D(GS-I) dt 22 Apr 2002.                       With a view to further decentralize the
process of decision making, remove any anomalies and inadequacies to make the system
more effective, the powers delegated vide the above orders and other Govt letters
delegating financial powers to the Services CFAs, as amended to date, have been
reviewed.
2.       The Revised Delegation of Financial Powers is based on the recommendations of
the Committee set up by the RM under FA (DS) in Dec 2005, as a sequel to the PMOs
directions to Review the Delegation of Financial Powers to the three Service. The general
principles and policy guidelines given by this Committee have been kept in view while


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further enhancing the financial powers of various CFAs, as well as delegating powers to
authorities who were overlooked in the earlier review of 2002. The provisions of DPM 2005
and GFRs 2005 have also been kept in view.
3.       Delegation emphasizes `Value for Money’ which encompasses economy, efficiency
and effectiveness.          The above concern will be reflected by the budget allottees by
preparation of suitably prioritized Annual Procurement Plans on the Revenue side, through
more detailed planning and the establishment of priorities, supplemented by proper and
planned utilisation of allocated resources. The enhanced delegation of financial powers
has linkage with the budget allotment, placed with the respective CFAs and would optimize
its utilisation.


Budget Management
4.       The Vice Chief of the Army Staff is the Top Level Budget Holder (TLBH) of the
Army under the New Financial Management Strategy. The Revenue budget of the Army
will be allocated by the TLBH among the Authority-cum-Accountability Centres (High Level
Budget Holders) at Army HQ, namely DCOAS (IS&T), DCOAS (P&S) AG, QMG, MGO and
E-in-C etc. The HLBHs will allocate funds to the Intermediate Level Budget Holders (ILBH)
i.e., DGs and ADGs who will in turn sub- allot funds to the budget centres. The allocated
budgets and the outcomes will be used as a tool for monitoring the performance of such
centres.
Budget Centres
5.       The present Revenue budget management places emphasis on centralised control
of expenditure and resource inputs. To fit in with the outcome-oriented budgetary system
of New Financial Management Strategy, budget centres will acquire the management
responsibility for the whole range of expenditure and receipts that fall within their areas.
Within the limits of their delegated authority, budget centres will have the freedom to
manage their budgets so that objectives and targets are achieved in the most economic,
efficient and effective manner.
Financial Powers




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6.       Schedules I to XXIII (Army) enclosed with the Govt Letter stipulate the financial
powers and other instructions/restrictions that have to be followed by the CFAs with
reference to the particular purpose for which the powers stand delegated therein.


Financial Advice
7.       The Integrated Financial Advisors are available to provide financial advice to the
TLBH and HLBHs at Army HQ and also at HQ Commands.                                                 As such, their
advice/expertise should be sought for ensuring that:-
         (a)      Appropriate financial accounting systems as well as procedures have been
         established and are functioning properly in accordance with the accounting
         procedures laid down by the Government.
         (b)      Instructions and guidance on financial matters are issued to all concerned
         including that relevant to formulation of Plans and Projects.
         (c)      Intermediate and Lower Level Budget Holders receive guidance in the
         preparation of budgetary estimates and monitoring as well as review of expenditure.


8.       The IFAs are primarily accountable to the HLBHs for advice given or action taken
on their behalf on expenditure proposals or budget management that is needed by the
former to meet his objectives. In addition, they are accountable to the MOD (Finance) and
to the CGDA for the integrity of the financial system in respect of areas of their
responsibility.


Authority of Executive
9.   In matters within the delegated financial powers, the CFA is recognized as the ultimate decision
maker. It will be open to the CFA to overrule the advice of the CDA/IFA by an order recorded in
writing containing a gist of the objection of IFA / CDA and reasons for overruling the advice. A
copy of the order overruling the financial advice will be endorsed to the next higher CFA and the
IFA. In such cases it will be open to the IFA to report the matter to the next higher IFA for pursuing
the matter with the higher CFA or dropping it as deemed fit.


Manner of Exercise of Financial Powers


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10.     The financial powers delegated in the Schedules are personal to the officer and
cannot be delegated to any subordinate officer except as indicated in Para 11 (b) to (e)
below, in terms of Rule 65 (a) and (b), FR Pt I, 1983 Edition.
11.      (a)       The officer possessing financial powers is personally and unreservedly
         responsible for any orders purporting to be issued in accordance with the degree of
         relaxation permitted by this paragraph whether the communication conveying the
         orders is signed by himself or by an officer subordinate to him.
         (b)       On the strict understanding that the sole responsibility rests on him, an
         officer possessing financial powers may authorise a staff officer to sign
         communication and documents of a financial character on his behalf, provided that
         the name of the officer who is authorised to sign is communicated to the audit
         officer concerned and that concurrent authorization to several officers to the full limit
         of powers is not made. In such cases, it shall not be necessary for the officer
         possessing financial powers himself to sanction and sign communications and
         financial documents in respect of each item personally.
         (c)       When an officer possessing financial powers is absent on leave and no
         officer has been formally appointed in his place, financial responsibility will rest on
         the officer actually performing his duties who will for the time being exercise the full
         powers of the absentee. The subordinate officer’s signature in these cases should,
         however,           indicate            that   he   signs    “for   ..........   ..............   absent     on
         ...................................”
         (d)       When an officer possessing financial powers is absent on temporary duty or
         tour, he may permit in writing another officer to sign letters on his behalf. An audit
         officer will accept the subordinate officer’s signature as implying that the orders
         have been approved by the superior officer, provided that the signing officer signs
         “for ...............................absent on tour/ temporary duty”.
         (e)       When an officer possessing financial powers has been posted out and no
         officer has been formally appointed in his place, financial responsibility will rest on
         the officer actually performing his duties who will for the time being exercise the full
         powers of the appointment.




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12.    Monetary Limits. The monetary limit, which has been set in each case, extends to
each separate sanction. The criterion in every case is the total cost of a measure and no
measure which requires the sanction of higher authority shall be sanctioned by a lower
authority in installments.




Purchases/ Mode of Tendering
13.      Open/Limited Tendering. Open Tender Enquiry/Limited Tender Enquiry (OTE /
LTE) up to laid down financial limits of respective CFAs will be resorted to in consultation
with IFA as per norms laid down in Chapter IV, Para 4.3 of DPM 2005. There is a need to
make broad based specifications to ensure competition for common user items. Vendor
registration and Vendor Listing should be availed for issue of LTE. Vendor registration
should be periodically updated and such data base shared both intra-service and inter-
services. Towards this end, electronic networking of such data base between the Services
CFAs, IFAs, the MoD and MoD (Fin) needs to be established in a time bound manner.
14. Single Tender Purchases. Keeping in view the fact that procurements should ideally
be through competitive bids with broad-based QRs, greater care needs to be exercised
in regard to Single Tender and PAC purchase cases. Single tendering for non-PAC
items is to be resorted to only on grounds of urgency or operational or technical
requirements. The reasons for single tender enquiry (STE) and selection of a particular
firm must be recorded and approved by the CFA prior to single tendering as stipulated in
Chapter 4.2 of DPM 2005 and provisions of Rule 154 of GFR kept in view. Further,
purchase on STE basis should be made from reputed firms after determining the
reasonableness of rates.
15.      PAC Procurements. PAC status will be assigned as per procedure laid down in the
DPM 2005 (Para 4.1.1 & 9.7 refers) in consultation with the IFA. The PAC Certificate has
to be given at a level not below that of PSO / APSO / DG /ADG at Army HQ and by the
GOC-in-C/Corps Commander and Heads of Establishment /Formations or Units not below
the rank of Maj Gen in the Commands. CFAs will keep the following in mind:-




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         (a) Bought Out Item Analysis. PAC bestows a monopoly status on the Supplier
         and reduces the Buyer's leverage. In order to minimise the disadvantage, PAC
         status should be awarded with great care.
         (b) Availability. No other manufacturer is available.
         (c) Standardization. The need to minimise spares support problems.
         (d)    Price Analysis. In some cases, PAC items could be bought cheaper from
         distributors, stockists and trade than from OEMs. However, in such cases the
         former may be asked to show necessary authorization/ certification from the OEM
         with regard to quality of the items.
16. Items Developed by Defence PSUs. When Defence PSUs / OFB have specifically
developed an item for the Department of Defence or have taken TOT, such sources could
be treated at par with the PAC firms. However, this will not be applicable to procurements
based on provision reviews / scales.
17.       Rate Contracts. Rate Contracts may be concluded by CFAs to whom powers have been
delegated in this regard for items required by several users on recurring basis within the Army or
for the three Services as per provisions of Chapter VIII of DPM.
18.     Post Contract Management. Post Contract Management is a neglected area and
must be undertaken carefully in consultation with the respective IFA. In particular the
following aspects need to be watched closely:-
               (a) Extension of Delivery Period.
               (b) LC Extension.
               (c) Waiver of Liquidated Damages.
19.      Inventory Holding. There should be a periodic review of the inventory holding of
the Army. The Automation Programmes of the Army e.g. CICP to inter-link all the inventory
holding/ Ordnance Stores depots should be urgently made operational for this purpose.


Issue of SOPs
20.     Powers during Hostilities /War/Special Operations.                          Powers delegated to Army
Authorities for exercise during war, hostilities and special operations without consultation
of IFAs will become operative only on the issue of a Govt. order declaring such a situation
or ordering of a Special Operation by the Army, inter alia indicating the overall ceiling of


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funds for this purpose. Detailed procedural guidelines will be evolved for procurement of
stores/equipment to meet such operational requirements, by way of a Fast Track
Procedure (FTP) to be put in place in consultation with the Min of Defence (Finance).
21. Powers to MAs/ DAs for Urgent Procurements from Abroad. An SOP will be put
in place in consultation with the Min of Defence (Finance) for procurement of stores/spares
by MAs/DAs ex-import under their delegated powers to meet operational or technical
requirements on grounds of urgency, with appropriate checks and balances as regards
initial grant of acceptance of necessity by the MGO.


Rules / Manuals
22. The powers contained in the Schedules will be exercised as per provisions/principles
given in the following Manuals, as updated from time to time:-
         (a)    DSRs, FR Part I & II
         (b)    DPM 2006
         (c)    GFR 2005.
         (d)    Instruction issued by Govt. Deptts like Deptt of Public Sector Enterprises e.g.
         Purchase Price Preference for PSUs and Small Scale Industries (SSIs) and other
         guidelines issued by the Min of Finance.
Endorsement of Sanction to CDA
23.      A copy of every sanction issued by the CFA shall be forwarded to the concerned
PCDA/CDA quoting the authority under which such sanction has been accorded. Further,
it shall be ensured that all sanctions issued by the CFA in consultation with the IFA must
bear the U.O No and date allotted by the IFA office.
Key Areas of Monitoring
24. In order to ensure that the enhanced delegation of financial powers does actually lead
to better fiscal management in the Army, resulting in tangible benefits by way of timely
procurements, time bound implementation of schemes / projects, improved availability and
enhanced serviceability state of major weapon systems/platforms/equipment in the hands
of the field functionaries and optimum utilization of in-house capabilities built up over the
years, the following checks and balances are being instituted :-




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         (a) Priority Procurement Plan. A clear Revenue Priority Procurement Plan will be
         formulated in all major areas of central procurement, to indicate the carry forward
         liabilities and new schemes during the FY, indicating those to be sanctioned under
         delegated powers of the Services and under MoD powers separately. The progress
         of schemes under the delegated powers of Army CFAs and those to be executed
         under MoD powers will be monitored separately by MOD to see the results
         achieved vis-à-vis targets set. For this purpose, Army HQ is to submit a monthly
         return to MoD on the progress of the Prioritised Procurement Plan and the
         progressive utilisation of revenue budget. Army HQ is also to prepare a PERT chart
         for all major schemes under revenue head for close monitoring of the progress of
         such schemes.
         (b)    Link between Revenue and Capital Plans. The DPB should preferably be
         apprised of the Priority Procurement Plans of the Army on the Revenue side so that
         these are duly harmonized with the Annual Acquisition Plans for Capital Equipment
         and the maintenance requirements are duly factored into our budgeting process.
         (c)    Accountability.          Budget has to be an efficiency indicator and the enhanced
         financial powers should ensure higher efficiency level, in terms of serviceability and
         maintainability       of    equipment/        machinery/       platform/      weapon        system.            A
         comprehensive data base will be built up for CFAs to review performance.
        (d)       Use of In-house Capability. The in-house capacity of Ordnance Factories,
        Army Base Workshops and Advance Base Workshops must get utilised optimally.
         (e)    Capital.
                  (i)      The delegation of financial powers for Capital procurement is to be
                  exercised as per the procedures laid down in DPP 2005. The Competent
                  authority to accord various stage approvals as per DPP procedure and the
                  composition of CNCs will be laid down separately by Army HQ with the
                  approval of MoD.
                  (ii)     Army HQ has to render a Quarterly Report to DG Acquisition on the
                  progress of various Capital schemes under delegated powers, indicating the
                  actual cash out go against the budgetary projections in the AAPs




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         (f)     MIS.      Army HQ is also to put in place a system for data sharing and data
         networking, both within Army and Inter-Services in order to widen the procurement
         sources and obviate different rates being paid for the same item by the Army
         Commands/different Services.




                                                               No: 6 (1) 99/D (O-I)
                                                               Ministry of Defence
                                                               Government of India
                                                               New Delhi – 110011
                                                               Dated: the 12th August 1999

To
         The Chief of Army Staff,
         New Delhi

Sub      :        Delegation of Financial Powers to Defence services - Army:
                  Enhancement of Revenue Powers

Sir,
            In -partial modification to the Govt. of India, Ministry of Defence letter
No 6(1)/97/D (O-1) dated 8.4.97 for implementation of Financial Management
Strategy of MGO’s Branch and Financial powers delegated to QMG’s Branch from
time to time, I am directed to refer to the proposals of the Army HQrs regarding
enhancing/delegating new powers for indigenous provisioning and procurements. It
has been decided to enhance the existing powers as per object/items given in-
Appendix 'A' and 'B' to this letter.

      It has been decided that the existing financial powers would be exercised by
the Army HQrs with the prior concurrence of the IFA (Army) while the
enhanced/new powers would be exercised with the prior concurrence of the Ministry
of Defence (Finance).

     These issues with the concurrence of Ministry of Defence (Finance) ID No
2073-Addl FA (D) dated 11.8.99.




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                                                                               Yours faithfully
                                                                                     Sd/-
                                                                               (L.M. Mehta)
                                                                              Addl Secretary (O)




                                                                                     Appendix `A'

1.       Annual Provision Review/Procurement (indigenous)

                                             Existing Powers                     Enhanced Powers
         VCOAS                                     Nil                                Rs.25 Crs
         MGO                                       Rs.5 Crs**                         Rs.10 Crs

2.       Provision of Non Scale items -(New Powers)*

         VCOAS                                                                            Rs.10 Crs
         MGO                                                                              Rs.3 Crs

3.       Introduction of new scales/change of existing scales New Powers

         VCOAS                                                                            Rs.5 Crs
         MGO                                                                              Rs.2 Crs

4.       Single Tender/PAC (TPC)
                               Existing Powers                                   Enhanced Powers*
         MGO                                                                          Rs.50 lakh


         * To be exercised with the concurrence of MOD (Finance)
         ** To be exercised with the concurrence of IFA (Army).




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                                                                                                    Appendix `B'
                                                        QMG

Sl.
No.      Powers                                       Existing Powers                     Enhanced

1.       Conclusion of ASC Contracts Rs.1.5 crores,                                       Rs.5 crores
                                     Fresh Supplies

2.       Central Purchase of FOL
         and Hyg & Chem through TPC
         QMG                        Nil                                                   Rs.20 crores

3.       Purchase of Chemicals,
         Equipments etc. for Food
         Inspection units
         QMG                                          Nil                                 Rs.3 crores

4.       *Hiring of Civil Transport
         TN of piecemeal- def Freight
         and hiring of special
         Vehicles/equipment.
         QMG                                          Nil                                 Up to Rs.1 crores

5.       *Hiring of Civil Transport
         for Move of TPS, Special
         Vehicles/Equip and freight incl.
         amn. Related to Ops IS duties,
         relief and training (incl. Exc),
         adm moves
         QMG                              Rs.50, 000                                      Rs.1 crores

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Note: SI No 1, 2 & 3 - Enhanced powers to be exercised in consultation with
      Defence (Finance)

         SI No 4 &, 5 with IPA Army Hors and also existing powers under Sl No 1




                                                    BUDGET

    Who is Budget Holders (BH)?

    ∞ VCOAS is the Top Level Budget Holder
    ∞ DCOAS (IS&T), DCOAS (P&S), AG, QMG, MGO, E-in-C etc are High Level
      Budget Holder in Army HQ

             • Intermediate Budget Holders are DG & ADG who will sub-allot funds to
               budget centres
             • Budget centres will acquire management responsibility for all
               expenditure and receipts falling in their areas. Within the delegated
               powers, freedom to manage their budget to achieve targets most
               economically, efficiently and effectively

Manner of exercising the powers:

Powers are personal to each CFA and cannot be re-delegated except in terms of Rule
65 of FR Pt-I
      1. CFA personally and unreservedly responsible whether orders are conveyed
         under his signature or a subordinate officer
      2. CFA can authorise staff officer to sign financial documents subject to
         intimating the audit officer and not concurrently authorizing several officers
      3. When CFA is absent on leave or posted, officer performing his duties can
         exercise powers on his behalf
      4. When CFA on TD/ tour, he may permit another officer to sign letters on his
         behalf
      5. When CFA is posted out, without formal replacement, officer actually
         performing his duties will exercise full powers of his appointment

Purchases/ mode of Tendering:

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    • Open/ Limited Tendering as per limits in Para 4.3 of DPM –2006 in
      consultation with IFA
    • Vendor registration & listing for limited tendering
    • Vendor data-base to be shared inter and intra-service
    • Exercise greater care in PAC and STE purchase as per Rule 154 of GFR and
      clause 4(1) DPM-2006


Rules /Manuals:
  • Powers will be exercised as per provisions / principles in

             –    DSR, FR Part I & II
             –    DPM 2005 (2006)
             –    GFR 2005
             –    Govt. instructions from DPE etc regarding price preference for PSU/ SSI
             –    Other guidelines issued by Min. of Finance

Tender Enquiry Committee (TEC) – Constitution, Role, functions:

    • Constituted by CFA to examine technical bids received
    • Comprises user rep, EME rep, CFA rep , expert
    • Should Prepare technical compliance matrix against essential & desirable
      GSQR
    • Prepare TEC report showing bids qualified and bids disqualified with reasons;
    • Should only disqualify a bid if it does not fulfill any essential condition in TE
    • Should not suggest or implement new QRs
    • Not give any undue opportunity for any bidder to make his offer QR compliant
    • Set up by CFA for all purchases above Rs.5.00Lakh to recommend a purchase
    • Comprise CFA rep, user rep, IFA/representatives
    • Examine TEC report and comment on the QRs fixed and competition generated
      if necessary
    • Examine financial bids of qualified bidders
    • Ratify the CST and evaluated L1
    • Examine reasonableness of L1, after benchmarking
    • Recommendation to the CFA and IFA including negotiations




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                                       DISPOSAL OF STORES

REVISED PROCEDURE FOR FIXATION OF RESERVE GUIDING PRICE FOR
DISPOSAL OF STORES

Authority: - Govt. of India, Min of Def letter No.9360I/OS-ID/D (O-Il)/98 d
t.25/9198
       A revised procedure for fixation of reserved guiding price (RGP) for disposal
of surplus stores including current obsolescent and obsolete stores held by Central
Ordnance Depots (COD) having salvage sub depots/stores sub depots has been
introduced and laid down under the above quoted Govt. orders. The detailed
procedure is contained in the Appendix attached to the Govt. letter.
2.     The salient features of the revised procedure are:
       a) The procedure as revised is to be followed by CODs having salvage sub
       depots/stores sub depots,
       b) The procedure will apply to disposal of surplus stores including current
       obsolescent and obsolete stores. ,
       c) The RGP for surplus stores will now be fixed by the MG AOCs respective
       command as per the instructions contained in Govt. of India Min. of Def. letter
       No.3 (2)/89/D (O-Il) dt.10/11/89 laying clown the procedure for fixation of
       RGP of salvage.
       d) To enable the 1VIG AOC to fix the RGP, a Board of Officers comprising of
       the following members will be convened every time an auction tender/tender
       cure auction is proposed to be Held.
                  A rep of MG AOC
                  A rep of the concerned depot
                  A rep of CDA
                  A rep of the I & BC Cell if posted in the depot.
                  Any other officers from local unit.



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         e) The Board of officers will assess the physical condition of the stores and
         recommend to the MG AOC the RGP on the basis of criteria laid down in
         DGOS Technical Instruction No. 010 which are:
                    Condition of stores.
                    Prevailing market rate as published in National Dailies like
                      Economic Times/Financial Express.
                    Book value of stores where applicable.
                    Utility of the stores as such or in a modified condition to civilian
                      users.
                    Value fetched by similar stores in past auctions.
                    Rates fetched by similar, stores in neighbouring depots of the
                      same command as well as neighbouring commands may also be
                      kept in view.
         f) In respect of metals like pure brass, the prevalent system as applicable for
         fixation of RGP will continue; pure copper will also be disposed of on the basis
         of RGP fixed on similar lines as for brass.
         g) In respect of other metals including mixed metals, guidelines mentioned at
         (e) above will be followed,
         h) Powers to accept bids below the RGP and the authorities who can exercise
         these powers are:
         Authority                 Extent up to which bids below RGP can be
                                   accepted
         Sale Supervising          Up to 10% lower than RGP
         Officers
         Commandant                Up to 20 % lower than the RGP without assigning
                                   any reasons. -
                                   Up to 30% below RGP - after recording reasons for
                                   doing so, in writing

       i) In cases where the offer is more than 30% below the RGP, the RGP will be
       reviewed and re-fixed by the Board of Officers.
       j) A rep of the CU/\ will be included in the entire, auction proceedings and his
       participation will be as a rep of Min. of Def: (Fin)
       k) Other provisions in UGOS Tech Inst. No.010 will be followed for disposal
       of stores through auction.
       l) Sale result will continue to be sent to Min. of Def.
3. The problem of accumulated inventories particularly those obsolete and
obsolescent and hence devoid of any real utility/usage is a major one and a serious
one in all the store holding depots. The accumulation or the unwanted items        has
resulted in blockade of valuable public funds leading to other priority requirements

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being starved for funds and in addition these occupy precious space in the depots.
The inventory carrying cost of these items is also substantial and the entire cost is
unproductive and infructuous. This area therefore needs immediate and, continuous
action to identify these items and dispose them of without delay so that these do not
deteriorate any further adversely affecting the realizable value. The IFA has ample
scope to play a positive role and make positive contributions by virtue of his skill and
expertise and experience. It has however to be remembered that while the anxiety to
dispose of the surplus items could be appreciated and also understandable it has to be
ensured that it does not lead to distress disposals and we do not succumb to pressures
to this direction.
GUIDELINES

General
4.   a) Keeping in view what has been mentioned in part 3 which should be borne
     in mind it is necessary for the IFAs to ensure that all cases for fixation of RGP
     are handled with care, caution and promptitude.

         b) Govt. orders have already been promulgated vide Min of Defence letter
         No.48503/, ST -II/4810-B/D (QS) dt.23/9/92 laying down the manner of
         initiations, processing clearance etc of proposals for financial concurrence.
         These have to be observed. The main provisions of these orders are-:

              Proposals will be detailed; comprehensive and self contained and will be
               on files with regular and proper noting.
              Financial concurrence will be accorded in writing and will be with
               reference to noting.
              While meetings/discussions are not substitutes to noting on files, in
               cases of extreme urgency when time does not permit flotation of files,
               decisions could be taken in meetings/discussions but these would be
               followed immediately by noting and financial concurrence will be
               recorded in writing.
              IFA can ask for any additional information/data relevant to the case and
               these would be provided to him.

    c) While ICA has to ensure adherence and compliance with tile various Govt.
    orders and basic financial principles wherever occasion demands. IFA need to be
    flexible and pragmatic in approach depending on the merits of the case and
    circumstances connected therewith so long as tile same is within tile overall ambit
    of. Govt. orders and policies and none of the financial principles are violated in
    the process.    .

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4.1.     Specifics

      In addition to the general guidelines as above, the following points which are
more specific and in relation to the Govt. orders dt.25/9/98 have to be followed while
dealing with cases coming up under these Govt. orders.
      a) In as much as the manner of fixation of tile RGP and tile parameters relevant
      thereto and also the authority to fix tile RGI have all been laid down in details
      in the Govt. Orders, the IFA has basically to see and ensure that these have
      been followed and complied with fully.

         b) Whether the items in respect of which RG P is proposed have been declared
         as surplus/current obsolescent/obsolete as tile case may be, have been
         categorized as such by competent authorities and these have been approved by
         them?
         c) What is the quantum of each item involved and dotes it represent the total
         stocks held and if not what are the reasons for proposing disposal of part
         quantity and what arc the proposals for the balance quantity. Is it not desirable
         and advantageous to dispose of the entire quantity?
         d) What is the age and vintage of the items proposed for disposal?
         e) An important point to-be reckoned while considering RGP is that unlike
         salvage items which arc curly scrap the items in question are serviceable
         partly or fully and this should be given adequate weightage
         f) Condition of the stores - whether this tins been assessed by technical
         authorities competent to assess and whether the method adopted for the
         assessment has been brought out. If this has been done by a Board of Officers,
         whether there is unanimity between the members and if not there may be need
         fur review/reassessment.
         g) What is the book value of the item where applicable mid available?
         h) Whether the possibility of transferring the items to other
         Ministries/Departments considered and attempted and what are the results?
         i) In the case of pure metals like brass, copper etc wiry not these be offered to
         ordnance factories, naval dockyards etc which will result in savings in their
         expenditure and realisation to Army.
         j) What is the trend in realisation from such items disposed of in the past in that
         depot and nearby depots acid how to do they compare with the officers
         received ate tilde wide variations and when was the last disposal carried out?
         k) What is the mode of tendering carried out and is it satisfactory? Is there
         adequate response and enough competition? How do the otters compare with


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         the book values rates published in economic dailies and market rates suitably
         depressed for change in condition, if any?
         l) Has the credibility, past performance and financial standing of tenderers
         been checked up and have they deposited the- prescribed earnest money?
         m) Whether the terms and conditions or disposal through tenders or auction are
         as per the Govt. orders on the subject?
         n) Though powers have been given liar accepting bids below RGP this may not
         be resorted to as a matter of course during auction as the credibility of the RGP
         will be open to question in that event. Hence this should discourage as far as
         possible.

         o) Where offers/bids are below RGP for no. reason or where collusion between
         tenderers or formation of cartels is suspected the better alternative may be to go
         in for retender or re- auction subsequently?
         p) Such Cases for review/refixation of RGP should be discouraged as far as
         possible and this course, merely-to ensure that offers /bids do not go beyond
         30% below RGP may -not be healthy and may in fact undermine the system of
         RGP such cases should be subjected to very critical scrutiny.
         q) The IFA has an integrated role cut out (or him and he are representing Min.
         of Def. (fin) in these cases and this should always be borne in mind. His is
         association and concurrence at every stage is necessary.




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                               DISCARD POLICY OF B VEHICLESE

Authority: Govt. of India. Min of Defence letter No G (20)/87/D (GS-IV) dated
7/12/90 as amended by letter dated 27/1/97 and No. 1(27)/91/D (01) dated 21/4/93.

       The above mentioned Govt. orders lay clown the discard policy to be followed
in respect of ‘B’ vehicles with immediate effect as per policy laid down, the ‘B’
vehicles are to be discarded on completion of a certain number of kilometers or a
certain number of years of service. It is to be noted that this discard policy is
applicable only to the already introduced makes of the vehicles with the Army at the
time of issue of these Govt. orders. For futuristic vehicles and Marutis being procured
for NFF a separate discard policy is to be formulated and notified by tire Govt. As
such the present discard policy will not be applicable to the vehicles held by the NFF
unless otherwise provided for in these Govt. orders.
       2.    As per the discard policy laid clown, the B vehicles ale to be discarded
on their completing the prescribed kilometers run or the prescribed dumber of years
service as shown below

         Types of vehicle                    Parameters for discard-on completion of
a)       Motor cycle                         45,000 kms or 7 years whichever is later

b)       Staff car                           Field formation: 80,000 kms or 8 years whichever
                                             is later


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                                             AHQ Tpt. COY: 2, 00,000 kms or 8 years whichever
                                             is later
                                             Other unit: 1, 00,000 kms or 12 years whichever is
                                             later

c)       LCVs 1 Ton/3 Ton                    2, 00,000 kms or 15 years whichever is later.

d)       Specialist vehicles                 Specialist Vehicles, less the following, shall qualify
                                             for discard either when it reached the overhaul
                                             conditions of 100% stripping and rebuilding i.e.
                                             classified in Category V (B) car in case the same is of
                                             an obsolescent make/model (Incl. G.S. tractor). The
                                             following Specialist Vehicles will he discarded After
                                             65,000 kms or 7 years whichever is later.
                                             Car 250 kg 4x4 Ambulances
                                             Truck 1 Ton Ambulance 4x4(4 Stretchers)
                                             Truck 1 Ton 4x4 Water 1000 ltrs
                                             Truck 1 Ton Mail carriage 4x4
                                             Truck I Tote 4x4 Comm Patch in panel
                                             Truck 1 Ton 40 Radio Receiver.
                                             Buses civil pattern
                                             Lorry 3 Ton 4x4 (LRV)
                                             Lorry 3 Ton 4x4 Petrol 4000 Ltrs
                                             Lorry 3 'ton 40 3000/4000 ltrs water
                                             Lorry 3 Tom 4x4/4x2 Tipping
                                             Other specialist vehicles

2.1 In terms of the amendment to GFR 1963 Rule 124 vide Min of Finance
(Expdr) OM No. 23(4) EII (A)/90 dated 16/4/91, relating to declaration of an item of
store as obsolete, surplus or unserviceable and order their disposal, a Board of
officers will be convened when ‘B’ vehicles are to be declared unserviceable care to
any of the following reasons:
       i) A vehicle having met the twin conditions of discard as laid down in the
       Discard Policy issued vide Min of Defence above quoted letter 7/12/90
       ii) A vehicle having met one of the twin conditions of discard but considered
       for down gradation as a non runner/unserviceable;
       iii) Downgrading of vehicle as lion runner/unserviceable clue to accident.

     The Board of officers referred to above shall consist not less than 3 members
of whom one will be from Administration, one will be a representative of EME as

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Technical Member having knowledge of stoic and a representative from CDA as
Finance Member in terms of Note 1 under GFR 124 ibid as amended as referred to
MOD letter No. 1(27)/91 D (O-1) dt 21/4/93.

GUIDELINES
3.    keeping in view what has been mentioned above the following further
guidelines are laid down to help and guide the IFA to discharge his role in the Board
of Officers.

General
     (a) The cases/proposals should be approached and examined dispassionately
     with art open mind and dealt with on the basis of merits of the case.
     (b) It has to be seen whether the proposals have been floated on the lines
     specified in Govt. of India Min. of Defence letter No. 48503/ST-II/4810-B/D
     (QS) dated 23/9/92, laying dowry the method of initiation, processing,
     clearance etc. of proposals for financial concurrence. These have to be
     observed. The main provisions of these orders are:-

                       Proposals will be detailed; comprehensive and self contained and
                        will be on files with regular noting.
                       Financial concurrence will be accorded in writing and will be with
                        reference to noting.
                       IFA is free to call for additional data/information relevant to the
                        case and these will be provided to him
                       Meetings and discussions are not precluded but these ate Ito
                        substitutes to regular notings oil files.
                       In cases of extreme urgency when time does not permit flotation
                        of regular files, decisions could be taken in meetings/discussions
                        but these should be followed immediately by regular notings and
                        financial concurrence will be recorded in the notings.

         c) Any problem faced by the IFA which lie is unable to sort out himself will be
         taken up by him with CDA for advice/directions.
         d) Proposals/cases have to be dealt with and processed with promptitude as
         delay may hold up the replacement affection the functioning of the Army.

Specifics




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3.1 In addition to tile general guidelines as-above, the following further guidelines
which are more specific in relation to tile Govt. orders dated 7/12/90 and 21/4/93
have to be followed while dealing with cases conning up under these.
      a) As the parameters governing tile discard of the vehicles under the policy and
      the procedure to be followed in the matter have all been laid down in detail in
      tile Govt. orders, handling and dealing with such cases should not pose any
      serious or insurmountable problems for the 117A. In view of the specific and
      pointed nature of the procedure and parameters, the IFA has basically to see
      whether these have been fulfilled and compiled with.
      b) Whether the Board of Officers has been constituted by tile competent
      authority and the composition of the Board is strictly in tennis of Govt. orders
      dated 21/4193 and necessary convening order signed by the appropriate
      authority have been issued?
      c) Whether tire terms of reference have been, stipulated in clear and
      unambiguous temps also indicating details of the vehicles (with make type BA
      No. Chassis No., Engine No, and Tyre No. etc.) to be considered by the Board-
      for discard. If not, lire convening orders and the terms of reference should be
      brought suitably amended/amplified?
      d) The Board of Officers has no authority to go beyond tire convening order
      and as such discard of any vehicle not covered by the convening order should
      not be considered by the Board.
      e) Whether regular, notings have been initiated supported by statement of case
      containing full facts arid details with data and documents in support?
      f) Whether the vehicle whose discard has been proposed falls within the ambit
      of the Govt. orders dated 7/12/90 as amended dated 21/4/93?
      g) Whether the facts relating to kilometers run and no. of years completed
      mentioned in tire proposal are with reference to documentary support available
      on tire files, if not the relevant car diaries/log books etc. have to be called for to
      establish facts?
      h) Whether the vehicles proposal has been inspected by EME authorities as to
      their condition arid the proposal for discard is on tire basis of their reports?
      i) There may be vehicles which may have completed the prescribed kilometer
      and/or no. of years and qualify for discard under the policy but EME
      authorities may find that these could be used some more in view of their
      conditions. Such cases have to he dealt with carefully keeping in view tile
      overall economics to Govt. by deferring its discard and a well judged decision
      has to be takers in which tile IFAs role will be significant,
      j) Cases for discard of vehicles which, have fulfilled only one of tile conditions
      of discard but are to be condemned fm other reasons like accident etc. (Para 2.1
      refers) have to be examined critically to ascertain specific

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         reasons/circumstances leading to the conditions of the vehicle, whether these
         have been fully investigated and whether it is possible, advisable and
         economical to use them for some more time alter repair/overhaul, what is tile
         estimated cost of repair/Overhaul etc. this would be particularly in cases where
         the km. run/no. of years completed is too low vis-à-vis parameters given in the
         discard policy.




                                 ROLE OF IFA IN DISPOSAL ACTIVITIES

       If the obsolete and unserviceable stores are not disposed off it would cause
heavy accumulation of unwanted stores in all the store holding depots. Thus it will
result in blockade of public Funds affecting the other priority requirements and also
occupy the precious space in the Depots. Due to delay in disposal of such stores it
will reduce in realizing the residual value owing to decoration in condition.
       For disposal of any salvaged/obsolete stores, the first action is to fix the RGP
i.e. Reserve Guidance Price.

What is RGP and how it is fixed?

       RGP means Reserve Guiding price. This is an assessed price of obsolete           /
condemned / salvaged/surplus stores of CODs/Vehicle Depot/Salvage Depots              etc
arrived at by the board of officers before such stores are proposed to be auctioned on
the sanction of competent authority empowered as such.
       For this similar type of obsolete/salvaged store received from the various
units/formations in the Depots are to be arranged in different lots. After this the RGP
of each lot is got fixed by the Board of officers detailed for the purpose. In the board,
the fo1lowing member’s will be associated:

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                  a)       A rep. of MG AOC
                  b)       A rep. of the concerned Depot
                  c)       A rep. of CDA
                  d)       A rep. of I & BC Cell of the Depot is posted
                  e)       An officer from any local unit.

       The Board of officers will assess the condition of the stores and recommend to
the MG AOC, the RGP assessed by them for his acceptance. While assessing the
RGP, the board of officers will take into account the following points as per tech.
instructions of DGOS. No c/o:-
             a)     Condition of stores
             b)     Prevailing Market rate at published in National Dailies like
                    Economic Times/Financial express.
             c)     Book Value of stores where applicable
             d)     Utility of the stores as such or in modified conditions to civilian
                    users
             e)     Value fetched for similar stores it the past auctions.
             f)     Rates fetched for similar stores in Depots of the same
                    Command/neighboring Command.
       After the RGP has bees assessed and recommended, by the Board of officers
the same would be put up before MG AOC for his perusal and approval. On
approval/fixation of RGP by the MG AOC of the Commands, action will be taken for
disposal of these stores through Auction. For this Govt. approval Auctioneer would
be intimated for conducting of auction on the date fixed for this auction. Before this
tender would be floated to the registered bidders/ advertisement would be made in the
National Dailies/all leading local papers for participation in the auction bid on the
fixed date by those who are desirous for this.
       During Auction cum Tender Committee, the following officers will be detailed
for conducting the auction.
             1)     Supervisor officer (appointed by the MG AOG)
             2)     Commandant of the concerned Depot
             3)     A representative of CDA.

Powers of acceptance of bids

         a)       Sales Supervisor Office can accept the Auction bids up to 10% lower
                  than the Reserve Guiding Price:
         b)       Commandant of the Depot up to
                  i)     20% of the lower than RGP


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                  ii)      Up to 30%.of the loser than the RGP with mentioning suitable
                           reason for going so much down of the RGP.
                  iii)     If the bids are below 30% of the RGP then the fixation of RGP
                           done already would be reviewed and if considered the re auction
                           may be done. Even on reaction the bids are still coming down
                           below 30% of RGP, the action would be taken to review the
                           whole episode and re-fix /revise the RGP suitably.

         After auction is over, the sale result will be sent to Min. of Defence quickly.




                                              CASE STUDIES


Information Technology Grant (IT Grant)

       MITS Pune submitted a proposal for procurement of quantity 50nos PCs
during the scrutiny of the technical specifications of the PCs it was found that 15 Nos.
TPT was proposed as display on observing the necessity of TPT monitor for use in
classrooms. It was stated by the Estt that due to space constraints & aesthetic view the
same has been proposed. Since the justification does not fall under ambit of financial
rules. It was viewed that the purchase of PCs with TPT monitors is not acceptable.
The Estt then deleted the TPT monitor from the specifications. This resulted in the
sayings Rs.6, 00, 000/-at the acceptance of necessity stage.
       MITS Pune submitted a proposal for procurement of Qty 50nos Laptops for
Instructors. The direction of Min of Fin. on purchase of Laptops was brought to the
notice of CFA duly enclosing copies of O.M. The Estt deleted the proposal from the
Statement of case in view of the directives issued by Min of Fin. The resulted in a
savings of Rs.410, 000/-




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INTERNET
        The Annual Recurring expenditure on Internet connectivity i.e. Port charges
Local loop charges etc. are payable under Code Head 437/01 from year 2003-04. This
falls under the head “Training” as per Schedule- XIX of Govt. letter Dt. 22.04.02 on
delegation of financial powers. Since the expenditure under this head can be incurred
by CFA only in consultation with IFA, the Audit, so returned the bills received by
them directly from the Cat “A” establishment contended that since the leased line
connectivity is sanctioned by MoD and concurrence has been obtained at the time of
initial installation every year for renewal concurrence need not be obtained.
        The matter has been referred to all IFAs and Regional CsDA to know the
Practice followed by them to have uniformity and to refer the matter to Pr.IFA if
necessary.




                                         Important Observations

       The proposals for procurement of Laptops were received in this office from
various units/estts. On a scrutiny, it was found that the purchases were being
proposed as a matter of routine and for the sake of convenience to the officers of all
levels. The proposals were not concurred, in the light of provisions contained in GOI,
M o D, .O.M. No: (29)/EII (A)/2000 dated 06-09-2000. When the units insisted on
procurement, they were advised to do so, invoking the provisions of Para 7 of GOI,
MoD letter no. A/89591/FP/I/693/2002/D-(GPS-I) dated 22-04-2002.
       However, the under mentioned Formations/Estts overruled the advice of IFA
and obtained sanction of the GFA.
HQrs. 12 Corps 15 Nos
HQrs 11 Inf. Div 04 Nos            Procurement Completed in 2003-04
ACC & S A..nagar 10 Nos
HQrs. 41 Arty Div 07 Nos          Procurement not materialized in2003-04

CDA (EC) & IFA
      The Proposal relates to procurement of 15 Nos Direction Finders at an
estimated cost of Rs.60.00 lakhs



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       The proposal has been examined in depth and the following remarks are
offered:-
       Scrutiny of QR reveals that “Direction Finders” and “Automatic Bearing
Processor” are identical items.
       6nos Automatic Bearing Processors were purchased earlier @ Rs.2.50 Lakhs
from Messrs capital overseas (P) Ltd. And now the rate of the same item under the
nomenclature of “Direction Finder” has been quoted as
Rs.4, 00,000 per piece by the same firm
       The reasons for concealing correct information by proposing a misnomer for an
item purchased earlier at 60 & inflated price may please be elucidated.
       Past and proposed distribution of the items may also please be furnished.
Leased Line:-The renewal leased line charges from VSNL were found very high in
comparison with the rates offered by BSNL Since VSNL is no longer a Govt.
Company, the establishment was advised to analyze the cost vis-à-vis the charges
incurred by other Cat ‘A’ establishments in Pune As a result, after negotiation, VSNL
reduced the rates by 20 % which resulted in a savings of Rs.17, 000/-

HQ 12 Replied
       Multi Screen Projection System: The proposal for procurement of Multi Screen
Projection System for Rs.16, 49,000/- from M/s Pan Telecom (P) Ltd. New Delhi was
submitted during Mar 2005. While scrutinizing the Proposal it was found that the
same equipment was also procured by HQ Northern Command in August 2004 at a
total cost of Rs.15,91,200/-. Therefore, the unit authorities were advised to negotiate
rate with the firm. The firm agreed to supply the equipment at a total cost of
Rs.15, 92.000/. This resulted in a saving of Rs.57, 000/-.
       One of the units has submitted the case for Procurement of laser colour printers
for vetting of Draft Supply Order. It was found that the cost variation between the
rate achieved and DGS & D Rates was Rs.3.00 lakhs for Qty 1 no. There was no
substantial technical advantage for the Estt, for procurement of the equipment, as it
was found that the high cost was due to additional memory, dpt. no. of pages to be
handled. The same was brought to the notice of the CFA and it was suggested to
procure the item through Rate Contract by which additional Qty can also be
purchased, being cost effective. The suggestion was accepted as valid by the CFA
and the procurement was done through DGS & D. This resulted in a saving of
Rs.5, 78,484/-.
       While Vetting the Draft Supply Order for Procurement of High End Server
submitted by CMA, Pune, it was found the TEC disqualified certain vendors
arbitrarily. It was found on detailed scrutiny that the Technical Specifications tailored
to match a particular brand, which resulted in disqualification of certain vendors.


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Since this was against the CVA guidelines, the Estt was asked to justify and it was
simultaneously suggested that technical compatibility of Server available through
DGS & D may be examined. The suggestion was accepted and the Estt procured the
item through DGS & D. This resulted in a saving of Rs.6, 97,493/-
       Any other advice rendered on major system reforms
       The proposals for procurement of high value IT. Equipments ranging from
Rs.15 lacs to Rs.44 lacs through NCCF/Kendriya Bhandar were received in this
office. In the opinion of this office, it was observed that M/s NCCF/KB is not a
stockiest/QEM for such items and neither has expertise to deal with such hi-tech
equipments nor subsequent service support. It was also opined that such purchases
through NCCF/KB are not protected by proper BG and warranty. Hence,
procurements of high value, hi-tech equipments should be through competitive
tendering in the light of the provisions of GFR Rule 102 (i) 27 & 28, which states that
items worth more than Rs.5.00 lacs value need to be procured through Open Tender.
       The proposals were not vetted and the matter was referred to Pr. IFA, who in
turn got the matter examined by Additional DG IS, AHQrs through IFA (Army/M)
(Copy enclosed). As per the remarks of IFA (Army/M), suitable action incorporate
the final decision of ADG IS in the SOP on IT, is being taken separately.




                                                  GLOSSARY

                                           When appropriation bill has been passed by the
Appropriation Act                          Parliament, it is presented to the President. After the
                                           assent by the President to the bill, it becomes an Act.
                                           As soon as may be after the grants under article 113
                                           have been made by Lok Sabha, a bill to provide for the
                                           appropriation out of the Consolidated Fund of India of
                                           all money required to meet (a) the grants so made by
Appropriation Bill
                                           Lok Sabha (b) the expenditure charged upon
                                           Consolidated Fund of India but not exceeding in any
                                           case the amount shown in the statement previously laid
                                           before the Parliament is introduced.
                                           It consists of payment for acquisition of assets,
Capital Expenditure                        investment in shares, and loans and advances given by
                                           the government.


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                                           Capital receipts comprise loans raised by the
                                           government from the public, borrowing from the
Capital Receipts                           Reserve Bank of India and loans taken from foreign
                                           governments, recoveries of loans by the government,
                                           proceeds of disinvestments etc.
                                           Sum required to meet expenditure ‘Charged’ on
Charged Appropriation                      Consolidated Fund under Article 112 (3) of the
                                           Constitution is called charged Appropriation.
                           The fund constituted under Article 266 (1) of the
                           Constitution of India into which all receipts, revenues
                           and loans flow. All expenditure from the CFI is by
Consolidated Fund of India appropriation voted or charged. It consists of two main
(CFI)                      divisions namely Revenue Account (Revenue Receipts
                           and Revenue Expenditure) and Capital Account
                           (Public Debt and Loans, etc.).


                                           Parliament has by law established a Contingency Fund
                                           in the nature of an imprest into which is paid from time
                                           to time such sums as may be determined by such law,
                                           and the said fund is placed at the disposal of the
Contingency Fund of India                  President to enable advances to be made by him out of
                                           it for the purpose of meeting unforeseen expenditure
                                           pending authorization of such expenditure by
                                           Parliament by law under Article 115 or Article 116 of
                                           the Constitution.
                                           Payments to creditor(s) of matured principal and of
Debt service
                                           interest. It, usually, includes service charges, etc.




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                                           Demand for Grants is for gross amount of expenditure
                                           to be incurred and shows recoveries to be taken in
                                           reduction of expenditure separately by way of foot
                                           notes, presented to Parliament at two levels. The main
                                           Demands for Grants are presented by the Ministry of
                                           Finance along with the Annual Financial Statement.
                                           The detailed Demands for Grants are laid on the table
Demand for Grants                          of Lok Sabha by the concerned ministries a few days
                                           in advance of the discussion of respective ministry’s
                                           demand in that House. As the Demands for Grants are
                                           for gross expenditure and the Annual Financial
                                           Statement gives the net amount to be expended under
                                           each head, the total of the two should be reconciled
                                           after adjustment of the recoveries taken in accounts in
                                           reduction of gross expenditure.

                                           In cases, where expenditure in individual ‘segment’ of
                                           grant/appropriation, i.e. Revenue (Charged), Revenue
                                           (Voted), Capital (Charged) and Capital (Voted)
Excess Grant                               exceeds     the    authorisation     as    such,   the
                                           grant/appropriation is termed as excess grant.


                                           Debt contracted by the Government from abroad,
External Debt                              mostly in foreign currency viz., loan from World Bank,
                                           IBRD, IDA, etc.
                                           It is the excess of total expenditure including loans net
                                           of repayments over revenue receipts and non debt
Fiscal Deficit                             capital receipts. It also indicates the total borrowing of
                                           the government, and the increment to its outstanding
                                           debt.
                                           Gross domestic product at factor cost measures GDP at
                                           the cost of the factors used to produce it, i.e. At the
GDP at factor cost
                                           incomes earned by those factors. It is obtained from
                                           the GDP at market prices by deducting indirect taxes
                                           and adding subsidies.
GDP at market Prices                       Gross domestic product at market prices indicates the


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                                            value of all final expenditure on the goods and services
                                            produced within the country. It is equal to the value of
                                            all final goods and services produced in the country in
                                            a given period. The evaluation can be done at current
                                            prices or at prices prevailing in a base year.
                                            Internal Debt comprises regular loans from the public
Internal Debt                               in India, also termed ‘Debt raised in India’. It is
                                            confined to loans credited to the Consolidated Fund.
                                            This is broad money defined as the sum of currency
M3                                          with the public, demand deposits and time deposits
                                            with the banks, and ‘other’ deposits with the RBI.
                                            The main unit of classification in accounts is known as
                                            Major Head. A four digit code has been allotted to the
                                            Major Head, the first digit indicating whether the
Major Head                                  major head is a Receipt head or Revenue expenditure
                                            head or Capital expenditure head or Loan head.


                                            Three digit codes have been allotted to the Minor Head
Minor Head                                  starting from “001” under each Sub Major head/Major
                                            Head (where there is no Sub Major Head).




                               DELEGATED FINANCIAL POWERS


SI No.                  SUBJECT                                    AUTHORITY
         Hiring of Transport from Civil Services AI 42/86 and AI 10/92 read with MOD letterNo.
  1                                              6(1)/99/D(O1) dated 12,8.99
         Centralized Procurement of Fuel, Oils, MOD No. 33290/DP/Q/ST-9/340/QS dated 22.1.93
  2      Lubricants and Hygiene Chemicals by read with MOD (F) ID2780/Addl FA (O) QB/94
         DGST                                    dated 7.10.94
         Conclusion of Contracts for Grinding MOD No.          6379311/G/ST-4/4680/D (GS) dated
  3      of Wheat                                12.9.94
         Procurement of Equipment and Spares MOD No. 16(1)/94/D (GS-III) dated16.12.94
  4      for Ml and SI Organizations


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        Powers for Withdrawal of NDA Cadets MOD No. 20(1)/87/D (GS-II ) dated 18.1.95
5
        Conclusion of ASC Contracts for                     MOD No. 68063/Q/STS/2271/D (QS)                         dated
6       Perishables                                         25.4.96
        Transportation of ASC Stores by road                 MOD No. 6(1)/97ID (O-1) dated
7       through CHT                                         18.4.97
        Implementation       of      Financial              MOD No. 6(1)/97/D(0-1) dated 8.4.97
8       Management Strategy in MGO's Branch
        Sanction of Expenditure on any object               MOD No. PC(A)/89589/FP-1 (III)/D (GS II) dated
9       enumerated in Rule 58(A) of Defence                 1.4.98
        Service Regulations
        Release of FFE by IFA (Army)                   MOD(F)      No.    230(6)//98/B.II       dated
10                                                     13.8.98
        Amendment      to Defence                Works MOD No. 3 (7)193/D (Works) dated 26.8.98
11      Procedure 1986
        Delegation of Financial Powers for MOD No. A/87085/PC/G/MF3/5818/D (OS) dated
12      Military Farms                     10. 11.98

13      Enhancement of Revenue Powers                       MOD No.        6(1)/99/D (O-1) dated 12.8.99
        Revision of Financial Powers under                  MOD No.        PC     80896/FP-1/1722/99/D (GS-
        Major Head 2076 Minor Head 800                      1) dated 9.11.99
14      Sub Head B (Purchase of Training
        Stores, Participation, in Courses,
        Purchase of Telecom Equipment etc.)
        Special Financial Powers for IT related             MOD No.           6(3)/98/D(0-1) dated 4.2.2004
15      Projects




                        ROLE AND FUNCTIONS OF
              REGIONAL CONTROLLERS OF DEFENCE ACCOUNTS

      Under the organizational setup of Controller General of Defence Accounts,
Controllers are divided into two categories:
      1.     Regional Controllers      and
      2.     Functional Controllers

2. Audit jurisdiction of the Regional Controller generally corresponds to Command.
Area and Independent Sub-Areas. Regional Controller acts as Financial Adviser to
the GOC-in-C of the Command as well as to the Area and Independent Sub-Area
Commanders in his audit area.

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3. Regional Controllers are the Chief authority for accounting and internal audit of all
Army formations, including MES, in their respective Commands and may overrule an
audit decision taken by any of their subordinate officers. They also assist the GOC-in-
C, Area and Sub Area Commanders in the preparation of all estimates and furnish
them regularly with such statistics relating to accounts as they may require for
carrying out a systematic review of expenditure under locally controlled heads, with
the object of restricting expenditure within reasonable limits, of avoiding unnecessary
expenditure and of utilization of savings towards objects of importance in
maintaining the efficiency of the Defence Services.
4. The offices of the Regional Controllers are located at:
       Southern Command          Principal CDA (SC), Pune
       Northern Command          Principal CDA (NC), Jammu
       Western Command           Principal CDA (WC), Chandigarh
       Central Command           Principal CDA (CC), Lucknow
       Eastern Command           CDA, Patna

Other Regional Controllers are functioning from Bangalore, Chennai, Guwahati,
Meerut, Secunderabad and Jabalpur.

Administration Section:
      i.    To look after various aspects of personnel management of DAD and
      ii,   To provide healthy living and working conditions for officers and &
            staff
Accounts Section:
      i.    To, provide accounting and financial information to executive authorities
            for the performance of their management functions and
      ii.   To provide timely and accurate figures to Govt. for preparation of
            financial accounts for Defence Services
Disbursement Section:
      i.    To arrange promptly for disbursement on behalf of the Defence Services
            and DAD in the allotted spheres, safeguarding the interests of Govt.
Pair Section:
      i.    To pay on due dates salary and other dues as per entitlement
      ii.   To maintain all necessary records, correct and complete in ail respects
            and
      iii. To advise Executive and Administrative authorities on matters relating
            to service conditions and entitlements of Defence Civilians
Miscellaneous Section:
      i.    To arrange prompt payment of bills relating to the miscellaneous
            expenditure for the upkeep and training of the Army

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Store Contract Section:
      i.    To advise Administrative/Executive authorities on the financial and
            other allied aspects of ASC other Contracts and
      ii.   To make prompt payment for supplies and other services rendered by the
            Contractors
Store Audit Section:
      i.    To helping the financial control of the activities of quasi-commercial
            organizations and manufacturing establishments of the Defence Services
      ii.   To pay for stores and equipments procured for the Defence Services
            indigenously and from abroad and
      iii. To ensure correct recovery and compilation of dues to the Defence
            Services on store transactions, hire of transport, hospital treatment etc.
Transportation Section:
      i.    To make prompt payment of entitled Traveling allowances to defence
            employees and DAD personnel
Engineering Section:
      i.    Scrutiny of Admin Approval/Technical Sanction; Contract Agreements
            and payment of works bills
      ii.   Watching expenditure against allotment through MER, Annual Review
            of MES expenditure. Provisioning of Cash Assignment to MES officer
            (i.e. GEs), Watching adjustment I D Schedule; C P Vouchers for stores
            issued to MES Units by other Controllers/' procured through DGS&D
      iii. Local Audit Objection, Test Audit Objection, Draft Paras, Super Review
            .and Arbitration cases relating to MES works
      iv.   To question relating to recovery of LF and allied charges including
            interpretation of rules and orders.


Financial Advice Section:
     i.    To assist Admin/Executive authorities in improving financial;
           administration, of the units and formations under their command
     ii.   To ensure that financial and other resources placed at the disposal of the
           Admin/Executive authorities are utilized in the best interest of the State
     iii. To evolve methods to increase the cost effectiveness of the expenditure
           incurred by the Admin & Executive authorities and
     iv.   To keep Admin & Executive authorities and CODA informed
           periodically of the Major Financial & Accounting Irregularities (MFAI)
Organization & Methods (O&M) Section:
     i.    To ensure rational organization by keeping in view span of control and
           scalar process to assess requirement of staff on scientific basis through

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               methods study and standard norms and to review the same through
               periodical systematic review.
EDP/DDP Sections:
        i.     Processing the Punching Medium received from different
               sections/offices for Sectional Compilation and send printed Compilation
               to the concerned offices
        ii.    Sending the Data file in duplicate on magnetic tape/floopy disc to the
               CODA for printing All India Compilation of Receipt & Charges, Book
               Compilation of RD&R Heads through CDA (R&D) and other
               responsible EDP/DDP centers.
        iii. Forwarding printed copy of All India Compilations to the DFA
               (Budget), Ministry of Defence (Finance), AHQ, D GADS, and
               Administrative & Financial authorities concerned at Defence
               Headquarters and Controllers concerned for watching expenditure
               against allotment
5. It is clear from the above that the Regional Controllers are responsible for all work
connected with the audit, payment, classification and accounting of bills relating to
Pay & allowances, TA etc. of civilian officers and subordinates, miscellaneous
allowances, contingencies, payment of bills for stores, supplies and works, local audit
of the stores and MES accounts and the inspection of cash accounts of Units and
formations in the areas under their audit jurisdiction.
6. The Regional Controllers are also responsible for:
        (i)    The maintenance of the pay accounts of JCOs & ORs and internal audit
               thereof The Pay Accounts Offices co-located with corresponding
               Regimental Centres and Depot Offices at various stations all over India
               are responsible for the maintenance of the Individual Running Ledger
               Accounts (1RLAs) of the Army personnel serving in the particular
               Corps'/Regiments.
        (ii) Payment of conveyance allowance and road mileage claims of Other
               Ranks and rail fares of recruits.
        (iii) The audit of Field Imprest Accounts rendered by Field Imprest Holders.
        (iv) The supply of Funds to Officer-in-charge, Record offices for remitting
               family allotments, terminal credit balances of non-effective personnel
               and payment of retaining fees of reservists etc. and audit of accounts
               rendered by them in connection with these funds.
        v)     The maintenance of AFPP Fund Accounts of JCOs/ORs and other than
               those maintained by JCDA (Funds), Meerut.
7. Regional Controllers also act as Financial Advisers to all Commands and other
lower formations in their respective areas on all matters of pay and allowances and


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AFPP Fund Accounts including travelling allowances of JCOs, ORs, NCs (E) and
non-gazetted covilians in operational area on War System of Accounting.




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          TYPICAL CASES OF FINANCIAL
               MIS-MANAGEMENT




            TYPICAL CASES OF FINANCIAL MISMANAGEMENT (MFAI)

      As per Articles 266(3), 267(1) and 283(1) of the Constitution of India, no
authority may incur any expenditure or enter into any liability involving expenditure
unless such expenditure has been sanctioned by general or special orders of the
Government.
2. Financial Regulations are the executive orders of the Central Government and
describe the financial powers and responsibilities of different authorities who are
responsible for the administration of Defence Forces; These regulations also lay
down the procedures, for delegation of powers, the essential conditions governing
sanction of expenditure from public money and also lay down the manner of exercise

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of powers by different authorities, framing of Defence Service Estimates, control and
spending of funds placed at their disposal with due economy and efficiency and the
manner of entering into contracts for procurement of supplies and services required
for the Defence Services.
3. Every officer incurring or authorizing expenditure from public money should be
guided by high standards of financial propriety and also enforce financial order and
strict economy at every step and ensure that all Financial Rules and Regulations are
observed not only by his own office and also by sub-ordinate disbursing officers.
4. The canons of financial propriety on which emphasis is generally laid are
enumerated in Rule 6 of Financial Regulations Part I are the following:
        (i) Every officer is expected to exercise the same vigilance in respect of
        expenditure incurred from Public Money as a person of ordinary prudence
        would exercise in respect of expenditure of his own money.
        (ii) The expenditure should not be Prima-Facie more than the occasion
        demand.
        (iii) No authority should exercise its powers of sanctioning expenditure to pass
        an order which will be directly or indirectly to its own advantage.
        (iv) Expenditure from Public Money should not be incurred for the benefit of a
        particular person or section of the people, unless
               (a) A claim for the amount could be enforced in a Court of Law (or)
               (b) The expenditure is in pursuance of recognized policy or, custom
        (v) The amount of allowances granted to meet expenditure of a particular type
        should be so regulated that the allowances are not on the whole a source of
        profit to the recipients.
5. Any infringement/breach of the above standards either in letter or spirit leads to an
ultimate major financial and accounting irregularity and mismanagement. .

6. The following are the types of irregularities generally noticed and observed as
MFAI.
      (i) All money received by or on behalf of Government not brought into
      Government Account without delay.
      (ii) All cash and store transactions not brought to account without delay.
      (iii) Non-production of auditable documents.
      (iv) Expenditure incurred based on the sanctions issued by the authority other
      than competent financial authority.
      (v) Expenditure incurred over and above the sanction/allotted amount in
      anticipation of further allotment.
      (vi) Drawal of money to prevent lapse of funds at the fag end of the financial
      year,
      (vii) Surrendering of savings at the fag end of the financial year,

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         (viii) Rush of expenditure in the closing months of the financial year will be
         regarded as financial irregularity and financial mismanagement.
         (ix) Split of sanctions to avoid sanctions of the next higher authority.
         (x) Sanction an advance or loan not authorized by Rule.
         (xi) Sanction of pension in excess of the amount admissible under Rules.
         (xii) Sanction the provision of new kind and patterns of furniture.
         (xiii) Sanction of expenditure which is liable to involve a permanent alteration
         of an existing Rule or establishing a new rule or practice involving further
         expenditure.
         (xiv) To sanction a temporary increase to the clerical establishment of his own
         office.
         (xv) Non-utilisation of plant and machinery.
         (xvi) Unauthorized issue of Railway warrants, credit notes, concession
         vouchers etc and loss of these documents.
         (xvii) Failure to conduct Annual stock verification. Discrepancies arising are
         left unattended on this account.
         (xviii) Losses sustained by Government due to theft / fraud/ negligence /
         financial irregularity and due to unauthorised issue of cash and stores.
         (xix) Any irregularity/loss irrespective of types, minatory value or cause as
         mentioned above presenting unusual features or disclosing defects in
         Rules/Procedures.
         (xx) Infructuous expenditure.
         (xxi) Non-imposing of liquidated damages wherever required.
         (xxii) Holding heavy balances in cash assignment accounts.
         (xxiii) Re-appropriation of buildings and non-utilisation of hired buildings.


7. To illustrate further, some typical cases of MFAI are given below:

              TYPICAL CASES OF MAJOR FINANCIAL & ACCOUNTING
                              IRREGULARITIES

I.       IRREGULAR / FRAUDULENT DRAWAL OF CASH FROM CASH
         ASSIGNMENT

(a) A unit under, DRDO has been authorised to hold cash assignment. The cash
assignment is operated by them through defence cheques supplied by DAD. Besides
payment by cheques to third parties in certain cases, the lab authorities also make
cash payment on account of cash purchases and advances of TA/DA out of the cash
assignment. During the course of linking the Schedule III (which is required to be a

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carbon copy of the cheque issued) with the paid cheque, it was observed in some of
the cases that the amount of cheques (eventually encased) differed from that shown in
the Schedule III and apparently from the figures recorded in cash book also. The
amount of the cheque was always on higher side. This led to the suspicion of possible
malpractices in handling / accounting of cash. The matter was accordingly pursued
and the information so elicited indicated that there has been fraudulent drawal of
substantial amount of public money in the lab. A sum of Rs. 4, 40,000.00 is stated to
have been realised from the defaulting cashier. The exact quantum of loss of public
money will be known only on completion of investigation which is said to be in
progress.
(b) A Sanction was accorded by a Project Director for civil work ignoring the DWP,
under item no 1 of schedule of delegation of financial powers under which item,
scientific activity design / development / manufacturing contracts, purchase of
equipment for project works can be sanctioned. The work should have been executed
by the MES after sanction by the Competent Authority.
       The Project director has incurred expenditure on the above account viz; civil
works to the tune of Rs. 3.53 crones and submitted 20 bills for payments to various
private firms. As the funds were not placed at the disposal of project director the
execution is not in order. This fact has been intimated to the project director.
However the irregularity pointed out has been accepted and the project Director had
requested to accept the bill provisionally pending regularisation and ex-post-facto
approval to this effect by the appropriate competent authority. It has been intimated
that an, inquiry ahs been ordered and the PD's explanation has been called for.
       In view of the above, the action of the PD in executing civil works to the tune
of Rs. 3.53 crores was considered as irregular, placed under objection and included in
the MFAI Report.



II. INERUCTUOUS EXPENDITURE

       During The Audit of Store Accounts by LAO It was observed that the vehicle
"KRISHI" has been kept unutilised since 1985. On 24 November 98 during the
annual inspection, the Vehicle was classified as Class V and unserviceable. Reasons
for non utilisation prior to classification as Class V and delay in disposing of after
classification was questioned by LAO for which no reply has been received
       However it was noticed that a new "KRISHI" was purchased and maintained,
The old vehicle was procured on 14-09-1976 at a cost of Rs. 4750/- where as the new
vehicle purchase on 10-03-1999 at a cost of Rs. 1,09,700/-. The new vehicle was
purchased without the concurrence of CDA.

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      When the old "KRISHI" Vehicle was kept unutilised for about 13 years
purchase of a new vehicle of the same make and type raises the question on the
necessity and the utilisation aspect and the purpose for which it was purchased.
      The amount spent for the purchase and eventual expenditure connected with its
maintenance would also be treated as infructuous.

III. STORE IRREGULARITY
       During the audit of store accounts of one of the lab, it was observed that a non
expendable item of store namely compressor air facility (1 set) valuing Rs. 3.14 crore
has been charged off from the store ledger by means of an expense voucher. Since the
item is non-consumable in nature charging of through expense voucher is not in
order.
       The lab authorities have been requested to furnish proceedings of
condemnation board if any convened, for which no reply has been received. Charging
off the undependable item of such high value by means of expense voucher has been
viewed as major accounting irregularity.

IV. NON UTILISATION OF EQUIPMENT & INFRUCTUOUS EXPENDITURE
       DUE TO IMPROPER PLANNING
A slim of Rupees 4, 14,350/- as per details below was spent for purchase and
installation of Keltron Micro processed Attendance Recording System from M/s
Keltron in August 1987 in a Unit.
       1. Machine                              -     Rs. 3, 48,350/
       2. Installation and commissioning       -     Rs. 21,000/
       3. Civil Works                          -     Rs. 45,000/-
                                                     ----------------------
                                  TOTAL        -     Rs. 4, 14,350/-
                                                     ----------------------
       The machine has not been put to use till date due to various reasons like non-
availability of the operator etc., therefore defeating the purpose of procurement and
'has resulted in infructuous expenditure due to improper planning.

V. LOSS OF RAILWAY WARRANTS & CONCESSION VOUCHERS

       During the local audit of some Army units various irregularities in
maintenance, custody and issue of railway warrants and concession vouchers have
been observed. Even though the scope of audit of these documents is only 5%, an
intelligent scrutiny could detect loss of blank railway warrants.



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      The units were advised to conduct Court of inquiries and initiate action as
contemplated in army order 145 of 79 to regularise the same as loss of public money
due to negligence.

VI. CASH IRREGULARITY. DELAY IN ALLOTMENT OF BUILDINGS

       There has been abnormal delay of many months in allotment of 20 government
hired buildings resulting in infructuous expenditure by way of rent to hired buildings
amounting approximately Rs. 1.25 lakhs. In addition, expenditure on chowkidar was
also involved, Non availability certificates have been issued ignoring the facts that
the government owned / hired buildings were available for allotment the unit has
been advised to submit the loss statement for regularisation as cash loss.

VII. LOSS OF PUBLIC MONEY DUE TO IMPROPER PLANNING

       Some units were deployed for exercise at Rajasthan sector and abruptly
retreated, half way thereby resulting in heavy loss of public money due to improper
planning. The total loss due to FOL was Rs. 2, 05,536 and loss due to issue of, MC
note was Rs, 22, 83,068. The Total loss was approximately Rs. 25 lakhs.

         A draft Para on this account has been raised by test audit authorities.

VIII. INFRUCTUOUS EXPENDITURE DUE TO IMPROPER PLANNING

      The abnormal delay in execution of slipway project resulted in infructuous
expenditure to the extent of Rs. 2.85 crores towards escalation payment. This has
been objected to in audit. Further During Super Review, the following points have
been noticed and the same were placed under observation. Originally the project was
sanctioned for Rs.25.04 crores in 1988, which was revised during 1997 as Rs 39.94
crones inspite of lapse of 10 years the work has not only not been completed but the
cost has also increased by almost 60% and time period for execution has increased by
upto 800%.
      Test audit has also insisted on the completion of balance works at the risk and
cost of the defaulting contractor & the actual commissioning of the project will be
watched in audit. Sanction of government for the improper
planning, blocking of Government capital, excess payment of escalation charges on
account of abnormal delay in execution of project has to be obtained.

IX. INFRUCTUOUS EXPENDITURE


 RTC KOLKATA                                             41.00                                                     127
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       Administrative approval was accorded for construction of building for
provision of a Bank at an Air Force Station at a cost of Rs. 7.03 lakhs with plinth area
of 159.88 mts which was actually completed at a cost of Rs. 7.40 lakhs in 1996. SBI
has not occupied the building as it was functioning as an extension counter under the
plea that the LF fixed was far too high and also due to lack of sufficient business in
the area.
       A sanction for temporary reappropriation of the building for use by private
organisation for commercial activity has been accorded. As per Rules laid down, LF
is to be charged on the capital cost of the property when let out to private party i.e. in
this case LF should be Rs. 6170 per month where as actual LF collected is Rs. 800
per month resulting in recurring revenue loss of Rupees 64,440 per annum to the
state. RAO(MES) has advised the administrative authorities to initiate regularisation
action under the orders of Government of India for construction of the building for
bank which is not covered by rules and with out proper commitment from the bank
authorities which has resulted in an infructuous expenditure of rupees 7.40 lakhs.

X. LOSS OF REVENUE DUE TO NON ALLOTMENT OF GOVERNMENT
     BUILDINGS

       An admin approval was accorded for carrying out special repairs to several
buildings of 1850 to 1910 vintage and roads at a cost of Rs. 42.05 lakhs, without
specifying the purpose for which these buildings after extensive repairs would be
utilised. Based on the sanction, a contract agreement was concluded for Rs. 43.45
lakhs and repairs were carried out at a total cost of Rs. 68.05 lakhs (approx) with
restoration of water and electricity to make these buildings habitable.
       The said accommodation after repairs is lying vacant till date. The expenditure
incurred therefore is irregular. According a sanction without specifying the purpose
for which the sanction is meant and allotting of funds from both capital and revenue
grants without proper reappropriation is highly irregular and requires condonation /
regularisation under the orders of Government of India.
XI. INFRUCTUOUS EXPENDITURE DUE TO NON UTILISATION OF PLANT
       &. MACHINERY

       During the course of review by an LAO, it was noticed that a printing press
together with accessories is held on charge of a unit. Two persons are employed on
the machine and their gross salary works out to Rs. 1.22 lakhs per annum
approximately. It was noticed that the machine was not utilised to the optimum and
only two letter pads and a few attendance registers could be printed during the whole
year. The utilisation pattern clearly indicates that the unit does not require the printing
machine. The payment of pay and allowances of two persons attached to the press

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without utilizing the machine tantamount to infructuous expenditure and has to be
regularised under the orders of the government.




                                                       *****




Mchk050107




 RTC KOLKATA                                             41.00                                                     129

				
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