Governance in India has long been marred with structural challenges like transparency, lack of accountability and sustainable and inclusive growth. Since independence, some of these challenges proved to be major impediments in the growth trajectory of the nation. The challenges in fact crippled India’s growth during formative years post-independence.
With an objective of bringing in transformational accountability and transparency and to further promote good governance, the Indian government envisioned Public Financial Management System (PFMS).
PFMS started as a pilot project in 2010 for four flagship schemes to be implemented in a few states. By 2013-14, PFMS was already mandated for all DBT payments of all major welfare programmes of Govt. of India.
Today, the mandate given to PFMS by Cabinet decision is to provide:
1. A financial management platform for all plan schemes, a database of all recipient agencies, integration with core banking solution of banks handling plan funds, integration with State Treasuries and efficient and effective tracking of fund flow to the lowest level of implementation for plan scheme of the Government.
2. To provide information across all plan schemes/ implementation agencies in the country on fund utilization leading to better monitoring, review and decision support system to enhance public accountability in the implementation of plan schemes.
3. To result in effectiveness and economy in Public Finance Management through better cash management for Government transparency in public expenditure and real-time information on resource availability and utilization across schemes.
PFMS has evolved as an end to end solution for Processing, Monitoring and reconciling financial flows of Central Govt. It has a unique capability to pre-validate the account details before pushing the transactions. PFMS can be credited to the transformation of Direct beneficiary transfers space in financial governance in India. An estimated 102 crore DBT transaction were dome through PFMS in FY 19-20 amounting to ~ ₹2.67 lakh crore. Through efficient use of technology, PFMS is estimated to have saved ~ ₹1 lakh crore in direct beneficiary transfers.
Today, PFMS has empowered governance to become more responsive, accountable and transparent. It has evolved as a distinct brand in the public finance management space and as the core IT platform for regular activities of CGA, such as payments, receipts, accounting, expenditure control, management of provident fund and pensions etc.
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The PFMS is now visualised as a key decisions tool for: tracking of flow of funds to the last beneficiary or implementation level; effective management of fund float in the system- Just in time transfers and monitoring and control of unutilised fund
The scope of work for PFMS in governance in India is limitless. In order to make system more robust the PFMS will have to relentlessly keep on adding all states, agencies, vendors etc. under its ambit.
In future, the successful evolution of PFMS will depend on some key factors like:
1. Agility in terms of On boarding/Integrating all Govt. accounts: While creation of PFMS tool is one thing, delivery on the vision of PFMS would require a great deal of agility in terms of on-boarding/ integrating all major govt. accounts. Only after ensuring significant coverage, the true execution of the concept will take place.
2. Effective data management capabilities: PFMS, going ahead will have to add significant data management capabilities in-order to ensure better monitoring/review to deliver on the idea of a decision support system for effective cash management or management of idle float in the system.
3. Constantly upgrading: Adaption to rapid changes in technology is another key areas that would call for a considerable amount of focus both in terms of upgradation and monitoring.
4. Collaboration with the banking system: Lastly, one of the most critical factor for successful execution of PFMS is its integration with the banking systems. The Banks and PFMS will have to actively partner to ensure faster coverage/integration of all the Govt. entities.
Presently, PFMS is integrated with all major Public sector banks, Private sector banks, Cooperative banks, Regional rural bank, India Post and RBI. Performance of these banks integrated with PFMS is a critical requirement for achieving E-governance and digital as well as financial inclusion objective of the Govt. The performance of banks is regularly monitored against a set of pre-defined key performance indicators like transaction lead time, data updation, Account validation, Error count etc.
The PFMS has revolutionized the ways public finances are managed in the country. With constant improvement and increasing coverage, the scope of PFMS is ever-increasing. Going ahead, PFMS will not only be seen as a tool for managing planned expenditure but will also add new meanings to Direct Beneficiary transfers, data driven cash management and e-Governance in India.
D.K. Das is Axis Bank’s Executive Vice President and Head of Government Business. Views expressed are his own.
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