By Shyam S Dubey
One of the features of globalisation was the emergence of global supply chains and just-in-time (JIT) inventory. Improvements in technology and physical and digital connectivity enabled companies to manufacture even complex products with hundreds of components, and to arrange their assembly and production efficiently. They did not have to invest working capital in inventory. Parts were delivered even with a day’s lead time. However, things are changing. JIT is giving way to just-in-case supply models. Amidst rising geopolitical and trade tensions, companies are no longer sure of receiving critical supplies at the right time. They need to stock up and even localise production of the components they need. So, the cost of production will rise.
In a different world, in the public finances of the government of India, JIT is coming into fashion and leading to efficiency gains, even as multinationals are forced to abandon the model. There is a quiet but significant enhancement of cash management in the government, saving crores in interest payments and even earning some.
Why JIT matters in government spending
It is well known that governments run fiscal deficits and supplement their tax and non-tax revenues with market borrowings. Interest costs start accruing from the moment the loan is subscribed to.
Interest payments on past loans, salaries, and pensions, and cash transfers to citizens are contractual or quasi-contractual and must be paid regularly without delay. However, development schemes and capital expenditure are relatively more discretionary in terms of timing. At the same time, they contribute to economic growth and employment generation. Hence, efficient cash management will ensure that development schemes—either at the Centre or in states—are provided adequate funds in a timely fashion. This is where JIT cash management can play a crucial part.
JIT cash management will ensure unspent balances are kept to a minimum and cash is released to the designated schemes as and when needed. The Union government has been striving to manage its cash balances optimally through various information technology-based initiatives such as the Public Finance Management System (PFMS), Treasury Single Accounts, and Central Nodal Account. These enable agencies to open accounts in the Reserve Bank of India (RBI) and draw money as required by pushing payment files created in the PFMS to the RBI’s e-Kuber platform through PFMS-e-Kuber integration. These initiatives at the Centre are being extended to the disbursal of funds for Centrally Sponsored Schemes (CSS).
SNA-SPARSH and the next phase of reforms
An SNA (Single Nodal Agency) account is a designated bank account for CSS managed through the PFMS. Money lying in the SNA with state governments but not released to the designated schemes is borrowed from the market, on which interest payments accrue, but the balances in SNA accounts earn very little or no interest from banks. At the end of 2024-25, the unspent balances in SNA accounts with states were Rs 1.56 lakh crore. There is scope for improved cash management here.
The initiative of the Department of Expenditure at the ministry of finance, called SNA-SPARSH, does precisely that. It facilitates JIT releases against the actual claims received from states for better cash management. Under SNA-SPARSH, the releases under CSS shall also be made on a just-in-time basis against the claims of states in a real-time manner. This initiative of SNA-SPARSH, implemented through the tripartite integration of PFMS e-Kuber-State Integrated Financial Management and Information System, is a landmark initiative of the Union government for effective cash management.
Overall, the various initiatives implemented through PFMS have eliminated the advance release of funds to agencies and ensured just-in-time payments. The underlying objective is to manage every rupee available with the state and Union treasuries efficiently, and nothing else. Around Rs 10-11 lakh crore of the Union Budget is being released through the JIT cash management initiatives.
The adoption of similar practices in states with respect to their budgets and release of funds for development and other purposes will save considerable sums in interest costs, which can be further utilised for the welfare of citizens.
The writer is former Controller General of Accounts.
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