By Dhruva Kumar Singh
The efficiency and effectiveness of public expenditure has always been a matter of public discourse. Recently, the Just-in-Time (JIT) system of payment emerged as an aid to ensure this. On June 6, 2022, during the inauguration of the dashboard of the Public Finance Management System (PFMS), finance minister Nirmala Sitaraman said that the JIT release of funds has led to saving the exchequer Rs 10,000 crore annually. Right now, anticipated savings could be higher than the quoted figure.
The process started more than a decade ago. After publication of my article titled Liquidating Unspent Balances in 2009, I was asked to conceptualise and work on the theme for the department of rural development. The article suggested how process reengineering of existing fund flow mechanism can eliminate the problem of unspent balances.
The problem of unspent balance is an unintended consequence of releasing funds to various agencies on advance basis and, generally, in installments. Unspent balances used to be accounted for during the subsequent release of funds. The problem of unspent balance has been soaring with increasing budgetary allocations for social sector schemes in the past few decades. Once, it was estimated in the ministry of rural development that up to 30% of budgetary allocation of a scheme was lying unspent. For the government, unspent balances rose up to several trillions.
The JIT system emerged from the idea of releasing funds on reimbursement basis, rather than on advance basis. It enunciated the idea of making near real-time expenditure-based payment. Above all, it advocated a smart system based on digital transformation, ensuring greater value for money.
At its centre is a robust web-enabled workflow-based management information system (MIS). Subsequently, there is continuous web service integration with the payment architecture of PFMS and the DBT system (where applicable). All payment liability is mapped on the MIS in real time and is then congregated and sent to PFMS daily. Through a well-established payment protocol, all liabilities are settled by banks daily. Essentially, all expenditure has to be reimbursed within 24 hours.
The JIT system was implemented in 2015 for the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGA), which has a real-time MIS—NREGASoft. Due to the latter, it was an ideal candidate for the JIT system, despite the complex programme architecture.
By 2016, more than 6 crore accounts of MGNREGA beneficiaries started getting credited the day after the payment became due. Delays in payment were eliminated. In the past, it was not unusual to have weeks- or even months-delays in crediting the accounts of beneficiaries. The exchequer benefited as well by saving large sums in interest costs.
Two major initiatives were taken by the ministry of finance.. In 2017, the Treasury Single Account (TSA) system was established for autonomous bodies. This was an exercise to sweep the main accounts of all autonomous bodies into RBI. Main accounts could be linked with subsidiary accounts being operated on the principle of zero balance. This initiative has been helpful in reducing idle money, ensuring greater visibility, and understanding of available funds as well as proper monitoring of their utilisation. Though TSA is often used interchangeably with JIT, it is mainly a simple and smart cash management tool.
After 2020, the procedure for the flow of funds under central sector and centrally-sponsored schemes have also been revised, which heralded another round of reforms in cash management. Simply put, it works on the centralisation of accounts and expenditure in a regulated manner to ensure unspent balances remains within a comfortable limit. Schemes with budgetary allocation below Rs 500 crore have to open an account in RBI. Below that limit, the role has to be played by public or private sector banks. In this regard, extensive measures taken by the ministry of finance were useful in substantially curtailing the amount of idle money in the system.
The department of food and public distribution, with an annual allocation of Rs 2.3 trillion (FY24) is already in the process of developing a web-enabled MIS which can be integrated with PFMS for the JIT system. It is likely to digitally transform the procurement and distribution process. It will bring the economy in operation, facilitate administration, and bring fairness to the whole process. Above all, it will empower around 8 crore farmers and 80 crore beneficiaries by Just-in-Time payments and data-based governance. The time has come for other ministries and departments to adopt this payment system for fiscal prudence and smart implementation of schemes and programs.
There is thus a strong case for the universal implementation of the JIT system based on the MGNREGA model. It is good to rejoice over the success of curtailing idle funds in the system, but it is time to maximise output through the digital transformation of schemes and programmes. While many schemes lack web-enabled real-time MISs required for the implementation of the JIT system, such constraints can be overcome with sincere efforts in a few months.
The writer is Chief Controller of Accounts, Ministry of Law & Justice and Ministry of Consumer Affairs. Views are personal