PFMS: A game change in implementation of central schemes

What is PFMS?

Public Finance Management System (PFMS) is a state of art and real time management information system of the Government of India which is used for expenditure, receipt and/or transfer of funds, accounting, reporting, reconciliation, tracking, monitoring, end use and as a decision support system. Most of the financial jobs of the civil ministries in Government of India are done via this system. This includes bill payments, GPF, Pension, expenditure and receipt accounting, reporting, data analysis, non-tax receipt, transfers to the state governments and other agencies, so on and so forth.

Like other areas, PFMS has brought revolutionary changes in centrally sponsored schemes. Succinctly, states have limited revenue-generating capacity but large expenditure responsibility and vice versa for the Centre. As a result, the Central Government transfers some of its revenues to the States. This is done by implementing various Government schemes and by grants-in-aid to states.

Central schemes are of two type viz: central sector schemes (CS) and centrally sponsored schemes (CSS). Central sector schemes are funded 100 percent by the Centre while centrally sponsored schemes are funded 90 percent by the Centre and 10 percent by the state in case of J&K. For CSS, the implementation, expenditure, accounting and reporting is done by the states while major funding is by the Centre. States in turn provide utilization certificates to the central government.

Let us now talk of the scale that we are looking at. For the year 2018-19 the J&K state had receipts of around Rs 94,000 crores, out of which a whopping Rs 21,990.88  rore were releases from the centre to the consolidated fund of the state and out of these Rs 7442 crores were releases for CSS alone. Thus we are talking about at least Rs 9170.2 crores including the state share and central sector share which is  around 10 percent of the total revenues for the year.

What will PFMS achieve?

First and foremost PFMS (Public Finance Management System) is in the process of being made mandatory for CSS. It has already been made so for schemes such as NRDWP (National Rural Drinking Water Programme), PMAY(Pradhan Mantri Awas Yojana) etc. Therefore, without its implementation central ministries will refuse to release the subsequent installments of funds.

More importantly, PFMS will enable complete and total transparency in the usage of CSS funds till the last mile. On one hand, this means that money will be directly transferred to the accounts of beneficiaries and on the other it will create a digital trail of each transaction done making it next to impossible to divert money to false beneficiaries or unapproved usages. 

 The icing on the cake is that it will enable the above in real time. PFMS is integrated with almost all the banks in the country. Hence, payments made are seamless and reliable. Each upper level provider of funds can in real time see what amount has been utilised and what is lying parked in the bank accounts at lower levels. This crucial information can be used to conditionally release further funds only upon the utilisation of parked funds, thus reducing float in the system.

Since PFMS is integrated with Core Banking Solution, therefore it’s able to validate each account number before sending the payment file. This in turn makes it extremely difficult to have fake vendors and proxy beneficiaries . This hugely reduces the chances of fraud as the PFMS system compares the credentials of the beneficiary between the PFMS system and the banking system, which makes it impossible to pilferage funds to other bank accounts as is often done in other online payment systems. As an added advantage, it also reduces failed transactions.

Generally funding agencies receive Utilisation Certificates(UC) from the recipient agencies of previous releases before making further releases. However these are made available annually and are often made manually. This has two problems. One, it is extremely difficult to verify the actual utilisation of funds vis a vis the certificates produced; secondly any mitigating measures in case of non utilisation will have to wait till the year end. PFMS provides a solution to both these issues.

It has an online Utilization Certificate module of standard format which has details of component wise expenditure of each scheme. The expenditure made via the PFMS system is logged and UC is generated on its basis by the system. Hence the UC is absolutely accurate and completely verifiable. It can also be generated anytime even in mid year if needed.

PFMS generates a wealth of information and this is compiled into  a variety of reports which can be used by administrators at different levels. This enables prudent financial  planning and allocation. For example the central government can graduate raising debts from the market to fill in the fiscal deficit as per the actual utilisation of funds at the ground level instead of taking the debt in one go and then having the funds parked across different levels of hierarchy. Last year this alone led to a saving of around 10000 crores in interest costs for the government.

Additionally the information generated by PFMS can act as a decision support system for the administrators, as in ,they can look at the causes of why certain states or districts, for e.g., are able to utilise funds in time and others are not . The information being available in real time; such analysis opens up the possibility of mitigating any roadblocks in real time too.

Conclusion

PFMS is a revolutionary change in the way in which financial matters of the government are managed with a promise of huge benefits in terms of efficiency, effectiveness,  and transparency. If properly implemented it can make a big difference in the use of central funds in Jammu Kashmir benefiting the individual beneficiaries as well as improving the overall financial management in the state.

The author is from 2014 batch IAS ALLIED SERVICES & is currently posted as Assistant Controller General of Accounts (PFMS), Jammu and Kashmir.