How Operational Reforms Helped Cut Interest Payments

Treasury single account and single nodal account helped save over Rs 10,000 crore in interest payments, says top official.

<div class="paragraphs"><p>Image Credit: Unsplash/ Ishant Mishra</p></div>
Image Credit: Unsplash/ Ishant Mishra

Operational reforms such as treasury single account and single nodal account systems helped the government accrue tangible savings, according to a senior government official.

Both systems offer efficiency in public account management by reducing idle funds languishing in the various accounts of state governments and central agencies, the official told BQ Prime on the condition of anonymity. This efficiency helps cut down the interest payments made by the government as these funds are borrowed, he said.

Earlier this month, Finance Secretary TV Somanathan told reporters that interest cost savings in the current fiscal due to public financial management system reforms like single nodal account would surpass the savings made in the last fiscal. The savings on interest payments in FY22 were reported at Rs 10,000 crore by the Finance Ministry. 

The TSA and SNA helped to move from the pre-existing prescriptive release of funds to a just-in-time or real-time payment, minimising the float with banks. Fundamentally, it recorded expenditures only after the actual utilisation of the funds and not merely after the transfer of funds from the Finance Ministry. Unspent balances at the end of a year would also be surrendered by respective ministries, reverting back to the consolidated fund of India.

According to N R Bhanumurthy, vice-chancellor at BR Ambedkar School of Economics, these reforms improve public expenditure efficiency by reducing leakages, improving fund flow and tracking the expenditure.

"Efficiency is more important than allocation of resources," he told BQ Prime. "Combined with direct benefit transfer, the system has increased the visibility of the number of beneficiaries and reduced leakages for subsidies, which then leads to savings."

The TSA and SNA systems are also expected to keep the expenditure bill in check in fiscal 2023–24, along with any incremental rise from tax growth and rationalised spending on subsidies for fertilisers and food.

Combined spending on food and fertiliser subsidies reached Rs 5.12 lakh crore in FY23, according to revised estimates.

In terms of fertiliser subsidies, the event of a global slowdown and possible commodity price slump, along with the rise of domestic manufacturers, may contribute to a lower import need and rationalising the expenditure, the official quoted earlier said.

As the official explained, the benefit of reforms has been to make budgets more realistic.

The Treasury Single Account system is for transfers to autonomous/statutory bodies and central public sector enterprises, whereas the Single Nodal Account system is for centrally sponsored schemes, which include equal contributions from the centre government and respective states.

Exact figures of the savings for FY23 are yet to be worked out, according to the official. The TSA system has additionally been universalied for expenditure heads like 'Other Central Expenditure' and 'Central Sector Schemes' with a budget outlay of more than Rs 500 crore in the current fiscal.

Bhanumurthy sees e-office and fully onboarding electronic filling of bills from raising requests to approval as the next step in public expenditure efficiency.

Last year, the government launched the e-Bill system for the 'Pay and Accounting' units of nine central government ministries on the 46th Civil Accounts Day. The system envisions a fully digital and paperless submission and backend processing of bills for departmental claims and government suppliers.