Reports on Observance of Standards and Codes

India and the IMF

India ROSC
I.  Fiscal Transparency

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I. Fiscal Transparency

Prepared by the Fiscal Affairs Department

February 23, 2001


Executive Summary

  1. Introduction

  2. Description of Practice
    1. Clarity of Roles and Responsibilities
    2. Public Availability of Information
    3. Open Budget Preparation, Execution, and Reporting
    4. Independent Assurances of Integrity

  3. IMF Staff Commentary

Executive Summary

This report provides an assessment of fiscal transparency practices in India in relation to the requirements of the IMF Code of Good Practices on Fiscal Transparency-Declaration on Principles based on the authorities' response to the IMF fiscal transparency questionnaire and other documents provided by the authorities.

India has achieved a reasonably high level of fiscal transparency, especially as regards the amount of fiscal information that is made available to the public. The passing of fiscal policy legislation currently before parliament would result in the publication of statements that address the current lack of background information and analysis in connection with the central government budget. However, there would still be need to pay more attention to reporting on general government finances, to providing information on contingent liabilities and quasi-fiscal activities, and to the analysis of fiscal risks.

Intergovernmental fiscal relations could be simplified and clarified, particularly with a view to clearly establishing the role of central government in enforcing fiscal discipline on the states. The sharing of tax powers between central and state governments is also a source of complexity, and the expenditure framework needs to be strengthened by clearly distinguishing between current and capital spending and by placing more emphasis on performance audit.

Abbreviations and Acronyms
CAG Comptroller and Auditor General
CPUs Committees on Public Undertakings
GFS Government Finance Statistics
MOUs Memoranda of Understanding
NFPEs nonfinancial public enterprises

National Small Savings Fund


Oil Coordination Committee


Public Accounts Committees


public financial institutions


public utilities and public sector units


Reserve Bank of India

SDDS Special Data Dissemination Standard

I. Introduction1

1. This report provides an assessment of fiscal transparency practices in India against the requirements of the IMF Code of Good Practices on Fiscal Transparency—Declaration on Principles. The authorities have completed the fiscal transparency questionnaire prepared by the IMF staff. The assessment has two parts. The first part is a description of practice, prepared by the IMF staff on the basis of the questionnaire response and additional information provided by the authorities. The second part is an IMF staff commentary on fiscal transparency in India.

2. A key feature of the Indian fiscal system is that the central government shares taxation powers and expenditure responsibilities with state governments.2 While the Code is pitched at the general government level, it focuses on the information that the central government provides about the general government, mainly in the context of the annual budget. The requirements of the Code are not formally applied to subnational levels of government, although most are relevant to all levels of government. Since the fiscal management systems of the central and state governments in India are similar, many of the comments in this report apply to both.

3. It should also be noted that public financial institutions (PFIs) and nonfinancial public enterprises (NFPEs) play an important role in India. The Code, however, does not apply to these entities, nor is there any requirement under the Code for the central government to systematically provide information about public sector finances. However, the quasi-fiscal (as distinct from commercial) activities of PFIs and NFPEs are covered by the Code.

II. Description of Practice

A. Clarity of Roles and Responsibilities

4. The Indian Constitution, and its supporting legal framework, provide a clear statement of the roles and responsibilities of the central government and state governments. There is a well-defined boundary between the general government and the rest of the economy. Extrabudgetary activities are not extensive. There are, however, significant subsidies on selected petroleum products provided through an administered price mechanism operated by the Oil Coordination Committee (OCC). While the new National Small Savings Fund (NSSF) is formally an extrabudgetary fund, its financing of central and state government budget operations (which replaces the previous arrangement where all small savings were treated as borrowing by the central government with a portion being onlent to states) is fully reflected in their respective budgets.3

5. Government involvement in the private sector has been reduced. The liberalization of industrial licensing, the opening up of certain sectors to competition, and the simplification of foreign investment procedures have contributed to this. While regulations affecting land use, employment, public health, and environmental standards have been simplified, they remain quite complex. Although public servants have some discretion in their administration, the application of regulations is nondiscriminatory. The recent emphasis has been on putting in place an appropriate regulatory framework for private involvement in key infrastructure sectors.4 Although direct government equity participation in private companies is negligible, PFIs hold significant private sector equity, including a controlling interest in some companies.5 These holdings are disclosed in the annual reports of the relevant institutions. In addition, the NFPE sector remains significant, with extensive government ownership of public utilities and public sector units (PSUs). PSUs undertake a broad range of activities in the manufacturing and services sector, and employment by central government PSUs represents roughly 7 percent of employment in the organized sector.

6. Intergovernmental fiscal relations are complex. These arrangements reflect the assignment of expenditure responsibilities and taxation powers to the central government and state governments laid down in the constitution. A large proportion of state revenues is provided by the central government in the form of grants and loans (both tied and untied to specific spending programs), and in the form of shares of taxes collected by the central government. Tax shares, grants, and loans are mainly formula based, and either reflect recommendations made by Finance Commissions, which are constitutional bodies established every five years, or are decided by the Planning Commission. Finance Commission reports, which explain the Commission's recommendations and the formulas to be used, are published. However, allocations related to spending on projects covered by five-year plans are to some extent based on negotiation with individual states, and on various ad hoc considerations. In particular, while assistance to states provided in connection with central and centrally-sponsored plan spending is mainly driven by formulas and other objective criteria, around 10 percent of this assistance is provided at the discretion of the Planning Commission.

7. State governments finance their fiscal deficits from a number of sources. In addition to loans from the central government referred to above, 80 percent of net small savings collections credited to the NSSF is invested in state government securities (with the remainder being invested in central government securities). The Reserve Bank of India (RBI) also sells state government securities, mainly to public sector banks and public financial institutions, as part of a state government market borrowing program. While these securities are sold mainly at fixed interest rates that do not vary with the economic and financial circumstances of individual states, a few financially stronger states have taken advantage of the option now available to sell between 5 percent and 35 percent of the securities they issue by auction. This is an area where states are seeking more flexibility. In addition, state governments borrow from state provident funds, and in some cases from private finance companies. Finally, to provide temporary liquidity, states have access to ways and means advances from the RBI as long as specified limits are strictly observed and advances are repaid within 90 days.

8. Recent amendments to the constitution have increased the role of local governments. In particular, the 73rd and 74th amendments to the constitution provide for a wider range of responsibilities to be transferred to self-governing panchayats and municipalities, and require them to be accountable to their electorates. However, the constitution does not fully specify the expenditure and revenue powers that are to be assigned to these levels of government. This will be determined by state governments, based in part on economic and social development plans prepared by panchayats and municipalities. State Finance Commissions are to advise on the revenue shares and grants that they should receive from states.

9. While the central government in principle exerts a large measure of control over state finances, in practice states have been able to soften the budget constraint they face. States are prohibited by the constitution from borrowing abroad, and must obtain permission to borrow from the market if they have outstanding debt to the central government. However, this latter requirement is not applicable to all forms of borrowing, a notable exception being securities issued to the NSSF. In addition, the central government has on occasion provided additional ad hoc resources to states facing financial strain. Most recently, after 11 states signed confidential Memoranda of Understanding (MOUs) with the central government in 1999/00 (the fiscal year runs from April 1 to March 31), which promised fiscal reforms in return for advances of tax shares, outstanding advances were converted to 3-year loans at the end of the fiscal year under a new extended ways and means facility with the central government. Finally, states are able to accumulate off-budget liabilities, mainly by guaranteeing loans to state public enterprises in connection with infrastructure projects.

10. The RBI is not formally independent of the government. However, it has considerable operational autonomy, which reflects the high priority both the ministry of finance and the RBI attach to controlling inflation. While the central government's automatic access to subsidized RBI financing has ended, and the reliance on RBI financing by the central government has diminished over recent years, there are no formal limits on overall RBI lending to government. This leaves the RBI free to purchase government securities that are not sold to banks and public financial institutions under the central government market borrowing program, and to subsequently sell them through open market operations as part of its monetary and public debt management. The central government also has access to ways and means advances from the RBI. There are separate limits for the first and second halves of the fiscal year, and utilization of 75 percent of available advances triggers the flotation of additional government securities. Weekly information on RBI transactions in government securities is published on the RBI website ( The RBI no longer provides exchange rate or other guarantees. Finally, the RBI makes an agreed profit transfer to the central government each year.

11. The banking and financial sector is predominately under government ownership, and it engages in quasi-fiscal activities. Public sector banks (along with private and foreign banks) have to meet quantitative norms for priority sector lending. While much of this lending is at market-related interest rates, constraints on portfolio choice give rise to credit risk that is not reflected in interest rates. There are interest rate caps on small loans. Public insurance companies provide subsidized insurance and benefit from lower corporate taxation in return. To the extent that holdings of private sector equity by PFIs do not reflect asset management considerations, they may also be influencing private sector firms in a manner that gives rise to quasi-fiscal activities. Financial sector reforms are aimed at giving greater functional and operational autonomy to public sector banks and public financial institutions. For example, the government recently announced an intention to reduce its legislated minimum shareholding in public sector banks to 33 percent (from 51 percent), although subsequent statements—to the effect that this would be done in a way that does not dilute the government's effective control and that protects the interests of bank employees-suggest a risk that the broader objective of improving efficiency and profitability may not be achieved.

12. NFPEs are subject to policy directives regarding pricing and employment. These result in significant quasi-fiscal activities, and in particular extensive subsidies at both the central and state levels. Notable in this regard are state enterprise subsidies on water and power. Overmanning of NFPEs (as well as of public sector banks and PFIs) is also an important quasi-fiscal activity. Progress on public enterprise reform, involving the commercialization of strategic enterprises and privatization of nonstrategic enterprises, has been slow.

13. Budget management is based on a clear separation of executive and legislative powers. Most aspects of the budgetary process are similar for the central government and state governments. The main emphasis of the legislative framework is on administrative accountability and financial control. A Fiscal Responsibility and Budget Management Bill submitted to parliament in December, 2000 is intended to provide a framework for the formulation and implementation of fiscal policy by the central government in a manner consistent with achieving long-term macroeconomic stability and intergenerational equity.

14. Taxes are fully under the authority of law. With a large number of taxes, numerous exemptions and other reliefs, and frequent changes to tax provisions, tax laws are relatively complex. A further complication is that tax powers are shared by the central and state governments, with inadequate coordination of laws and administrative practices between the central and state governments, and among states (most notably differences in tax bases and rates). The jurisdiction for some taxes (e.g., on services) is also unclear. Reflecting the complexity of tax laws, tax officials have considerable discretion in interpreting them.

15. There are statutory laws relating to the behavior of civil servants, and prescribed penalties for misconduct. However, corruption is a problem, especially in areas where public servants, and in particular tax officials, have the most discretion, such as customs collections. To address this problem, efforts have been made to simplify taxes and to limit discretionary powers. Detailed information brochures explaining taxpayer rights and responsibilities are available, and simplified forms are used to aid taxpayer compliance.

B. Public Availability of Information

16. A comprehensive set of central government budget and accounting documents is published.6 These are usually available end-February, and they cover all central government accounts (the consolidated fund, the contingency fund, and the public account). A summary Budget at a Glance provides an easily accessible overview of the main central government budget aggregates. In addition to the budget estimates, the budget documents report budget and revised estimates for the year preceding the budget. The Budget at a Glance also reports actuals for the previous year. No forecasts are given for future years. The Expenditure Budget (Volume 1) and the Detailed Demands for Grants include information on all central government guarantees. However, there is no information on tax expenditures and quasi-fiscal activities. Information on central government debt is included in the Receipts Budget and is also made available quarterly, with a quarter lag, on the ministry of finance website ( Monthly data on central government budget operations are also published. These data, which are highly aggregated, are made available with a lag of one month on the website of the Controller General of Accounts (

17. Information on general government is available, but with a long lag. The RBI compiles and publishes general government data, including debt, derived from the budget documents of the central government and state governments. State budgets are prepared in tandem with the central government budget (the fiscal year is the same for the central government and state governments). However, because states are dependent on budget transfers from central government and their budgets have to reflect plan expenditure, state budgets are typically finalized after the central government budget, and budgets for some states are not available before the fiscal year begins. It is usually three months into the fiscal year before budgets for all states are finalized. These are then consolidated, and general government budget estimates and revised estimates for the previous year are made available in preliminary form in the RBI Annual Report that is published in September (i.e., six months into the fiscal year). Updated and more detailed information is then published about three months later in the RBI Report on Currency and Finance. The RBI also publishes a separate, comprehensive study of state finances at about the same time.7 This includes details of guarantees for most states. Summary information on guarantees of state governments and the general government has recently been provided in both the RBI Annual Report and the Report on Currency and Finance.8 The discussion of general government finances in the Economic Survey is based on RBI information. Data on central public enterprise finances are published in the Public Enterprises Survey, but with a lag of 18 months. Data on the finances of state public enterprises and local governments are not available.

18. India subscribes to the SDDS. Advance release date calendars for the publication of fiscal data are announced. A flexibility option on timeliness is taken under the SDDS in respect of publishing general government data.

C. Open Budget Preparation, Execution, and Reporting

19. The annual budget has quite a narrow focus. While broader fiscal policy targets are sometimes discussed in the Budget Speech and in the Economic Survey, the emphasis is very much on the central government budget, and on the central government's overall fiscal deficit in particular. There is no systematic effort to relate the budget to general government or wider public sector finances, to medium-term fiscal sustainability, or to macroeconomic goals. Although the five-year plan has a medium-term perspective, its emphasis is on development projects.

20. Expenditure on new programs is distinguished from existing commitments. New items of expenditure are specifically listed in a separate annex to the Demands for Grants. But this information is not used for costing the continuing services of government as a basis for medium-term expenditure planning. Beyond the information provided on central government guarantees referred to above, fiscal risk is not addressed in the budget documents.

21. Budget data are a generally reliable guide to central government operations. However, there are three supplementary budgets a year which can lead to sizable expenditure increases. While there has been progress over the years in making supplementary budgets self-financing, they can still undermine the realism of the initial budget approved by parliament.

22. Data are recorded in gross terms and on a cash basis, and are consistent with GFS conventions. They are classified by administrative agency, by economic category, and by function and program. A distinction between revenue and capital expenditure is required under the constitution. A plan versus nonplan expenditure distinction is also made. Plan expenditure is determined by the Planning Commission, and comprises both capital and current spending on development projects. RBI reports on the finances of state governments and the general government also distinguish development from nondevelopment expenditure, using different criteria.

23. In addition to the overall fiscal deficit, the revenue deficit (i.e., the difference between current revenue and current spending) and the primary deficit are used as summary indicators of fiscal policy in the budget documents. No statement of accounting policy is included in the budget or final accounts statements, although cash accounting procedures are set out in detail in accounting manuals. Changes to accounting procedures are noted in the budget documents. Data on arrears are not routinely provided by the accounting system. However, the expenditure and revenue departments monitor arrears. The implications of a shift to accrual accounting have been studied by the Controller General of Accounts.

24. Internal audit at the central government level is effective.9 The annual accounts of the central government are finalized within 6-8 months of the end of the fiscal year and final audited accounts are presented to parliament within a year. There is timely reconciliation with bank accounts. Contracting and procurement rules, together with employment and pay regulations, are clearly stated.

25. Ministries present Performance Budgets that specify results to be achieved by major programs. Actual performance is assessed in ministries' Annual Reports. The Planning Commission has a Program Evaluation Organization that carries out evaluations of plan projects. Ministries have also contracted out evaluations, but there is little incentive for them to do so and this practice is not widespread. Evaluations have not had much impact on subsequent budgets.

D. Independent Assurances of Integrity

26. The Comptroller and Auditor General (CAG) is responsible for auditing government accounts.10 The CAG's independence is established by the constitution and the office of the CAG has an international reputation for the quality of its work. CAG reports, which are very detailed, are tabled in the central and state legislatures, and are reviewed by the respective Public Accounts Committees (PACs) and Committees on Public Undertakings (CPUs). In addition to financial audits, the CAG also undertakes performance and value-for-money audits, and is placing increasing emphasis on the latter. The PAC/CPU mechanism provides a means for differences of view between the CAG and ministries about audit observations to be resolved, and for the required follow-up of CAG recommendations to be identified. Ministries are subsequently required to submit Action Taken Notes to the respective PAC/CPU via the CAG. The accounting function is clearly separated from the audit function, and is assigned to the Controller General of Accounts. While the CAG retains responsibility for accounting and audit at the state level, these functions are effectively separated by having different offices of accounting and audit.

27. Macroeconomic forecasts and assumptions underlying the budget are not made available to the public or to independent agencies. While some very basic information on macroeconomic aggregates (e.g., growth and inflation) is referred to in the Budget Speech, this is not sufficient to assess the reasonableness of budget estimates. Further, there is no legislation establishing the independence of the Central Statistical Organization.

III. IMF Staff Commentary

28. India has achieved a reasonably high standard of fiscal transparency. Particularly noteworthy is the detailed information that is made available in connection with the central government budget. A large amount of fiscal information is also made available elsewhere, including in reports by government ministries, the RBI, and the CAG.11 External audit is another strong point. Meanwhile, in other areas, much progress has been made, especially in conjunction with the liberalization process which has fostered a clearer demarcation between the government and the private sector, and with tax reform that has produced simpler taxes which are more easily understood and applied more evenhandedly. However, in both of these areas there is room for further progress.

29. Enacting the Fiscal Responsibility and Budget Management Bill would be a major step forward given the emphasis it places on achieving a high standard of fiscal transparency. To this end, the Bill requires that a wider range of fiscal policy statements should be included with the budget documents (see below), that changes in accounting standards should be announced, and that contingent liabilities should be disclosed. The Bill also requires the elimination of the revenue deficit (followed by revenue surpluses), and reductions in the overall fiscal deficit and government debt to specific target levels, by stated dates.

30. There appears to be considerable room for simplification and clarification in the area of intergovernmental fiscal relations. While recent changes to rules governing tax sharing represent a significant step forward,12 the division of responsibility for different taxes remains unclear in many areas and impedes the process of tax reform. For example, sales tax reform and establishing a national value added tax are complicated because sales taxes fall under the purview of the states and the responsibility for taxation of services is not well defined. Nevertheless, recent progress towards rationalizing and harmonizing state sales taxes and the proposal in the 2000/01 budget to restructure central excise duties into a central value added tax are noteworthy. On the expenditure side, the center has considerable discretion in establishing spending priorities for the states through the Planning Commission, but it is unclear whether these priorities fully take into account needs at the state level, or the longer-term costs of development projects. In addition, recent constitutional amendments have created a third local tier of government for which expenditure and revenue responsibilities have yet to be fully defined.

31. The role of the central government in enforcing fiscal discipline on the states should be more clearly established. While the central government has the ability to restrict state borrowing, and it has used this ability to tighten the budget constraint faced by states, there remain significant loopholes (securities issued to the NSSF, guarantees) and problems with fully enforcing controls where they apply. It is therefore unclear whether the central government can impose a hard budget constraint on states under the current system. Similarly, efforts to increase the discipline on some states through the MOU process, in effect by providing conditional loans, have yet to be shown to be effective. Moreover, the terms and conditions of these loans have not been transparent.

32. Reporting on general government finances needs to be improved. The current nine-month lag in producing reliable and detailed general government accounts is too long to permit proper fiscal policy analysis in a country like India where state governments have significant fiscal responsibilities. Part of the problem is that not all states prepare their budgets in tandem with the central government budget, and more sharing of relevant information during budget preparation would allow better coordination and enable states to finalize their budgets earlier. States also need to meet higher standards of fiscal reporting, and it is encouraging that committees of state finance secretaries have been set up to propose fiscal indicators and disclosure norms for state governments. In this connection, monthly reporting, which has considerably aided the monitoring of fiscal developments at the central government level, would be even more valuable if it was extended to state governments (with consolidation to produce monthly information on general government). However, this would be demanding. As an alternative, the central government could use currently available monthly information on transfers to states and state borrowing to provide an indication of developments in the fiscal position of state governments and the general government. Either way, it has to be emphasized that monthly reporting is a best practice that exceeds the requirements of the Code.

33. The budget documents should provide more background information and analysis. To properly assess the impact and appropriateness of the central government budget, it has to be placed in a broader fiscal and macroeconomic context. This requires that its implications for the overall fiscal position be understood, which in turn means that some assessment has to be made of the outlook for general government finances (which would be easier if state government budgets were nearer completion) and ideally for the finances of the public sector as a whole. Information on contingent liabilities and quasi-fiscal activities would help complete the picture. The analysis of the budget also needs to be more forward looking, beginning with a forecast for the two years following the budget, and then using this as the base for a longer-term projection which feeds into an assessment of fiscal sustainability.13 In addition, the macroeconomic and other assumptions underlying the budget should be provided, and the forward-looking analysis of the budget should emphasize consistency with broader macroeconomic objectives. Finally, there should be an assessment of fiscal risks.

34. The fiscal policy statements that are required under the Fiscal Responsibility and Budget Management Bill would address many of these needs. The Medium-Term Fiscal Policy Statement is to include three-year rolling revenue and expenditure projections, and the Fiscal Policy Strategy Statement and the Macroeconomic Framework Statement are to focus on short-term stability and longer-term sustainability. The main gaps in these statements would appear to relate to implicit contingent liabilities, quasi-fiscal activities, and fiscal risks.

  • On contingent liabilities, details of explicit government guarantees are currently provided.14 But implicit guarantees and other contingent liabilities, such as the possible need for the central government to recapitalize weak banks or for state governments to make good on the arrears of State Electricity Boards, are not openly recognized because of concerns about moral hazard.15 While the government provides such assistance, and is open about doing so, greater clarity in accounting for the existing and prospective assistance provided to weak banks, PFIs, and NFPEs would allow the fiscal costs of this activity to be clearly identified.

  • On quasi-fiscal activities, regular assessments should be provided. This would require a careful examination of the operations of state owned banks, PFIs, and NFPEs with a view to identifying all activities of a quasi-fiscal nature. In the meantime, updated information could be produced on quasi-fiscal subsidies, along the lines of the estimates given in the ministry of finance's 1997 discussion paper which suggested that total general government subsidies in 1994/95 were almost 14½ percent of GDP.16

  • On fiscal risks, the sensitivity of the budget and the short-term forecast to different assumptions about the macroeconomic outlook, explicit and implicit contingent liabilities that might have to be honored, and other relevant factors should be assessed.

35. The expenditure framework needs to be strengthened. The rolling three-year expenditure projections would address one clear weakness of the current expenditure framework. Presumably this would involve identifying the current and future financial implications of all expenditure programs, based on prospective developments in the cost drivers of programs. The other areas that should be paid attention are the categorization of expenditure and assessing program performance.

  • For economic analysis, a breakdown of expenditure by economic category is most useful, and especially a clear distinction between current and capital spending. While the present breakdown between revenue and capital spending approximates this distinction, and certainly provides a reasonable basis for implementing and monitoring the reduction in the revenue deficit targeted in the Fiscal Responsibility and Budget Management Bill, a breakdown of expenditure by economic category for both the central government and state governments should be produced on a timely basis. The present distinctions between plan and nonplan spending, and between development and nondevelopment spending, are problematic. In particular, they do not appear to have facilitated coherent longer-term budgeting and they create incentives for misclassification.17 As a consequence, they have probably outlived their usefulness.

  • Performance audits should be an essential part of internal audit. Clear targets should be set for all major programs; performance indicators should be developed that reflect the final objectives of programs (rather than intermediate outputs); assessments of performance against targets should be made every year and reported in the budget documents; and the results of performance audits should be taken into account in determining budget allocations.

A number of other improvements should also be considered.

  • OCC finances ought to be reported in the budget documents and reflected in the general government accounts. This can be done in different ways. The simplest approach is to add the OCC balance, which is the net subsidy on selected petroleum products, to the deficit. Alternatively, to explicitly recognize the cross-subsidization that takes place, the gross subsidy on the same products can be treated as expenditure and the implicit tax on other products can be treated as revenue.18

  • The principles governing RBI financing of the central government could be more clearly specified. Granting the RBI full legal autonomy would be the first-best solution. This would make it fully independent in formulating and conducting monetary policy. A second-best solution would be an annual limit on overall RBI financing of the central government that is consistent with monetary policy objectives.

  • Continued efforts also are needed to stem the scope for corruption among tax and other officials, including at the state level, primarily by further reducing their discretion in interpreting tax laws and other regulations.

  • In view of the important role played by tax exemptions and other tax reliefs, a report on tax expenditures should be included in the budget documents.

  • There should be a realistic contingency provision in the budget to cover unforeseen expenditures. Supplementary budgets should be the exception rather than the norm.

  • And finally, the recently established National Statistical Commission ought to address the issue of the technical independence of the Central Statistical Organization.

1 This report has been drafted by Mr. Richard Hemming (FAD), with input from Mr. Christopher Towe and Ms. Patricia Reynolds (APD). Mr. Hemming had discussions on fiscal transparency with officials from the Ministry of Finance, the Reserve Bank of India, and the office of the Comptroller and Auditor General during an April 24-27, 2000 visit to Delhi and Mumbai.
2 State governments refer to the governments of states and union territories.
3 Other extrabudgetary funds include the Steel Development Fund, which is an industry-wide loan scheme that operates on commercial principles, and the Prime Minister's Relief Fund, which finances disaster relief from public donations. Chief ministers of state governments also operate relief funds.
4 Regulatory authorities have been set up in the electricity, telecommunications, and insurance sectors. In addition, a dispute settlement body has been established to address private sector concerns about regulation of the telecommunications sector.
5 PFIs include development banks (e.g., the Industrial Development Bank of India), investment institutions (e.g., the Unit Trust of India), and other specialized institutions (e.g., the Export-Import Bank of India and the National Bank for Agriculture and Rural Development).
6 The Annual Financial Statement, Demands for Grants, Appropriation Bill, and Finance Bill are the main budget documents. The Finance Minister's Budget Speech, Budget at a Glance, Memorandum Explaining the Provisions of the Finance Bill, Receipts Budget, and Expenditure Budget (2 volumes) are supporting and explanatory documents. The Detailed Demands for Grants, Performance Budgets and Annual Reports (for each ministry), Economic Survey, and Public Enterprises Survey are background documents. In addition, a new document, Key Features of the Budget, has been issued in connection with the last two budgets, and is to become a regular supporting document. Finally, the ministry of finance publishes a separate Economic and Functional Classification of the Budget, but with a lag of nine months to a year.
7 This used to be a supplement to the RBI Bulletin published in February. It is now a separate RBI report, State Finances—A Study of Budgets, which was first published in January 2000. An article titled Finances of State Governments, 2000-01-A Summary of Major Features was included in the October 2000 RBI Bulletin.
8 It should be noted, however, that the fiscal chapter of the Report on Currency and Finance is thematic, and information on guarantees may not be provided on a regular basis.
9 However, internal audit at the state level requires strengthening.
10 The CAG's authority covers the accounts of the central government, state governments, central and state public enterprises, and autonomous bodies that are substantially financed by government.
11 Given that fiscal information is made available by a number of agencies, a published guide to the available information would be helpful.
12 A common divisible pool of taxes collected by the central government is now shared with states. Under the previous system, the shares of the central government and the states varied across taxes.
13 The RBI has discussed the sustainability of central government finances in recent issues of its Report on Currency and Finance and the sustainability of general government finances in its recent report State Finances-A Study of Budgets. However, the RBI has indicated that sustainability might not be discussed on a regular basis.
14 In addition, the central government has recently created a Guarantee Redemption Fund, while some states have set up sinking funds to recognize and provide for the budgetary implications of guarantees. Three states (Assam, Gujarat, and Karnataka) have passed legislation which sets ceilings for guarantees.
15 In this connection, it should be noted that the RBI's Report of the Technical Committee on State Government Guarantees (February, 1999) has called for implicit guarantees in the form of "comfort letters" to be reported. By the same token, the implicit state guarantee attached to special purpose vehicles issued by public enterprises in a few states to finance infrastructure projects should also be reported.
16 Government Subsidies in India (Ministry of Finance, May 1997). This compares with the less than 1½ percent of GDP (mainly on food and fertilizer subsidies) reported in the central government budget documents for 1994/95.
17 One specific concern is that the bias towards plan/development projects has meant that inadequate account is taken of their recurrent costs, especially when the latter are borne by states.
18 The second approach would provide a natural transition to placing the subsidy on budget, as is anticipated once the phasing out of the administered price mechanism is complete in 2001/02.

India ROSC