In a landmark move to transform India's public financial management, the Comptroller and Auditor General (CAG) has mandated all state governments to implement a standardized structure for classifying government expenditure by the financial year 2027-28. This decision aims to resolve decades of inconsistent accounting practices across India's federal system.
Ending Decades of Financial Inconsistency
The CAG officially notified both the Union and state governments about this significant reform on November 11, according to Jayant Sinha, deputy CAG (Government Accounts). The new framework establishes uniformity in Object Heads of expenditure, which represent the most detailed level in the accounting hierarchy that categorizes how every rupee of government spending is classified.
For years, different states maintained varying methods of recording expenditure heads, creating substantial challenges in comparing financial data, delaying analysis, and reducing the accuracy of budgetary assessments. The harmonization addresses a decades-long issue that has hampered effective financial oversight and policy planning.
Comprehensive Reform Initiatives
The standardized expenditure classification framework was developed by a joint working group comprising officers from CAG, state governments, the Controller General of Accounts, and the Controller General of Defence Accounts. While states will retain flexibility to maintain unique expenditure practices under sub-heads, the core accounting structure will now be common nationwide.
In another significant reform, the CAG has accelerated the timeline for preparing Monthly Civil Accounts. These accounts, previously finalized around the 25th of each month, must now be prepared by the 10th. This faster compilation will provide state administrations, the Reserve Bank of India, and other stakeholders with earlier visibility into fiscal trends, thereby improving budget planning and fiscal discipline.
Enhanced Transparency and Accountability
The CAG has also rationalized the classification of mineral receipts in collaboration with the mines ministry and the department of expenditure. The revised structure establishes distinct heads for royalties on coal and lignite, iron ore, and non-ferrous minerals, along with clearer accounting of transfers to the National Mineral Exploration Trust and State Mineral Exploration Trust.
According to Rakesh Arrawatia, professor of finance and accounting at the Institute of Rural Management, Anand, this reform was urgently needed because widely varying Object Heads across states made it challenging to compare budgets, assess fiscal performance, and analyze expenditure trends, resulting in significant gaps in policy planning and financial oversight.
Jayant Sinha emphasized that the new system will benefit state governments, the Union government, RBI, Finance Commissions, and fiscal researchers by providing transparent, comparable, and timely expenditure data for informed decision-making. The CAG continues to collaborate with other Union ministries to further streamline financial classification systems and enhance India's overall fiscal reporting framework.
