India’s Public Financial Management System: Need for Reforms and Way Forward

Abstract

A robust Public Financial Management (PFM) system contributes to enhanced accountability and transparency in governance, and is associated with efficient and equitable public service delivery, poverty reduction, and economic growth. India’s existing PFM framework is scattered across a wide range of provisions and is riddled with inconsistencies. There is a need to bridge the gap between the high-level PFM structure contained in the Constitution, and the operational details found across guidelines, rules, regulations, and manuals at the Union and State levels. In this context, this paper looks at the key areas in which India needs PFM reforms, building on the provisions of a draft PFM law prepared by an expert group and cited by the Fifteenth Finance Commission. These include fiscal responsibility, the Annual Budget, financial management, reporting and accounting, and legislative and executive oversight. We study the existing frameworks in these areas and propose reforms, drawing from international experience and best practices, with the aim of charting a comprehensive way forward for PFM in India.