New fund transfer norms led to savings: Finance minister Nirmala Sitharaman

New Delhi: Changes made in the way Central funds are transferred to various agencies in the last few years have led to interest cost savings and gains by way of efficient treasury management, finance minister Nirmala Sitharaman said on Monday. 

The total financial gains from efficiency in fund transfers is estimated at over ₹25,500 crore in the last few years.

Sitharaman said in a social media post that new norms were introduced for transferring Central grants to autonomous bodies and various implementing agencies from FY18, leading to savings of more than ₹15,000 crore till date. 

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This is due to a new interface to release funds ‘just in time’ to these bodies through their accounts with the Reserve Bank of India, which helped in lowering the borrowing cost for the Central government.  

Centrally sponsored schemes

This mode of transfer, using what is called a treasury single account, is also now leveraged for releasing funds for Central sector schemes to implementing agencies, having an outlay of more than ₹500 crore. 

The Centre also reformed the way funds are transferred to state agencies for the 108 Centrally sponsored schemes (CSS). Under the new mode of transfer, each state has to identify and designate a single nodal agency (SNA) for every CSS. 

State governments are required to transfer the CSS funds received from the Centre and their share within a specified period to a single nodal bank account opened in a scheduled commercial bank. This nodal agency creates virtual spending limits for various entities for spending against programmes such as the rural jobs and housing schemes. 

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“The money remains in the single nodal account, with only limits assigned. Money in a single nodal bank account also earns interest. Interest accrued in SNA bank accounts has resulted in savings of approximately Rs. 10,592 crore from 2021-22 to date,” Sitharaman said. 

Building transparency and efficiency 

Mint had reported on 25 December last year that new banking norms have helped the Centre save on interest cost for CSS fund transfers. Sitharaman said in her post that various expenditure reforms have helped save interest costs while building transparency and efficiency in treasury management. 

“This is critical as it reduces the wastage of crucial resources, allowing them to be utilized for welfare measures. It also ensures that every rupee collected from taxpayers is used with utmost efficiency,” the minister said. Sitharaman also said the government has taken steps to improve expenditure efficiency by reducing unspent and parked funds.

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Effective implementation of the SNA model has brought about greater efficiency in CSS fund utilization, tracking of funds and pragmatic and just-in-time release of funds to the states, ultimately contributing to better cash management and savings for the government, the minister said.  

The unspent balance parked in more than 1.5 million bank accounts of implementing agencies was consolidated into 4,500 bank accounts of SNAs implementing Centrally sponsored schemes.