CLASS NOTE FOR

CERTIFICATE COURSE ON
“PUBLIC FINANCE & GOVERNMENT ACCOUNTING”

Module 4: Public Expenditure

Topics
Sr.
No
1 Public Expenditure-Meaning, Role, Canons and
Classification
2 Effects of Public Expenditure on:
- Production
- Distribution (including subsidies)
3 Budget Cycle:
-Planning,
-Preparation,
-Execution
-Monitoring
- How to interpret data from Budget document
4 Public Investment Management
5 Project Financial Structuring: Infrastructure
financing, PPP, Viability Gap Funding, Bonds,
Externally Funded Projects
6 General Financial Rules, 2017
7 Procurement Manual, 2017
-Audit of Public Procurement
-DoE circular of 29th Oct., 2021 on General
Instructions on Procurement and Project
Management.
8 Delegation of Financial Power Rules (DFPRs)
9 CVC Guidelines
Reference Book:
Introduction to Public Finance: http://www.isec.ac.in/Introduction_
%20to_%20public_%20finance.pdf
By:- Carl C. Plehn, PH.D. ASSOCIATE PROFESSOR IS THE UNIYERSITY
OF CALIFORNIA

Public Finance in Theory and Practice:

http://www.wuperbooks.com/uploads/5/6/4/5/56458159/public_financ
e_in_theory_and_practice_2nd_ed_by_ulbrich.pdf
By:- Holley H. Ulbrich
Managing Public Expenditure:

1
http://www1.worldbank.org/publicsector/pe/oecdpemhandbook.pdf
By: Edited by Richard Allen and Daniel Tommasi

AN OVERVIEW OF PUBLIC EXPENDITURE MANAGEMENT:

http://www.iltod.gov.mn/wp-content/uploads/2012/03/ADB-
Managing-Govt-Expenditures-1999.pdf
http://shodhganga.inflibnet.ac.in/bitstream/
10603/231/9/09_chapter2.pdf

A STUDY ON MANAGEMENT OF PUBLIC EXPENDITURE BY STATE

GOVERNMENTS IN INDIA:
http://planningcommission.nic.in/reports/sereport/ser/stdy_pubexpdr
.pdf
PREPARED FOR PLANNING COMMISSION , GOVERNMENT OF INDIA
By Dr.Vathsala Ramji, Smt.Sujatha Suresh and V.K.Srinivasan (THE INDIAN
INSTITUTE OF ECONOMICS )

GFR (2017)
https://doe.gov.in/sites/default/files/GFR2017_0.pdf

DoE circular of 29th Oct., 2021 on General Instructions on

Procurement and Project Management.
https://doe.gov.in/sites/default/files/General%20Instructions%20on%20Procurement%20and
%20Project%20Management.pdf

A Guide to using Budget Analysis

This document is for private circulation and is not a priced publication.

Reproduction of this publication for educational and other non-commercial
purposes is authorised, without prior written permission, provided the
source is fully acknowledged. Copyright @2016 Centre for Budget and
Governance Accountability

https://www.cbgaindia.org/wp-content/uploads/2017/01/Designed-Budget-Analysis-final.pdf

2
 Index
Public Expenditure-Meaning, Role, Canons and Classification......................8
I. What is public expenditure?...................................................................8
II. Role of Public Expenditure:....................................................................8
III. Canons of Public Expenditure.............................................................9
1. Canon of benefit: Canon of benefit states, that...................................9
2. Canon of Economy:..............................................................................9
3. Canon of Sanction:..............................................................................9
4. Canon of Surplus:................................................................................9
5. Canon of Elasticity:..............................................................................9
6. Canon of Productivity:.........................................................................9
7. Canon of Equitable Distribution:.........................................................9
IV. Classification of public expenditure:.................................................10
1. Functional Classification:..................................................................10
2. Revenue and Capital Expenditure:....................................................10
3. Transfer and Non-Transfer Expenditure:..........................................10
4. Productive and Unproductive Expenditure:......................................11
5. Development and Non-Development Expenditure:...........................11
V. Grants and Purchase Price:..................................................................11
VI. Classification According to Benefits:.................................................12
Effect of Public Expenditure.........................................................................13
I. Effects on Production...........................................................................13
II. Effects on Distribution..........................................................................13
III. Effects on Consumption.....................................................................14
IV. Effects on Economic Stability............................................................14
V. Effects on Economic Growth................................................................14
Budget Cycle-Planning, Preparation, Execution & Monitoring....................15
I. Strategic Planning................................................................................15
II. Budget Preparation..............................................................................15
III. Budget execution...............................................................................15

3
Public Investment Management...................................................................17
I. Public Investment.................................................................................17
II. Public Investment Management (PIM).................................................17
III. 1.2 Approaches to Understanding PIM Systems...............................18
IV. PIM system and management cycles.................................................18
V. Organizations involved in PIM.............................................................19
Project Financial Structuring........................................................................22
I. Definition:.............................................................................................22
II. Major characteristics:..........................................................................22
General Financial Rules, 2017......................................................................24
I. General Financial Rules 2017..............................................................24
II. Code of Integrity (Rule 175).................................................................24
III. Debarment Provision (Rule 151).......................................................24
IV. Purchase Preference (Rule 153)........................................................24
V. Electronic Procurement........................................................................25
VI. Bid Security (Rule 170).....................................................................25
VII. Relaxation for Startups (Rule 173 (i).................................................26
VIII. Electronic Reverse Auction (Rule 167)..............................................26
IX. Two Stage Bidding (Rule 164)...........................................................26
X. Criteria for evaluation of bids (Rule 173 xi).........................................26
XI. Conditions for acceptance of single offer (Rule 173 xx)...................26
XII. Rule 149: Govt. E-Marketplace (GeM)..............................................26
XIII. Energy Efficient Electrical Appliances (Rule 173 xvii)......................27
XIV. Consultancy Services (Rule 177).......................................................27
XV. Retired Government Servant (Para 2.1.6 of Manual)........................27
XVI. Procurement of IT Projects................................................................28
XVII. Quality and Cost Basis Selection (QCBS)..........................................28
XVIII. More features of GFR 2017............................................................28
Procurement Manual, 2017...........................................................................29
I. Procurement of Goods GFRs 2017.......................................................29
II. E-Procurement......................................................................................29

4
 III. GOVERNMENT e-MARKETPLACE (GeM).........................................31
IV. GeM and e-Procurement....................................................................32
Delegation of Financial Power Rules (DFPRs)..............................................34
I. Definition:.............................................................................................34
II. Effect of sanction..................................................................................34
III. Provision of funds by parliament.......................................................34
IV. Primary units of appropriation..........................................................35
V. General restrictions on appropriation/re-appropriation......................35
VI. Creation of posts................................................................................35
VII. Powers of subordinate authorities.....................................................35
VIII. Head of office.....................................................................................36
IX. Insurance of Govt. property..............................................................36
X. Delegation of powers to incur expenditure..........................................37
XI. Remission of disallowance and writing off overpayment..................37
XII. Powers of incurring contingent expenditure.....................................37
XIII. Annexure to schedule v.....................................................................37
XIV. Budget-estimate of receipts- appendix 2 of GFRS............................38
XV. Budget-estimates of expenditure-appendix 3 of GFRS......................38
XVI. Non-plan expenditure estimates........................................................38
XVII. Plan expenditure-estimates...............................................................39

5
DISCLAIMER
1. The material contained herein is for private circulation and reference purposes only.
2. The views expressed in the articles, write-ups, surveys, etc., contained in the background
material are those of the concerned authors, individuals, organisations, agencies etc., and
should not be construed as the views of the Institute of Chartered Accountants of India or
any of its Committees or Boards.
3. The Institute of Chartered Accountants of India or any of its Boards or Committees does
not undertake the responsibility for the accuracy or otherwise of any views expressed or
facts included in the background material.
4. The Institute of Chartered Accountants of India or any of its Boards or Committees also
does not accept any responsibility for the actions taken by the reader on the basis of the
material contained in the background material.
5. The copyrights in respect of the material included in the background material rests with
the respective authors, organisations, etc.

6
 Topic 1:

Public Expenditure-Meaning, Role, Canons and Classification

I. What is public expenditure?
Public expenditure refers to government expenditure, i.e. government
spending. It is incurred by central, state and local governments of a
country. Public expenditure can be defined as, “the expenditure incurred by
public authorities like central, state and local governments to satisfy the
collective social wants of the people is known as public expenditure”.

Hugh Dalton's Classification of Public Expenditure: Hugh Dalton has

classified public expenditure as follows: -

Expenditures on political executives: i.e. maintenance of ceremonial

heads of state, like the President.

Administrative expenditure: to maintain the general administration of the

country, like government departments and offices.

Security expenditure: to maintain armed forces and the police forces.

Expenditure on administration of justice: include maintenance of

courts, judges, public prosecutors.

Developmental expenditures: to promote growth and development of the

economy, like expenditure on infrastructure, irrigation, etc.

Social expenditures: on public health, community welfare, social security,

etc.

Public debt charges: include payment of interest and repayment of

principle amount

II. Role of Public Expenditure:

Adam smith had concentrated only on passive role of government under
which a government can support the smooth flow of economics with least
interference in economic activities. The government must look after,

1. Expenditure on defence, to protect the citizen’s from external

aggression.
2. Expenditure on internal law and order, so as to bring about peaceful
functioning of economic activities.

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 3. Expenditure of government on administrative activities, for bringing
about co ordering of difference economic activities to achieve
economic and social welfare.
4. Expenditure on certain amount of infrastructure development, to help
the economy growth.

III. Canons of Public Expenditure

1. Canon of benefit: Canon of benefit states, that

 Public expenditure must result in the achievement of maximum
social advantage.
 Public funds must be spent in those directions which are most
conducive to public interest.

2. Canon of Economy:
 The public authorities should not waste the limited resources at
their disposal.
 Only the minimal necessary amount should be spent on any given
head of expenditure which should aim at maximum benefit.

3. Canon of Sanction:
The canon envisages that there should be proper procedure of
formulating the policy for public expenditure with sufficient
safeguards for avoiding arbitrariness and influence of certain vested
interests in the matter of public expenditure.

4. Canon of Surplus:
This canon enjoins that the public expenditure should be as far as
possible met from current public revenues, without resorting to
deficits or borrowings.

5. Canon of Elasticity:
As per this canon of public expenditure, It should be possible to
change the size and direction of public expenditure according to the
requirements of different circumstances

6. Canon of Productivity:
This canon envisages that the public expenditure should be such as
would encourage production and productive efficiency in the country.

7. Canon of Equitable Distribution:

As the heading suggests this canon is for equitable distribution of
income and wealth and it is particularly important for those
countries where inequalities exist.

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IV. Classification of public expenditure:
Different economists have looked at public expenditure from different point
of view. The following classification is a based on these different views.

1. Functional Classification:
Some economists classify public expenditure on the basis of functions
for which they are incurred. The government performs various
functions like defense, social welfare, agriculture, infrastructure and
industrial development. The expenditure incurred on such functions
fall under this classification. These functions are further divided into
subsidiary functions. This kind of classification provides a clear idea
about how the public funds are spent.

2. Revenue and Capital Expenditure:

Revenue expenditure are current or consumption expenditures
incurred on civil administration, defense forces, public health and
education, maintenance of government machinery. This type of
expenditure is of recurring type which is incurred year after year. On
the other hand, capital expenditures are incurred on building durable
assets, like highways, multipurpose dams, irrigation projects, buying
machinery and equipment. They are non-recurring type of
expenditures. Such expenditures are expected to improve the
productive capacity of the economy.

3. Transfer and Non-Transfer Expenditure:

A.C. Pigou, the British economist has classified public expenditure as:
-
a) Transfer expenditure
b) Non-transfer expenditure

a) Transfer Expenditure: - Transfer expenditure relates to the

expenditure against which there is no corresponding return. Such
expenditure includes public expenditure on: -
 National Old Age Pension Schemes,
 Interest payments,
 Subsidies,
 Unemployment allowances,
 Welfare benefits to weaker sections, etc.
By incurring such expenditure, the government does not get anything in
return, but it adds to the welfare of the people, especially belong to the
weaker sections of the society. Such expenditure basically results in
redistribution of money incomes within the society.

b) Non-Transfer Expenditure: - The non-transfer expenditure relates

to expenditure which results in creation of income or output. The non-
transfer expenditure includes development as well as non-

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 development expenditure that results in creation of output directly or
indirectly.
 Economic infrastructure such as power, transport, irrigation, etc.
 Social infrastructure such as education, health and family welfare.
 Internal law and order and defense.
 Public administration, etc.
By incurring such expenditure, the government creates a healthy conditions
or environment for economic activities. Due to economic growth, the
government may be able to generate income in form of duties and taxes.

4. Productive and Unproductive Expenditure:

This classification was made by Classical economists on the basis of
creation of productive capacity.
a) Productive Expenditure: - Expenditure on infrastructure
development, public enterprises or development of agriculture
increase productive capacity in the economy and bring income to the
government. Thus they are classified as productive expenditure.
b) Unproductive Expenditure: - Expenditures in the nature of
consumption such as defense, interest payments, expenditure on law
and order, public administration, do not create any productive asset
which can bring income or returns to the government. Such expenses
are classified as unproductive expenditures.

5. Development and Non-Development Expenditure:

Modern economists have modified this classification into distinction
between development and non-development expenditures.

a) Development Expenditure: - All expenditures that promote

economic growth and development are termed as development
expenditure. These are the same as productive expenditure.

b) Non-Development Expenditure: - Unproductive expenditures are

termed as non-development expenditures.

V. Grants and Purchase Price:

This classification has been suggested by economist Hugh Dalton.

1. Grants: - Grants are those payments made by a public authority for

which there may not be any quid-pro-quo, i.e., there will be no receipt
of goods or services. For example, old age pension, unemployment
benefits, subsidies, social insurance, etc. Grants are transfer
expenditures.

2. Purchase prices: - Purchase prices are expenditures for which the

government receives goods and services in return. For example,

10
 salaries and wages to government employees and purchase of
consumption and capital goods.

VI. Classification According to Benefits:

Public expenditure can be classified on the basis of benefits they confer on
different groups of people.

1. Common benefits to all: Expenditures that confer common

benefits on all the people. For example, expenditure on education,
public health, transport, defense, law and order, general
administration.

2. Special benefits to all: Expenditures that confer special benefits

on all. For example, administration of justice, social security
measures, community welfare.

3. Special benefits to some: Expenditures that confer direct special

benefits on certain people and also add to general welfare. For
example, old age pension, subsidies to weaker section,
unemployment benefits.

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 Topic 2:

Effect of Public Expenditure

I. Effects on Production
The effect of public expenditure on production can be examined with
reference to its effects on ability & willingness to work, save & invest and
on diversion of resources.

1. Ability to work, save and invest: Socially desirable public expenditure

increases community's productive capacity. Expenditure on education,
health, communication, increases people's productivity at work and
therefore their incomes. With rise in income savings also increase and this
in turn has a beneficial effect on investment and capital formation.

2. Willingness to work, save and invest: Public expenditure, sometimes,

brings adverse effects on people's willingness to work and save.
Government expenditure on social security facilities may bring such
unfavorable effects. For e.g. Government spends a considerable portion of
its income towards provision of social security benefits such as
unemployment allowances old age pension, insurance benefits, sickness
benefit, medical benefit, etc. Such benefits reduce the desire to work. In
other words they act as disincentive to work.

3. Effect on allocation of resources among different industries &

trade: Many a times the government expenditure proves to be an effective
instrument to encourage investment on a particular industry. For e.g. If
government decides to promote exports, it provides benefits like subsidies,
tax benefits to attract investment towards such industry. Similarly
government can also promote a particular region by providing various
incentives for those who make investment in that region.

II. Effects on Distribution

The primary aim of the government is to maximise social benefit through
public expenditure. The objective of maximum social welfare can be
achieved only when the inequality of income is removed or minimised.
Government expenditure is very useful to fulfill this goal. Government
collects excess income of the rich through income tax and sales tax on
luxuries. The funds thus mobilized are directed towards welfare
programmes to promote the standard of poor and weaker section. Thus
public expenditure helps to achieve the objective of equal distribution of
income.
Expenditure on social security & subsidies to poor are aimed at increasing
their real income & purchasing power. Public expenditure on education,

12
communication, health has a positive impact on productivity of the weaker
section of society, thereby increasing their income earning capacity.

III. Effects on Consumption

Public expenditure enables redistribution of income in favour of poor. It
improves the capacity of the poor to consume. Thus public expenditure
promotes consumption and thereby other economic activities. The
government expenditure on welfare programmes like free education, health
care and housing certainly improves the standard of the poor people. It also
promotes their capacity to consume and save.

IV. Effects on Economic Stability

Economic instability takes the form of depression, recession and inflation.
Public expenditure is used as a mechanism to control instability. The
modern economist Keynes advocated public expenditure as a better device
to raise effective demand & to get out of depression. Public expenditure is
also useful in controlling inflation & deflation. Expansion of Public
expenditure during deflation & reduction of public expenditure during
inflation control money supply & bring price stability.

V. Effects on Economic Growth

The goals of planning are effectively realised only through government
expenditure. The government allocates funds for the growth of various
sectors like agriculture, industry, transport, communications, education,
energy, health, exports, imports, with a view to achieve impressive growth.
Government expenditure has been very helpful in maintaining balanced
economic growth. Government takes keen interest to allocate more
resources for development of backward regions. Such effort reduces
regional inequality and promotes balanced economic growth.

13
 Topic 3:

Budget Cycle-Planning, Preparation, Execution & Monitoring

I. Strategic Planning

II. Budget Preparation

 Budget preparation deals with the annual translation of strategic
plans into the budget
 Responsibilities in budget preparation process are set out in a legal
framework: constitution, organic budget law, financial decrees and
regulations
 Approved budget is a law: deviations (virements, supplementary
budgets) need to be approved

III. Budget execution

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15
 Topic-4
Public Investment Management
I. Public Investment
Public investment refers to government spending on public infrastructure,
which is categorized into two types:

 economic infrastructure such as airports, roads, railways, ports,

water and sewage, power, gas, and telecommunication; and
 social infrastructure such as schools and hospitals.

Both economic and social infrastructure becomes public physical assets

once they are completed. Public investment is generally disbursed from
capital budgets (or expenditures) at the construction stage, whereas costs
for operation and maintenance (O&M) are disbursed from recurrent
budgets (or expenditures). For this reason, budget management for public
investment requires adjustment and arrangement from both categories of
expenditures over the life-cycle of the public infrastructure.

II. Public Investment Management (PIM)

PIM is an approach to managing government expenditures for
public infrastructure strategically and efficiently. PIM – consisting of the
management of public investment programs (PIPs), development budgets,
and individual infrastructure projects. Strengthening PIM systems is
expected to achieve the following three outcomes in developing countries.

 Contribute to achieving long-term development visions and

development plan targets: Strengthening the PIM system is expected
to contribute toward the achievement of long-term visions and targets
in national development plans and sector plans. Under a strengthened
PIM, public investment projects are selected based on the priorities of
development and sector plans within the resource envelope and are
formulated and implemented with proper management of a plan-do-
check-act (PDCA) cycle, thereby contributing to the achievement of
the vision and targets. Ensuring consistency among development
plans, PFM, and investment projects is a common challenge in
developing and developed countries alike.

 Achieve PFM objectives: Strengthening PIM will contribute to the

achievement of the three PFM objectives.

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 PFM objective Contribution through strengthening PIM
Aggregate fiscal Fiscal sustainability and consistency with total public
discipline investment spending over the long term

Strategic Requiring that selected projects are consistent with

allocation of the government’s national and sectoral priorities, and
resources budgetary resources are sifted to more productive
sectors.
Efficient service Operational efficiency with projects and programs
delivery delivering outputs and outcomes in a cost-efficient
manner.

 Improve public investment performance: Strengthening the PIM

system is expected to improve performance, characterized by
efficiency and productivity, in overall public investment. First,
improving management of individual public investment projects will
enhance the quality and cost-benefit ratios of those projects, and
achieve the outcomes and impacts in a more efficient and effective
way. In addition, better-managed PIPs will enhance strategic
allocation of resources within and between sectors and achieve
development goals more efficiently. Taken together, strengthening
PIM will enhance public investment efficiency directly, and contribute
to improving the productivity of public capital in achieving economic
growth.

III. 1.2 Approaches to Understanding PIM Systems

PIM systems are diverse, and their features are unique to each country. It is
often the case that applying one-size-fits-all solutions, approaches, and
projects for all countries does not necessarily lead to desired outcomes in
all countries. When we are tasked with identifying PIM issues and engaging
in capacity development for a country, it is essential to understand the
unique national systems that affect the overall performance of PIM. This
section explains the basic approaches to understanding PIM systems.

IV. PIM system and management cycles

Three Management Cycles of PIM

Management Content
cycle

17
 PIP Management system for national and/or sector-
management level PIPs that are managed over the medium
term and/or on a rolling basis.
Budget Management of development budget. It is
management essential to coordinate with the Medium-Term
Budget Framework (MTBF) if the country has
adopted it. It is also important to coordinate
closely with the recurrent budget for operation
and maintenance costs of public infrastructure.
Project Management of public investment projects,
management including their planning, formulation,
implementation, completion, evaluation, and
operation.

V. Organizations involved in PIM

Outline and Tasks of PIM Organizations

Category Central organization Project-implementing

organization
Outline • Organizations Organizations responsible
responsible for for managing programs
overseeing PIM system and/or projects, including
in a country. planning, formulation,
• Analyses of division of budget request, contracting,
tasks, both de jure and monitoring and completion.
de facto, among central
organizations are
essential.
Main Tasks • Design, establishment, • Observance and use of PIM
and dissemination of PIM framework
system • Development of programs
• Compilation of PIP and projects in PIP
• Third-party appraisal • Plan, design and
• Allocation of budget to formulation of projects
projects • Request for budget
• Completion evaluation • Project management at the
implementation stage,
including contracting,
monitoring and reporting
• Completion report of
projects
Organizatio • Ministry of Planning • Sector ministries/agencies
ns • Ministry of Finance • Sector organizations

18
 • Organizations within sub-national
authorized to compile governments
development plans,
strategies and programs
• Organizations assigned
to oversee Public Private
Partnerships (PPPs),
funds, special projects,
etc.
• Planning and finance
sections in sub-national
governments

Project implementation by sector ministries/agencies and sub-national

governments: Economic and social infrastructure is expected to contribute
to the development of targeted sectors or regions, and therefore sector
ministries/agencies or sub-national governments take charge of
implementing public investment projects. However, which organizations
oversee project implementation and what tasks are assigned vary,
depending on the de jure (legal frameworks) and de facto (actual operation)
arrangements of the government. Following table illustrates the possible
variation of the division of tasks among the national and sub-national
governments.

Pattern Description
Sector ministries are Public investment projects are planned,
solely assigned as formulated, budgeted, and implemented at the
project implementing national government level. Sub-national
organizations governments are not authorized to plan or
budget projects.
Certain sector Certain sector ministries responsible for sub-
ministries become national governance compile project requests
project- submitted from sub-national organizations.
implementing Those sector ministries plan, formulate, and
organizations for all budget those projects. Sub-national
projects requested governments submit requests and information
by sub-national required for the projects but rely on the
governments capacity of ministries to formulate and prioritize
projects.
Division of tasks Sector ministries/agencies are responsible for
based on project size the planning, budgeting, and implementation of
or budget source projects, except for small-scale ones financed by
special financing sources such as sub-national

19
 development funds or poverty reduction funds,
and planned, budgeted and implemented by
sub-national governments. In most cases, the
scale of projects is limited up to a certain
budgetary threshold.
Both national and Both sector ministries/agencies and sub-
sub-national national governments assume equal authority in
governments have identifying, planning, formulating, and
equal authority as budgeting projects.
project implementing
organizations
Sub-national Sub-national governments use their own
governments have resources to plan, budget and implement
own budgetary projects.
resources

It should be noted that the division of tasks between national and sub-
national governments may not fall in the patterns mentioned above. Even
within the central government, there may be various organizational levels
that have different authority levels. Division of PIM tasks between central
and sub-national governments critically depends on the level of
decentralization (or de-concentration) of the country.

20
 Topic 5:

Project Financial Structuring

I. Definition:

II. Major characteristics:

Economically and legally independent project company
 Founded extensively on a series of legal contracts that unite parties
from input suppliers to output purchaser
 Project assets/liabilities, cash flows, and contracts are separated from
those of the sponsors, conditional on what accounting rules permit
 Investors and creditors have a clear claim on project assets and cash
flows, independent from sponsors’ financial condition
 Debt is either limited (via completion guarantees) or non-recourse to
the sponsors

Highly leveraged Project with concentrated equity ownership

 Partly due to firms’ need for flexibility and excess debt capacity to
invest in attractive opportunities whenever they arise
 Syndicate of banks and/or financial institutions provide debt
 Typical D/V ratio as high as 70% and above
 Debt has higher spreads than corporate debt
 One to three equity sponsors
 Sponsors provide capital in the form of equity or quasi-equity
(subordinated debt)
 Governing Board comprises of mainly affiliated directors from
sponsors

Historically formed to finance large-scale projects

 Industrial projects: mines, pipelines, oil fields

21
 Infrastructure projects: toll roads, power plants, telecommunications
systems
 Significant financial, developmental, and social returns

22
 Topic 6:

General Financial Rules, 2017

I. General Financial Rules 2017
 Issued in March, 2017. General provisions to be followed in
Government of India (GOI) on financial matters.
 These are executive instructions.
 GFRs were first issued in 1947. Revised in 1963 and 2005.
 Broad procurement rules are covered under GFRs
 Respective procuring entities may issue detail instructions regarding
procurement broadly in conformity with GFRs (Rule 142)
 Applicability of GFR

II. Code of Integrity (Rule 175)

 Applicable for both the procuring entity and the bidder.
 Code of Integrity prohibits
o Making offer, solicitation or acceptance of bribed
o Any misrepresentation that attempts to mislead
o Collusion, bid rigging, anti-competitive approach
o Coercion or threat to impair or harm
 Disclosure of Conflict of Interest (Guidance will be in Manuals)
 Disclosure of any previous transgression by the bidder
 Procuring entity may take appropriate measures including debarment
of bidder.

III. Debarment Provision (Rule 151)

 Under the Prevention of Corruption Act, 1988; the Indian Penal Code
or any other law for the time being in force, debarment of bidder for
a period not exceeding three years commencing from the date of
debarment (for all Departments)
 On breach of code of integrity bidder may be debarred from
participating in any procurement process undertaken for a period not
exceeding two years.
 The bidder shall not be debarred unless such bidder has been given a
reasonable opportunity to represent against such debarment.

IV. Purchase Preference (Rule 153)

 MSME Policy
o 358 reserved items
o 20% procurement through MSE if they quote within L1+15%
and match price of L1
 By providing a notification, Government may

23
 o Make mandatory procurement of any goods or services from any
category of bidders.
o Make preference to bidders for promoting locally manufactured
goods.

V. Electronic Procurement
 Mandatory for all Ministries/ Departments to publish and receive bids
through e-procurement.
 Central Public Procurement Portal (CPPP) developed by NIC
(www.eprocure.gov.in) may be used by procuring entities that do
not have their own e-procurement portals.
 Exemptions
o National Security
o Global Tenders
Advertisement requirement in Newspapers waived
 Publication in newspaper and ITJ is no more mandatory
 Advertisement should be on Central Public Procurement Portal
(CPPP) and on GeM.
 An organisation having its own web site should also publish all its
advertised tender enquiries on the web site.
 No cost of tender document may be charged for tender documents
downloaded by the bidders.

VI. Bid Security (Rule 170)

 In place Bid Security, procuring entities may require bidders to sign
the Bid Securing Declaration.
 As per the declaration Bidders are suspended from participating in
future bidding processes of procuring entity for the period of time
specified in the request for bid document if:
o bidders withdraw or modify their bids,
o fail to sign the contract or
o fail to submit a performance security.
Performance Security
Rule 171
 5 to 10 % of contract value
 Unlike contracts of Works and Plants, in case of contracts for goods,
the need for the Performance Security depends on the market
conditions and commercial practice for the particular kind of
goods.

VII. Relaxation for Startups (Rule 173 (i)

 The condition of prior turn over and prior experience may be relaxed
for Start-ups, subject to meeting of quality & technical specifications
and making suitable provisions in the bidding documents.
 Startups as defined as DIPP

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 o Not more than 5 years old
o Turnover in any year less than 25 cr
o Certification that working for innovation, intellectual property

VIII. Electronic Reverse Auction (Rule 167)

 An online real-time purchasing method, which involves presentation
by bidders of successively more favorable bids during a scheduled
period of time and automatic evaluation of bids;
 Purchasing through reverse auction is applicable when
o Detailed description of the subject matter of the procurement is
available;
o There is competitive market
 CVC Approval in 2003
 To be decided at the tender issuing stage itself.

IX. Two Stage Bidding (Rule 164)

 Where it is not possible to formulate details specifications without
inputs
 Rapid Technological advances or market fluctuations or both
 For research, development or study
 Bidder is expected to carry out detailed survey and assessment of
risks, costs and obligations

X. Criteria for evaluation of bids (Rule 173 xi)

 Price
 Time
 Cost of operating, maintaining and repairing ( Total Cost of Lifecycle
cost)
 Environmental characteristics

XI. Conditions for acceptance of single offer (Rule 173 xx)

 Due process was followed
 Qualification criteria not unduly restrictive
 Rates are reasonable
 Will be treated as single tender for determining competent authority
for acceptance of offer.

XII. Rule 149: Govt. E-Marketplace (GeM)

 For Goods and Services
 Mandatory for procuring entities to procure Goods and Services
available on GeM
 Credentials of vendors shall be verified by GeM authorities.
 Procuring authority to check the reasonableness of prices.
 Up to Rs.50,000/- through any of the available suppliers on the GeM

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  Above Rs.50,000/- and up to Rs.30,00,000/- through the GeM Seller
having lowest price amongst the available sellers, of at least three
different manufacturers, on GeM (bids may also be called by buyer)
 Above Rs.30,00,000/- through the supplier having lowest price after
mandatorily obtaining bids, using online bidding or reverse auction
tool provided on GeM.

XIII. Energy Efficient Electrical Appliances (Rule 173 xvii)

 Ministries/Departments while procuring electrical appliances shall
ensure that they carry the notified threshold or higher Star Rating of
the Bureau of Energy Efficiency (BEE).

Appliance Threshold Star Rating

Split Air 5 Star (under normal conditions where annual usages are
conditioners expected to be more than 1000 Hrs)
3 Star (where usage of AC is limited e.g. in conference
rooms)
Frost Free 4 Star
Refrigerators
Ceiling Fans 5 Star

Water 5 Star
Heaters

XIV. Consultancy Services (Rule 177)

 Consultancy Services: Any Procurement that is primarily
o non-physical,
o project-specific,
o intellectual or advisory
o where outcomes/ deliverables would vary from one consultant to
another.
 May include management consultants, policy consultants etc.
 Does not include direct engagement of a retired government servant

XV. Retired Government Servant (Para 2.1.6 of Manual)

 Can be hired as consultant through a competitive process.
 Should not be engaged against regular vacant posts
 Can be engaged only for the specific task and for specific duration as
consultant.
 They should be assigned clear output related goals.

XVI. Procurement of IT Projects

 Should normally be carried out as Procurement of Consultancy
services

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 o Outcomes/deliverables vary from one service provider to
another.
 The IT Projects may include:
o Bespoke software development;
o Cloud based services;
o Composite IT system services

XVII. Quality and Cost Basis Selection (QCBS)

Rule 192
 Earlier part of Manual issued in 2006
 Provisions added to ensure due weightage to Quality is given in
procurement of Consultancy
 Maximum weightage of quality in QCBS increased from 70 to 80%.

XVIII. More features of GFR 2017

 Definitions added: Works, Goods , Consultating service, Non
Consulting service
 Annual Procurement Plan ( 144 x)
 Increase in powers
o Without Quotation: 15K to 25k
o Purchase Committee: 1 L to 2.5 L
 Unsolicited bids are not to be accepted (162 ii)
 No member of TC should report to each other (173 xii)

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 Topic 7:

Procurement Manual, 2017

I. Procurement of Goods GFRs 2017

Rule 154: Purchase of goods without quotation

Purchase of goods upto the value of Rs. 25,000 only.

Rule 155: Purchase of goods by Purchase Committee.

Purchase of goods costing above Rs. 25,000 and upto Rs.2,50,000/- on
the recommendations of a Local Purchase Committee.

Rule 160: E-procurement

It is mandatory for Ministries/Departments to receive all bids through e-
procurement portals in respect of all procurements.

Rule 149: GeM

The GeM portal shall be utilized by the Government buyers for direct on-
line purchases

Rule 161: Advertised Tender Enquiry

Subject to exceptions incorporated under Rule 154, 155, 162 and 166,
invitation to tenders by advertisement should be used for procurement of
goods of estimated value of Rs. 25 lakhs and above. Advertisement in such
cases should be given on Central Public Procurement Portal (CPPP)
www.eprocure.gov.in and on GeM and on its own website.

Rule 162: Limited Tender Enquiry

This method may be adopted when estimated value of the goods to be
procured is up to Rupees Twenty five Lakhs.

II. E-Procurement
 W.e.f. 01.04.16 e-Procurement mandatory for all
Ministries/Departments of the Central Government for all
procurements as per Department of Expenditure instructions.
 CBEC opted for the e-procurement solution developed by NIC which
can be accessed on the link http://eprocure.gov.in having detailed
guidelines on how to use the solution.
 All purchasing entities in the Department should publish details of the
Bid award on Central Public Procurement Portal (CPP) as per
Department of Expenditure OMs available on their website
http://finmin.nic.in
 DGHRD has issued Circulars and is holding trainings in RTIs all over
the country w.e.f August, 2016.

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29
III. GOVERNMENT e-MARKETPLACE (GeM)

Rule 149,GFR 2017

The GeM portal shall be utilized by the Government buyers for direct on-
line purchases as under :-
(i) Up to Rs.50,000/- through any of the available suppliers on the
GeM, meeting the requisite quality, specification and delivery
period
(ii) Above Rs.50,000/- up to Rs.30,00,000/- through the GeM Seller
having lowest price amongst the available sellers, of at least three
different manufacturers, on GeM
(iii) Above Rs.30,00,000/- through the supplier having lowest price,
using online bidding or reverse auction tool provided on GeM.

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IV. GeM and e-Procurement

DGHRD imparts on-site hands-on training & on-the-spot registration

all over India to familiarize the CBEC formations with GeM and e-
Procurement.
 In 2017-18, twelve (12) trainings conducted all over India
 469 officers from 127 CBEC formations trained.
 115 CBEC formations registered on the GEM portal as against 64
on 20.09.2017.
 The total number of orders placed on GeM is 1427 and the number of
tenders floated via e-Procurement is 653.
 The orders placed and the pending payments reduced to INR 1.03
Crores (as on 31.03.2018) as against INR 4.29 Crores (as reported
on 20.09.2017).
 A monthly update on procurements and payments through GeM portal
sent to the Financial Adviser.
 A handle on cbecddm.gov.in for submitting the MPR report online
has been developed in co-ordination with Directorate of Data
Management and it will be functional in financial year(2018-19).
 Training material and Resources available on the departmental
websites (www.cbec.gov.in & www.dghrdcbec.gov.in ) alongwith a
hyperlink to the GeM website (gem.gov.in)
 A Power Point presentation (PPT) on GeM procedures uploaded on
CBEC websites.
 Standing Committee on Government e-Marketplace constituted
to sort out issues including overdue payments and submit an action

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taken report and recommendations as required to the Secretary of the
Department.

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 Topic 8:

Delegation of Financial Power Rules (DFPRs)

I. Definition:
 Appropriation-assignment to meet specified expenditure of funds in a
primary unit of appropriation.
 Contingent expenditure-all incidental and other expenditure including
expenditure on stores incurred for management of an office, but not
include expenditure specifically classified under some other head of
expenditure such as works, tools and plant.
 Department-ministry or deptt. As notified from time to time, includes
Prime Minister’s office, Presidents secretariat etc.
 Head of deptt.-an authority specified in schedule 1 in relation to
offices under his administrative control and includes such other
authority as deptt. By order, specify as head of deptt.-further
minimum status not to be below the rank of deputy secretary.
 Head of office-gazetted officer declared as such under rule 14 of these
rules.
 Miscellaneous expenditure-all expenditure other than expenditure
falling under pay and allowances, pension, grants in aid and like.
 Non recurring expenditure-expenditure other than recurring
expenditure.
 Primary unit of appropriation-a primary unit of appropriation as
referred to in rule 8 like salaries, wages etc.
 Re-appropriation –transfer of funds from one primary unit to another
such unit
 Recurring expenditure-expenditure incurred at periodic intervals.
 Subordinate authority – deptt., of govtt. And any other authority
subordinate to it.

II. Effect of sanction

 No expenditure against sanction unless funds are made available by
valid appropriation or re-appropriation.
 Sanction to recurring expenditure remains operative even in
succeeding years provided funds are made available in those years
and also subject to terms of sanction.

III. Provision of funds by parliament

 Demands for grants and appropriations for charged expenditure are
presented by respective ministry to parliament. This expenditure as
well as expenditure that are to be voted by parliament is approved by
parliament by way of passing appropriation act and thereby providing

33
 funds for appropriation or re-appropriation to meet sanctioned
expenditure.
 Lump sum provisions should be based on realistic assessment of
expenditure likely to be incurred during the year.
 Time schedule for formulation of budget proposals should be closely
adhered to.

IV. Primary units of appropriation

 Grant or appropriation for charged as well as voted expenditure is
distributed by sub heads and each sub head against which provision
for expenditure appears primary unit of appropriation.
 Major of these primary units constitute the following:
 Salaries
 Wages
 Travel expenses
 Office expenses
 Rent, rates and taxes
 Advertising & publications
 Secret services expenditure
 Minor works

V. General restrictions on appropriation/re-appropriation

 No appropriation/re-appropriation for expenditure not sanctioned.
 No re-appropriation from charged to voted expenditure and vice
versa.
 No re-appropriation from one grant to another grant.
 No appropriation for new service not approved in budget.
 No re-appropriation from secret service expenditure to augment funds
under salaries, wages, office expenses and other charges.
 No re-appropriation to augment travel expenses but increase up to
10% allowed by secretaries by re-appropriation.
 No re-appropriation from revenue expenditure to capital and vice
versa.

VI. Creation of posts

 Authority competent to create posts either permanent or temporary
cannot create so now as ban on creation of posts exists.
 However, for new service with the approval of ministry, posts can be
created.
 An authority competent to create post can also abolish such posts.

VII. Powers of subordinate authorities

Schedules i, ii, iii, iv, v, vi and vii specified powers of departments of
central govt. and heads of departments in relation to creation of
permanent posts, temporary posts, appropriation and re-appropriation,

34
 incurring of miscellaneous and contingent expenditure and write off of
losses, subject to provisions of rule 13.

Department, may however, confer powers, not exceeding those vested in

them to head of deptt. Or any other subordinate authority in respect of any
matter covered under these rules.

 No power to re-delegate in respect of following items.

 Creation of posts.
 Write-off of losses.
 Re-appropriation of funds exceeding 10% of original budget provision
for either of primary unit of appropriation or sub- head.
 Head of deptt. May further delegate all or any of his powers conferred
to any other gazetted officer under him to such extent as specified in
the order.
 However that heads of deptt. Continue to be responsible for
correctness, regularity and propriety of decisions taken by that
officer.
 Authorities competent to incur contingent and miscellaneous
expenditure are to follow the provisions of
 General financial rules, 2005.
 Annexure to schedule v of delegation of financial powers rules.
 Any rules or orders prescribed by president in respect of
 Miscellaneous expenditure.
 Powers not to be delegated to non gazetted officers.
 Powers delegated can be exercised in respect of past cases also.
 Officers performing current duties of another post can exercise
administrative and financial powers but not statutory powers.

VIII. Head of office

 Rule 14 provides powers to deptts of govt. And heads of deptts. To
declare any gazetted officer working under him as head of office to
exercise financial powers under these rules.
 Only one officer to be declared as head of office consisting of one
establishment.
 Under secretary in charge of administration is head of office in
secretariat.

IX. Insurance of Govt. property

 No insurance for govt. property either movable or immovable and
hence no expenditure on insurance.
 Exceptions.
 Materials and equipments received on loan or as aid from other
foreign govt. or other agencies if terms and conditions provide for.
 Additional risk rate for freights but not insurance.

35
  Motor vehicles not connected with commercial purposes are not to be
insured.

X. Delegation of powers to incur expenditure

 Rule 16 provides powers to head of office to authorize any other
gazetted officer under him to exercise powers to incur contingent
and miscellaneous expenditure subject to restrictions and limitations.
However he is responsible for correctness, regularity and propriety of
expenditure.

XI. Remission of disallowance and writing off overpayment

 Authorities delegated powers in this regard can exercise powers of
waiver of amount disallowed by audit or accounts officer,
 If amount drawn under reasonable belief that he is not entitled to it.
 If recovery cause undue hardship and recovery impossible.
 But no waiver,
 If pertains to gazetted officer
 Amount does not exceeds two months pay
 Overdrawal disallowed after one year of payment.

XII. Powers of incurring contingent expenditure

 Schedule v.
Authority Recurring Non recurring
Departments Full powers Full powers
Heads of offices Rs 2000 per month in each Rs 5000 in each case
case

 Per annum each case means each type of recurring expenditure.

 This means if repairs are to be carried out; it will be on a number of
occasions but limited to RS. 2000 per month on this item.
 Each case in respect of non recurring expenditure means on each
occasion.
 This means that if tables, chairs are purchased, powers to be
correlated to furniture and tables and chairs separately.

XIII. Annexure to schedule v

 No. of items are listed against various serial numbers.
 Powers are to be exercised by sanctioning authorities subject to
monetary limits mentioned therein
 Items not listed therein are governed by separate sanctions to be
issued by various competent authorities.

XIV. Budget-estimate of receipts- appendix 2 of GFRS

 Detailed estimates of receipts comprise of revenue receipts and
capital receipts.

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  Estimates of receipts of central taxes and duties and external aid
prepared by CBDT, CBEC and controller of aid accounts and audit.
 Estimates of revenue receipts of UT administration by concerned
audit/accounts officer where departmentalization didn’t take place
and by controller of accounts where departmentalization of accounts
introduced
 Estimates of other receipts prepared by controller of accounts of each
deptt.
 Estimates to be furnished to finance ministry by 31 st December in form
GFR 5,5a and 5b.
 For preparing re, previous year’s actual and current years trends are
material factors to review original be.
 Estimating authorities to exercise utmost care.
 Receipts by way of recoveries from central govt. Deptts to be
excluded and other recoveries from state/UT, foreign Govts.,
companies and statutory bodies to be included for estimates.
 Foreign grant assistance in cash, kind and those in the form of
commodities to be classified separately.
 CGHS recoveries and rent recoveries to be communicated to
respective ministries for consolidation in their accounts.

XV. Budget-estimates of expenditure-appendix 3 of GFRS

 Expenditure from consolidated fund comes under plan and non plan
expenditure.
 Again each comprises of expenditure on revenue account and capital
account including loans and advances.

XVI. Non-plan expenditure estimates

 FA in each ministry to obtain detailed estimates with supporting data
from estimating authorities well in advance.
 Framing of re for current year to proceed be for the ensuing year.
 Re to be prepared with care to include only which are likely to
materialize for payment during that year, in the light of,
 Accruals so far during current year compared to actual for
corresponding period in last and previous years.
 Be for ensuing year to be on the basis of what to be paid under proper
sanction during the ensuing year.
 While inescapable and foreseeable expenditure to be provided for,
due attention also to be paid for economy.
 Estimate not to be influenced by undue optimism.
 No lump sum provision made in be.
 If for new projects/scheme, only preliminary estimates made for
acquiring materials, recruitment of skeleton staff etc.
 Token demand cannot be made.
 Estimates to be on gross basis and voted and charged expenditure to
be shown separately.

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  Estimates to include all items which are fully accounted for in
ministry.
 Estimates of establishment charges framed taking into account trends
over preceding 3 years and other factors like change in rates of pay,
allowances, no. of posts and their filling and also economy
instructions.
 Estimates to contain full accounts classification ,i.e. Major/sub major
head, minor head ,sub head, detailed and object head
 Estimates to reach finance ministry in form GFR 7 by prescribed date.
 Any major variations between BE and RE for current year and reform
current year and be for ensuing year to be explained cogently.

XVII. Plan expenditure-estimates

 Planning commission prescribe form and manner in which proposals
to be submitted for determining allocations for ensuing year.
Accordingly data to be collected by FA.
 Re as well as be for ensuing year to be submitted in form GFR 7.
 All other instructions for submission of non plan expenditure equally
apply to this also.
 Procedure for compilation of detailed demands for grants and
procedure to be followed in connection with demands for
supplementary grants are outlined in appendix 4 appendix 6 of GFR
respectively.

38