Delivering Social Benefits in India through the FMIS

Posted by Alok Verma[1]

The Prime Minister of India recently launched a direct cash transfer program targeting 120 million small and marginalized farmers with an annual budget allocation of $11 billion. The program is called Pradhan Mantri Kisan Samman Nidhi (PM-KISAN). Under this scheme, which was announced on February 1st 2019 and executed only three weeks later, an initial database of 10.1 million beneficiaries was established and a first installment of INR 2000 (about US $28) was transferred to each farmer’s bank account.

Implementing huge cash transfers within such a short duration was only made possible because of the efficiency of the federal government’s financial management information system (PFMS) which is managed by the Controller General of Accounts (Indian Civil Accounts Department, ICAD). ICAD has been working on this system since 2008, laying down the financial pipelines that connect all tiers of Government. There are approximately 2.4 million implementing agencies below the federal level, 255 banks, and 380 million registered beneficiaries (29 percent of the population). In the current financial year, up to February, approximately 572 million transactions amounting to 336 billion dollars were processed through the PFMS.

The PFMS covers both the spending side of the budget as well as collections of the Goods and Services Tax (GST). It facilitates online deposits using internet banking and credit and debit cards, and allows transactions to be reconciled daily with a high level of accuracy. GST transactions alone peak at around 9 million per day. 

The PFMS thus works both as a comprehensive FMIS and a Direct Benefit Transfer platform (though some benefit transactions are routed outside the system) leading to substantial savings to the Government. The success of the ICAD in putting in place such a system lies in the innovative solutions it has adopted. In relation to the payment ecosystem, these solutions include automatic verification of beneficiaries’ banking details, the use of a unique biometric-based identification number given to all citizens (Aadhaar), secure paperless and seamless payments through a web browser using digital signatures, and automated bank reconciliation and system-based accounts compilation.

The PFMS has introduced transparency to a level where any beneficiary of PM-KISAN can go online and check the status of his or her payments. The system alerts users through text messages on registered mobile numbers. Every beneficiary can view and print a comprehensive report on the funds transferred under approximately 8,000 government schemes at federal and state level.

Such a huge centralized system poses potential threats to cyberattacks and financial fraud. The authorities have begun to explore Artificial Intelligence (AI) solutions to raise real-time alerts on suspicious transactions. One such recent incident reported in the Indian Express could have been prevented if the system had been able to alert the paying authorities when transactions were processed outside the usual internet protocol addresses and offices. The key is to implement solutions that deal effectively with threats of fraud and cyberattacks while keeping the system user friendly and avoiding elaborate and cumbersome security measures.

The introduction of PM-KISAN shows how a well-designed, efficient and user-friendly IT system can help a government in the rapid implementation of social benefit programs. There is a huge potential for applying innovative techniques to provide social benefits for millions of small-scale users. Such systems could be replicated in many other countries which have good internet and mobile infrastructure. The success of the Indian scheme rests heavily on the comprehensiveness and versatility of the PFMS. But this system needs further development if it is to support the implementation of major PFM reforms such as establishing a unified multi-dimensional chart of accounts and modern accounting standards in which India is lagging its comparators. To support it, a new PFM law should be enacted in line with international good practices, not by tweaking archaic federal rules on government receipts, payments, and accounting.

[1]Resident IMF PFM advisor in Eswatini (formerly Swaziland).

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