Move to minimise cost of borrowing, ensure better utilisation of funds

The government mulls putting in place a ‘Treasury Single Account’ for all Central ministries and departments to help lower the cost of borrowing and enhance efficiency in fund flows.

“Pilot is on to implement Single Treasury Account for some autonomous bodies. Based on the outcome, the effort would be to use the system for all the Central Government ministries and departments,” a senior Finance Ministry official told BusinessLine. It is going to be a long-drawn process as it needs much bigger capacity of the Reserve Bank of India, the official said, adding, alternatively, some other bank/banks could be designated along with RBI.

Strain on exchequer

Under the existing process, after approval, funds are allocated and disbursed to various ministries, departments, autonomous bodies and States. It has been observed that funds are not being utilised and kept idle in other bank accounts. Indian budget makes a provision for borrowing to meet part of the expenditure as revenue is not sufficient. Given the borrowing cost, such a system puts further strain on the exchequer and necessitates ways for innovation. One such innovation is Treasury Single Account or TSA.

According to the International Monetary Fund (IMF) Working Paper, a TSA is a unified structure of government bank accounts that gives a consolidated view of government cash resources. Based on the principle of unity of cash and the unity of treasury, a TSA is a bank account or a set of linked accounts through which the government transacts all its receipts and payments. The principle of unity follows from the fungibility of all cash irrespective of its end use. While it is necessary to distinguish individual cash transactions for control and reporting purposes, this purpose is achieved through the accounting system and not by holding/depositing cash in transaction-specific bank accounts.

Cash management

This enables the treasury to delink management of cash from control at a transaction level. The primary objective of a TSA is to ensure effective aggregate control over government cash balances. The consolidation of cash resources through a TSA arrangement facilitates government cash management by minimising borrowing costs. In the absence of a TSA, idle balances are maintained in several bank accounts. Effective aggregate control of cash is also key to monetary and budget management, the paper said.

For the fiscal year 2020-21, initially, the government had decided to borrow ₹7.80-lakh crore, which has now been increased to ₹12-lakh crore. This means higher expenses on debt servicing including interest on a regular basis. For last fiscal (2019-20), the total borrowing was ₹7.10-lakh crore, prior to which it was ₹5.70-lakh crore. According to Expenditure Budget, a sum of ₹7.08-lakh crore has been provided for interest payments during FY20-21 against ₹6.25-lakh crore during FY19-20. Provision for interest payment during the year will go up due to additional borrowings. As of now, nearly 23 per cent of the total expenditure has been set aside for interest payment.

Published on June 08, 2020

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