Public Accounts Committee flags failure to transfer ₹9,222 crore in cess collections to designated reserve funds

This issue underscores the critical role of Parliamentary Committees in ensuring executive accountability. The Public Accounts Committee (PAC), established under the Government of India Act, 1919, is the oldest financial committee, tasked with auditing government expenditure based on Comptroller and Auditor General (CAG) reports. The PAC's assertion that ignoring its directives is an 'insult to Parliament' highlights the tension between legislative oversight and executive action. Under Article 114 of the Constitution, the government must adhere to the appropriations approved by Parliament; deviating from the stated purpose of a cess challenges this principle of parliamentary control over the public purse. The issue is a prime example of the checks and balances system, illustrating how institutions like the CAG and PAC function to maintain financial discipline and transparency within the government.

The controversy revolves around the management of cesses and surcharges, which have become a significant source of revenue for the Union government. A cess is a tax on tax, levied for a specific purpose (e.g., Health and Education Cess), and its proceeds must initially go to the Consolidated Fund of India (CFI) before being transferred to a dedicated reserve fund. The Comptroller and Auditor General (CAG) audit reveals a persistent problem of 'short transfer'—where collected funds are not fully moved to their designated reserve funds, such as the Pradhan Mantri Swasthya Suraksha Nidhi (PMSSN). This practice effectively allows the government to utilize these funds for general expenditure, helping to mask the true extent of the fiscal deficit. The Finance Ministry's defense—that keeping funds idle is imprudent while the government borrows heavily—highlights the trade-off between strict adherence to earmarked funding and overall cash management efficiency.

The failure to utilize earmarked funds raises significant governance and federalism concerns. Because cesses and surcharges are explicitly excluded from the divisible pool of taxes under Article 270, the Union government does not have to share this revenue with the states, unlike regular tax collections (e.g., Income Tax, Corporate Tax) as mandated by the Finance Commission. The increasing reliance on cesses (accounting for 10.25% of gross tax revenue) has been a persistent grievance for states, who argue it shrinks their share of central resources. When the Union collects these funds but fails to spend them on the promised public goods (like health and education infrastructure), it breaches the trust of the taxpayer and undermines cooperative federalism. This situation highlights the need for better fiscal transparency and regular monitoring of reserve funds to ensure intended developmental outcomes are met.