MC EXCLUSIVE: ‘Govt’s savings likely to increase by up to 28% in FY25 due to expenditure reforms’

Centrally sponsored schemes share funding and execution responsibilities between the Center and the states

The Finance Ministry’s expenditure reforms are expected to boost government savings by up to 28 per cent in financial year (FY) 2025, driven by the implementation of just-in-time fund releases to states for various Central sector and Centrally-sponsored schemes. These initiatives not only aim to reduce both borrowing and interest costs, but also enhance transparency in financial management, a senior government official said.

“In FY25, savings from expenditure reforms are projected to rise, as compared to last fiscal. The government has expanded the Treasury Single Account (TSA) to cover all Central sector schemes, which have budgets of more than Rs 100 crore. In FY24, the threshold for similar schemes was higher at Rs 500 crore. Altogether, savings of up to Rs 17,000-18,000 are expected in this fiscal, which are being attributed to just-in-time payment measures," the official told Moneycontrol.

In FY24, the government saved approximately Rs 14,000-15,000 crore through expenditure reforms using TSA and the Single Nodal Agency (SNA) framework, which tracks the use of funds for both Central sector and Centrally-sponsored schemes, according to the official.

Impact on Central and Centrally-Sponsored Schemes

Central sector schemes, which are fully funded and executed by Central government agencies, stand to benefit directly from these reforms. Centrally-sponsored schemes, which share funding and execution responsibilities between the Centre and the states — such as the Jal Jeevan Mission and Pradhan Mantri Awas Yojana — will also see significant improvements in fund management.

For instance, the funding for Jal Jeevan Mission for North-Eastern and Himalayan states is shared 90 per cent by the Centre and 10 per cent by respective states in this under developed region. However, the funding pattern is 50:50 between the Centre and the states for the rest of the country. Similarly, for Pradhan Mantri Awas Yojana there is a 60:40 fund-sharing pattern between the Central and state governments.

Additionally, any unspent scheme funds that lapse at the end of the FY, ending March 31, lead to further savings in Central government's expenditures. Last year, this clause accounted for Rs 4,000 crore in savings, the official said.

Treasury Single Account (TSA)

The TSA framework, which was introduced in 2017 and implemented in 2018, consolidates the Central government’s cash resources, providing real-time visibility into cash flows. The framework consolidates the government’s cash resources by pooling in all government funds into a unified single account, which is, typically, maintained with the Reserve Bank of India (RBI). By reducing the source of idle funds across ministries and agencies, the TSA improves transparency, accountability, and efficiency in government finances. The mechanism also facilitates just-in-time fund releases, which reduce the need for government borrowing and, in turn, lower interest costs. “We’re saving at least Rs 5,000 crore annually on interest due to TSA-driven borrowing reduction,” the official said.

Single Nodal Agency (SNA) SPARSH

In 2023, the government had introduced the SNA SPARSH initiative for Centrally-sponsored schemes. This cash management pilot programme aims to streamline just-in-time fund releases using a state's Integrated Financial Management Information System (IFMIS) linked with the RBI's e-Kuber platform.

At present, the SNA SPARSH pilot programme is operational in eight states, including Jharkhand, Gujarat, Bihar, and Andhra Pradesh. This is how the programme works: the Centre authorises funds for a scheme, and a state follows suit by allocating its share. When actual spending is required, the bill is routed through a state's IFMIS to the Public Financial Management System (PFMS) of the Central government. Only the exact required amount is released to a state’s consolidated fund. The RBI facilitates the vendor payment through a joint fund of both the Central and a state's allocation, the official added.