A single nodal agency, several advantages

By Rouhin Deb

Amid the uncertainty caused by a host of factors, ranging from the war in Ukraine to the Covid-19 pandemic, the government is focused on exploiting future opportunities by pulling out all the stops for capital spending. The impressive strike rate of 98.5% on capital spending, as evidenced by revised estimates for FY22, demonstrates the government’s concerted efforts to streamline processes and introduce critical public finance management reforms. Given the federal structure of our democracy, delivering reforms that actually result in better outcomes for the states and the Center has always been a challenge. One such reform that has benefited the states and the Center was the introduction of the State Nodal Agency bank account model for the transfer of funds for the implementation of centrally sponsored programs. The Single Nodal Agency (SNA) model has significantly streamlined the disbursement of funds for Centrally Sponsored Schemes (CSS), which account for nearly 20% of total fiscal transfers and amount to nearly $3.8 trillion rupees. The initiative has minimized the float available in the CSS funds flow mechanism and improved the control system regarding the use of funds. The government can now see financial activity through the SNA, helping to effectively track spending by lower-level agencies.

The SNA model requires States to notify an SNA for each CSS which will open a single bank account at a commercial bank responsible for all transactions related to the implementation of the particular CSS. All other executing agencies will either use the SNA account or open a subsidiary zero balance account, with drawdown limits set by SNA. This led to funds being transferred for CSS to only 3,072 bank accounts instead of the previous 9.77 lakh accounts.

State governments, in particular, stand to benefit enormously from the shift to SNAs. By providing data on unspent balances, state government departments can now see the state float available for a CSS before initiating the released fund proposal. Similarly, the state can also monitor and prioritize the disbursement of new disbursements of funds to districts, blocks and gram panchayats based on their use of previously allocated funds. The ability to see the end-to-end transaction process can improve the efficiency of the delivery mechanism. This will lead to faster and more timely use of funds on the ground. Second, since CSS expenditures are now made from a single account, the process of submitting certificates of use has become much easier for states.

The states can now control interest credited by banks and can transfer the state’s share of the interest to the consolidated state fund. Before the new procedure, such a mechanism did not exist. In addition, the new mechanism now allows end-to-end transaction processes to be captured, and banks’ performance can be assessed using key performance indicators (KPIs); SNAs can provide real-time resolution of banking process inefficiencies.

For states like Assam, the introduction of zero balance accounts has eliminated delays and ensured “on time” availability of funds for implementing agencies. This system has particularly benefited remote executing agencies with restricted access to bank branches. The tedious process of processing checks and bank drafts has been eliminated; legal deductions such as direct and indirect tax payments by agencies – which were not effectively captured before – are now fully respected, ensuring transparency and accountability.

The ANS will be instrumental in accelerating work-related programs that involve the development of on-the-ground infrastructure, viz. the Jal Jeevan mission. Accountability and accessibility to the state of released funds is much higher now. The SNA scorecard, which will be released by the Minister of Finance on June 7 as part of the Azadi ka Amrit Mahotsav, will enhance the transparency of the entire process. The dashboard will use the detailed data to make easy comparisons between states, districts, blocks, etc., decide on future releases, analyze and monitor the timely release of central and state share of ANS, study the spend model and track fund usage at the click of a button. This will enable data-driven and better-informed decision-making.

Efforts by the Center and state governments have firmly established the SNA model, which has been adopted by all states. Reforms like these are among the major factors driving a paradigm shift in the use of funds between states. So far, systemic reforms such as the SNA are on track to introduce a bottom-up approach in the system of disbursement of public funds. Over time, it appears that the model will be able to bring more transparency and efficiency to citizen-centred delivery mechanisms.

The author is Chief Economist, CM Secretariat, Government of Assam, and Visiting Professor, Development Management Institute, Patna