Rule 47 of the General Financial Rules 2017 User Charges
Original Rule Text
Visual Summary
Identify Charges
Ministries must identify and publish all fees they charge for services.
Cost Recovery
Charges should cover the service cost plus a reasonable return.
Regular Review
Rates must be reviewed at least every three years and linked to inflation.
Ease of Revision
Fix rates through rules or orders, not laws, for easy updates.
Executive Summary
Rule 47 establishes a clear framework for how government departments should set and manage fees for their services, known as ‘user charges’. The core principle is that these charges should be sufficient to cover the full cost of providing the service, plus a reasonable return on the government’s investment. This rule mandates that departments must identify and publish these charges, review them at least every three years to keep up with inflation, and set them through flexible administrative rules rather than rigid laws to allow for easier updates. If a department decides to charge less than the cost for social or other reasons, it must formally document its justification.
In-Depth Analysis of the Rule
Introduction
Rule 47 of the General Financial Rules, 2017, deals with ‘User Charges’, which are fees collected by the government for providing specific services. These charges are a key part of the government’s non-tax revenue. This rule aims to bring financial discipline, transparency, and sustainability to government services by ensuring that the people who use a service contribute to its cost.
Breakdown of the Rule
Let’s break down the key components of Rule 47:
- Identification and Publication: The rule begins by stating that every Ministry and Department must identify all the user charges it levies and publish this information on its website. This promotes transparency, allowing the public to know what services have a fee and what those fees are.
- Principle of Cost Recovery (Clause i): This is the heart of the rule. When setting a user charge, the primary goal must be to recover the ‘current cost’ of providing the service. This includes all expenses like staff salaries, materials, and maintenance. Furthermore, it should also include a ‘reasonable return on capital investment,’ which means the fee should also account for the cost of the infrastructure (like buildings or equipment) used.
- Justification for Deviations (Clause ii): The rule acknowledges that sometimes the government may want to subsidize a service to make it accessible to everyone. If a department decides to set a user charge lower than the cost-recovery norm, it is not prohibited. However, the department must formally record the specific reasons for this decision. This ensures accountability and makes it clear that the subsidy is a deliberate policy choice.
- Regular Review and Indexation (Clause iii): To prevent user charges from becoming outdated due to inflation, the rule mandates two things. First, the rates must be reviewed at least once every three years. Second, they should be linked to ‘appropriate price indices’ (a way to measure inflation). This ensures that the fees are adjusted periodically to reflect the changing costs of providing the service.
- Ease of Revision (Clause iv): This clause provides practical guidance on how to set the rates. It states that user charges should be fixed through ‘Rules or executive orders’ rather than through a ‘statute’ (a law passed by Parliament). Changing a law is a long and complex process, whereas administrative rules and orders can be updated more easily. This provision ensures that the government can respond quickly to changing economic conditions without being bogged down by legislative procedures.
Practical Example
Imagine the Ministry of Culture runs a national museum. The total annual cost to operate the museum (staff salaries, electricity, security, maintenance of exhibits) is ₹5 crores. The museum building and its contents represent a significant capital investment. The museum receives about 5 lakh visitors a year.
Applying Rule 47:
1. The Ministry must clearly list the museum’s entry fee on its website.
2. To recover costs, the base ticket price should be ₹100 per visitor (₹5 crore / 5 lakh visitors). To get a ‘reasonable return’, they might add 10%, making the ticket price ₹110.
3. However, the Ministry decides it wants to promote culture and make the museum accessible to students and families. It sets the price at ₹30. As per Clause (ii), the Ministry must create an official record explaining that this lower price is a deliberate subsidy to encourage public engagement with history and art.
4. Every three years, the Ministry must review the ₹5 crore operating cost and the ₹30 ticket price to see if an adjustment is needed based on inflation.
5. The ticket price would have been set by a Ministry notification (an executive order), not an Act of Parliament, making it easy to change it to ₹35 or ₹40 after the triennial review.
Conclusion
Rule 47 is a crucial financial guideline that balances fiscal responsibility with public service objectives. It ensures that government services are priced transparently and sustainably, while still allowing for justified subsidies. By mandating regular reviews and flexible rate-setting mechanisms, it helps the government remain agile and accountable in its financial management of public services.
Related Provisions
Understanding Rule 47 is enhanced by looking at related rules concerning government revenue and finances:
- Rule 46: Non-Tax Revenues – Rule 47 on User Charges is a specific component of the broader category of ‘Non-Tax Revenues’ described in Rule 46. This rule provides the context for where user charges fit into the government’s overall income streams.
- Rule 45: Receipt Estimates – The revenue collected from user charges must be properly estimated and included in the government’s budget. Rule 45 outlines the procedures for preparing these receipt estimates.
- Rule 48: Dividends and Profits – This rule discusses another major component of non-tax revenue. Reading it alongside Rule 47 gives a more complete picture of the different sources of the government’s non-tax income.
Learning Aids
Mnemonics
- USER: To remember the key principles of user charges:
U – Undertake review every 3 years.
S – Set rates to recover costs.
E – Explain deviations in writing.
R – Revise easily through Rules, not statutes. - COST: A simple way to remember the pricing principle:
C – Cover Operating Service Tolls.
Mindmap
Multiple Choice Questions (MCQs)
1. What is the primary principle that Ministries/Departments must follow when fixing rates for user charges under Rule 47?
- A) To maximize profit for the government.
- B) To recover the current cost of providing services with a reasonable return on capital investment.
- C) To match the prices of similar services offered by the private sector.
- D) To provide all services at a subsidized rate to the public.
Show Answer
Correct Answer: B) To recover the current cost of providing services with a reasonable return on capital investment.
2. According to Rule 47, what is the minimum frequency for reviewing the rates of user charges?
- A) Every year.
- B) Every two years.
- C) At least every three years.
- D) Only when a formal complaint is received.
Show Answer
Correct Answer: C) At least every three years.
3. Why does Rule 47(iv) recommend fixing user charges through ‘Rules or executive orders’ rather than a ‘statute’?
- A) Because statutes do not apply to financial matters.
- B) To avoid public scrutiny of the rates.
- C) To enable easier and faster revision of the rates as needed.
- D) Because executive orders can be challenged in court more easily.
Show Answer
Correct Answer: C) To enable easier and faster revision of the rates as needed.
Frequently Asked Questions
What happens if a department wants to provide a service for free or at a very low cost for social reasons?
Rule 47 allows for this. If a department sets a user charge below the cost of providing the service, it must formally record the specific reasons for this decision. This ensures that the subsidy is a conscious policy choice and is properly documented.
What does ‘reasonable return on capital investment’ mean in simple terms?
It’s like a small profit margin. Besides covering the day-to-day running costs (like salaries and electricity), the fee should also contribute a small amount towards the value of the long-term assets (like the building or expensive equipment) used to provide the service. This ensures the government’s overall investment is accounted for.
Why is it important to link user charges to price indices?
Price indices measure inflation, or the general increase in costs over time. Linking user charges to these indices helps ensure that the fees are adjusted automatically or semi-automatically to keep up with rising costs. This prevents the service from losing money over time and becoming financially unsustainable.
Key Takeaways
- Government departments must identify and publish all fees (user charges) they collect for providing services.
- The primary goal is to set fees that cover the full cost of the service, plus a small, reasonable return.
- If a fee is set lower than the cost for public welfare, a clear, official reason must be recorded.
- All user charges must be reviewed and updated at least once every three years to keep pace with changing costs.