Rule 116 of The General Financial Rules 2017 Agency Functions Entrusted to State Government

Rule 116 of The General Financial Rules 2017 Agency Functions Entrusted to State Government

Original Rule Text

Rule 116 Principles governing transactions in connection with the agency functions entrusted to State Government. The following procedure shall be followed in regard to transactions arising in connection with the agency functions entrusted to the State Governments under Article 258 of the Constitution:(i) The expenditure on extra staff or contingencies which the State Government have to incur-The extra cost to the State Government arising mainly in respect of the additional staff employed or contingent and other expenditure, as in the case of work devolving on the State Governments in connection with the administration of the Census Act, is reimbursable under Article 258 (3) of the Constitution. Expenditure in this regard shall be provided in the State Budget in the first instance and adjusted in the accounts of the State Governments under the normal Heads of Accounts. These will be reimbursed in lumpsum to the State Governments, necessary provision being made under a distinct sub-head “Amounts paid to other Governments, Departments, etc.”, under the concerned Demand of the Ministry administratively concerned with the subject. In computing the extra cost, the element of leave and pensionary charges can also be included, provided the relevant service and financial rules of the State Governments provide for this.(ii) The expenditure on work entrusted to the State Government, such as expenditure on construction and maintenance of National Highways, expenditure on Defence Works, Aviation Works, etc.-The expenditure directly connected with the execution of the scheme or work entrusted to the State Government such as expenditure on the construction or maintenance of National Highways etc., will be adjusted direct in the accounts of the Central Government under the relevant Head of Account. The question of including the estimates in this regard in the Budget of the State Governments and subjecting them to the vote of the State Legislature will not arise. The expenditure will be adjusted under the Head “8658 – Suspense Accounts –PAO Suspense” in the Remittance Section of the State Accounts in the first instance pending their eventual clearance in accordance with the prescribed procedure.Note: In the converse case relating to the entrustment of a State function to the Central Government under Article 258-A of the Constitution, a procedure similar to that indicated in the Rule 116 above shall be followed. The extra cost on staff and other contingent expenditure, etc., will accordingly have to be provided in the Budget of the Central Government in the usual manner and recovery made in lumpsum from the State Government concerned. The other expenditure on execution of the work proper should be debited to the State Government concerned directly and the question of obtaining a vote of the Parliament for the same will not arise.

Visual Summary

Extra Staff Cost

State incurs initial cost, reimbursed by Central Government in lumpsum.

Direct Work Cost

Central Government directly adjusts expenditure for entrusted works (e.g., National Highways).

Article 258 Basis

Governs agency functions entrusted to State Governments by the Centre.

Executive Summary

Rule 116 of the General Financial Rules, 2017, establishes the financial procedures for agency functions delegated by the Central Government to State Governments under Article 258 of the Constitution. It differentiates between two primary types of expenditure: extra costs for staff and contingencies, which are initially borne by the State and subsequently reimbursed by the Central Government in a lump sum, and direct work expenditures (e.g., for National Highways), which are adjusted directly in the Central Government’s accounts without requiring a vote from the State Legislature. The rule also outlines a reciprocal arrangement for State functions entrusted to the Central Government.

In-Depth Analysis of the Rule

Introduction

Rule 116 of the General Financial Rules, 2017, provides a clear framework for managing financial transactions when the Central Government entrusts specific agency functions to State Governments under Article 258 of the Constitution. This rule ensures accountability and proper allocation of funds for such delegated responsibilities, fostering cooperative federalism in financial management.

Breakdown of the Rule
  • Extra Staff or Contingency Expenditure (Sub-rule i):
    • Initial Burden: State Governments initially incur costs for additional staff or contingent expenses related to the entrusted function (e.g., Census Act administration).
    • Reimbursement: The Central Government reimburses these extra costs to the State Governments in a lump sum.
    • Budgetary Provision: States initially provide for this expenditure in their own budgets under normal Heads of Accounts. The Centre makes provision under a distinct sub-head “Amounts paid to other Governments, Departments, etc.”
    • Cost Components: Leave and pensionary charges can be included in the extra cost calculation if State financial rules permit.
  • Expenditure on Entrusted Works (Sub-rule ii):
    • Direct Adjustment: For works directly connected with the execution of a scheme or project (e.g., construction/maintenance of National Highways, Defence Works, Aviation Works), the expenditure is adjusted directly in the Central Government’s accounts.
    • No State Vote: These estimates are not included in the State Budget and are not subject to the vote of the State Legislature.
    • Suspense Account: Initially, the expenditure is adjusted under the Head “8658 – Suspense Accounts –PAO Suspense” in the Remittance Section of the State Accounts, pending eventual clearance.
  • Reciprocal Arrangement (Note):
    • A similar procedure applies in the reverse scenario: when a State function is entrusted to the Central Government under Article 258-A of the Constitution.
    • The Central Government provides for extra staff and contingent expenditure in its budget and recovers a lump sum from the State.
    • Direct work expenditure is debited directly to the concerned State Government, and Parliament’s vote is not required for this specific expenditure.
Practical Example

Imagine the Central Government entrusts a State Government with the task of conducting a special national survey (an agency function). The State Government hires temporary staff and incurs additional office expenses for this survey. Under Rule 116(i), the State would initially pay these costs from its budget. Subsequently, the Central Government would reimburse the State for these lump sum expenses. If, however, the Central Government entrusts the State with the construction of a new section of a National Highway, the expenditure for this construction would be directly adjusted in the Central Government’s accounts, as per Rule 116(ii), without requiring a vote from the State Legislature.

Related Provisions

Understanding Rule 116 is enhanced by reviewing these related provisions:

Learning Aids

Mnemonics
  • S.A.F.E.: Staff Allocated, Funds Exchanged.
Process Flowchart
Central GovernmentEntrusts Agency FunctionExtra Staff/Contingencies(Rule 116(i))Entrusted Works(Rule 116(ii))State Incurs CostCentre Adjusts DirectlyCentre Reimburses LumpsumNo State Legislature VoteFinancial ProcedureCompleted

Multiple Choice Questions (MCQs)

1. What constitutional article forms the basis for agency functions entrusted to State Governments under Rule 116 of the General Financial Rules, 2017?

  • A) Article 266
  • B) Article 258
  • C) Article 283
  • D) Article 112
Show Answer

Correct Answer: B) Article 258

2. According to Rule 116(i) of the General Financial Rules, 2017, how is expenditure on extra staff incurred by a State Government for an agency function initially handled?

  • A) Directly adjusted in Central Government accounts.
  • B) Provided in the State Budget first.
  • C) Reimbursed in advance by the Central Government.
  • D) Met entirely by the State Government without reimbursement.
Show Answer

Correct Answer: B) Provided in the State Budget first.

3. For expenditure on works entrusted to a State Government, such as National Highways, Rule 116(ii) of the General Financial Rules, 2017 states that these estimates are:

  • A) Included in the State Budget and subject to State Legislature vote.
  • B) Adjusted directly in the Central Government accounts.
  • C) Fully borne by the State Government.
  • D) Subject to a separate grant from the Ministry of Finance.
Show Answer

Correct Answer: B) Adjusted directly in the Central Government accounts.

4. Which of the following can be included when computing the extra cost for staff under Rule 116(i) of the General Financial Rules, 2017?

  • A) Only basic salaries.
  • B) Leave and pensionary charges, if State rules allow.
  • C) Capital expenditure for new infrastructure.
  • D) Marketing and promotional expenses.
Show Answer

Correct Answer: B) Leave and pensionary charges, if State rules allow.

5. In the converse case where a State function is entrusted to the Central Government under Article 258-A, as noted in Rule 116 of the General Financial Rules, 2017, the expenditure on execution of the work proper is:

  • A) Debited to the Central Government’s budget.
  • B) Recovered in lump sum from the State Government.
  • C) Debited directly to the State Government concerned.
  • D) Subject to a vote of the Parliament.
Show Answer

Correct Answer: C) Debited directly to the State Government concerned.

Frequently Asked Questions

Q1: What is the primary purpose of Rule 116 of the General Financial Rules, 2017?

A1: Rule 116 outlines the financial procedures for managing transactions related to agency functions that the Central Government entrusts to State Governments under Article 258 of the Constitution, ensuring proper accounting and reimbursement mechanisms.

Q2: Does expenditure on major works like National Highways, when entrusted to a State, require a vote from the State Legislature under Rule 116 of the General Financial Rules, 2017?

A2: No, according to Rule 116(ii), expenditure directly connected with the execution of such works is adjusted directly in the Central Government’s accounts and is not subject to the vote of the State Legislature.

Q3: How are extra costs for staff and contingencies handled under Rule 116(i) of the General Financial Rules, 2017?

A3: The State Government initially incurs these costs and provides for them in its budget. The Central Government then reimburses these extra costs to the State in a lump sum, making necessary provisions under a distinct sub-head.

Key Takeaways

  • Rule 116 governs financial transactions for Central Government agency functions delegated to States under Article 258 of the Constitution.
  • Extra staff and contingency costs are initially borne by the State and then reimbursed by the Centre in a lump sum.
  • Direct work expenditures (e.g., National Highways) are adjusted directly in Central Government accounts, bypassing State Legislature votes.
  • A reciprocal arrangement applies when State functions are entrusted to the Central Government under Article 258-A.

Conclusion

Rule 116 of the General Financial Rules, 2017, is vital for maintaining financial clarity and accountability in the cooperative federal structure of India. By clearly delineating the procedures for handling various types of expenditures related to agency functions, it streamlines inter-governmental financial adjustments, ensuring that delegated responsibilities are executed efficiently while adhering to sound financial principles.

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