Rule 268 of The General Financial Rules 2017 Fund Flow for State Projects External Aid

Original Rule Text

Rule 268 (1) Fund Flow for State Projects financed from external aid source. The respective Departments of the State Government shall provide in the Budget such expenditure proposed to be incurred under Plan Schemes during the financial year by the Project Implementing Agencies. These shall be in respect of State projects to be financed from external aid sources both under loan or credit and grants and eligible for disbursement from Funding Agency under Reimbursement or Direct Payment Procedure. Rule268 (2) Fund flow for State Projects under Reimbursement Procedure. The disbursements under the “Reimbursement through Special Account” and “Reimbursement outside Special Account”, referred to in Rule 267(i), shall be consolidated at periodical intervals under each loan or credit State-wise by the office of the Controller of Aid Accounts and Audit. The details of the same shall be sent to Plan Finance Division of the Department of Expenditure in the Ministry of Finance for release of funds to the respective State Governments. The Plan Finance division of Department of Expenditure in the Ministry of Finance shall issue sanctions for actual release of the disbursement for each State. A copy of such sanction shall be endorsed to the Finance Department of the concerned State Government for information. The office of the Chief Controller of Accounts, Ministry of Finance shall issue the Inter-Government (IG) Advice to Reserve Bank of India, Central Accounts Section, Nagpur, for effecting the release to the concerned State Governments. The account of the State Government maintained at Reserve Bank of India, Central Accounts Section, Nagpur, shall be credited with the amount so released, thus, completing the cycle of funds from the expenditure incurred from the Budget of the State till receipt of funds of such expenditure from Government of India to the State. Rule 268 (3) Fund flow for State Projects under Direct Payment Procedure. Under Direct Payment Procedure the claims shall be processed as mentioned in Rule 267 (ii). Office of Controller of Aid Accounts and Audit shall work out the Rupee equivalent of such Direct Payment based on Reserve Bank of India buying rate applicable for the value date on which the Direct Payment was made. Office of Controller of Aid Accounts and Audit shall consolidate such disbursement in Rupees, and send a list of such disbursement State- wise to Plan Finance Division of Department of Expenditure at periodical intervals requesting them to release the amount to the State concerned notionally and recover the same for credit to Controller of Aid Accounts and Audit’s account. The Plan Finance Division shall issue a separate sanction for the amount to be released to the State concerned and for simultaneous recovery and credit back to the account of the Controller of Aid Accounts and Audit. A copy of such sanction shall also be endorsed to the Finance Department of the State Government concerned. The office of the Chief Controller of Accounts, Ministry of Finance shall advise Reserve Bank of India, Central Accounts Section, Nagpur, for making necessary adjustment entries in the accounts of the State concerned under intimation to the Finance Department of the State and Controller of Aid Accounts and Audit. This completes the cycle of funds flow in the case of direct payment claims.

Visual Summary

Project Funding

State projects receive external aid (loans/grants) from funding agencies.

Reimbursement Flow

Funds consolidated by CAAA, sanctioned by Plan Finance, released via RBI to States.

Direct Payment

Funding Agency pays directly to contractors; Rupee equivalent recovered from States.

Executive Summary

Rule 268 of the General Financial Rules, 2017, outlines the procedures for managing the flow of funds for State projects that receive external aid. It details how State Governments budget for these projects, and the two primary methods of fund disbursement from external funding agencies: reimbursement and direct payment. Under the reimbursement procedure, the Controller of Aid Accounts and Audit (CAAA) consolidates claims, which are then sanctioned by the Plan Finance Division of the Ministry of Finance and released to State Governments via the Reserve Bank of India. For direct payments, the CAAA calculates the Rupee equivalent of payments made directly by the funding agency to contractors, and the Plan Finance Division arranges for notional release and simultaneous recovery, with adjustments made through the RBI.

In-Depth Analysis of the Rule

Introduction: Rule 268 of the General Financial Rules, 2017, provides a comprehensive framework for the financial management of State projects that are supported by external aid. This rule is crucial for ensuring transparency, accountability, and efficient utilization of funds received from multilateral or bilateral funding agencies, detailing the mechanisms for both budgeting and the actual flow of funds.

Breakdown of the Rule:

Rule 268(1) Fund Flow for State Projects financed from external aid source: This sub-rule mandates that State Government Departments must include proposed expenditures for externally aided Plan Schemes in their annual budgets. These projects are eligible for funding from external sources (loans, credits, or grants) through either a reimbursement or a direct payment procedure.
Rule 268(2) Fund flow for State Projects under Reimbursement Procedure: This section details the process when external aid is disbursed through reimbursement. The Controller of Aid Accounts and Audit (CAAA) periodically consolidates disbursements for each State and sends these details to the Plan Finance Division of the Department of Expenditure, Ministry of Finance. The Plan Finance Division then sanctions the actual release of funds to the respective State Governments. Finally, the Chief Controller of Accounts, Ministry of Finance, issues an Inter-Government (IG) Advice to the Reserve Bank of India, Central Accounts Section, Nagpur, to credit the State Government’s account, completing the fund flow cycle from State expenditure to Central Government reimbursement.
Rule 268(3) Fund flow for State Projects under Direct Payment Procedure: This sub-rule describes the process for direct payments. When a funding agency directly pays a contractor or supplier (as per Rule 267(ii)), the CAAA calculates the Rupee equivalent of this direct payment. A list of these disbursements is sent to the Plan Finance Division, which then issues a sanction for a notional release to the State and a simultaneous recovery for credit back to the CAAA’s account. The Chief Controller of Accounts advises RBI Nagpur to make the necessary adjustment entries in the State’s accounts, thereby completing the fund flow for direct payment claims.

Practical Example: Imagine the State of Maharashtra undertakes a large-scale irrigation project funded by a World Bank loan. Under Rule 268(1), the Maharashtra Water Resources Department would include the project’s expenditure in its annual budget. If the World Bank uses a reimbursement procedure (Rule 268(2)), Maharashtra would first incur the expenditure, then submit claims to the CAAA. The CAAA consolidates these, the Plan Finance Division sanctions the release, and the funds are credited to Maharashtra’s account by RBI Nagpur. If the World Bank directly pays a foreign contractor for specialized machinery (Rule 268(3)), the CAAA calculates the Rupee value, and the Plan Finance Division processes a notional release and recovery, adjusting Maharashtra’s accounts through RBI Nagpur.

Related Provisions

To fully understand the context of Rule 268, it is beneficial to review the following related provisions:

Rule 267 of The General Financial Rules 2017 Procedure for Withdrawal: Details the procedures for withdrawing funds from loan or grant accounts.
Rule 269 of The General Financial Rules 2017 Fund Flow for Central or Central Sponsored Projects: Outlines the fund flow for projects implemented by the Central Government or centrally sponsored projects.
Rule 264 of The General Financial Rules 2017 Implementation of Projects or Schemes External Aid Receipt: Provides general provisions for the implementation of projects through external aid.

Learning Aids

Mnemonics

SPEARDP: State Projects External Aid: Reimbursement Directly Processed.
BCSRA: Budget, Consolidate, Sanction, Release, Adjust (for the fund flow steps).

Process Flowchart

Start: State Project External AidState Dept Budgets ExpenditureReimbursement or Direct?ReimbursementDirect PaymentCAAA Consolidates ClaimsClaims Processed (R.267ii)Plan Finance Sanctions ReleaseCAAA Calculates Rupee EquivChief Controller Advises RBIPlan Finance Sanctions NotionalState Account CreditedChief Controller Advises RBIState Account AdjustedEnd: Fund Flow Complete

Multiple Choice Questions

1. Which of the following is NOT a method of external aid disbursement for State projects under Rule 268 of the General Financial Rules, 2017?

A) Reimbursement Procedure
B) Direct Payment Procedure
C) Advance Payment Procedure
D) Loan or Credit Procedure

Show Answer

Correct Answer: C) Advance Payment Procedure

2. Under the Reimbursement Procedure for State projects as per Rule 268 of the General Financial Rules, 2017, which entity is responsible for consolidating disbursements at periodical intervals?

A) Reserve Bank of India
B) Plan Finance Division
C) Controller of Aid Accounts and Audit (CAAA)
D) State Finance Department

Show Answer

Correct Answer: C) Controller of Aid Accounts and Audit (CAAA)

3. According to Rule 268(2) of the General Financial Rules, 2017, who issues sanctions for the actual release of disbursements to State Governments under the Reimbursement Procedure?

A) Chief Controller of Accounts, Ministry of Finance
B) Controller of Aid Accounts and Audit
C) Plan Finance Division, Department of Expenditure
D) Reserve Bank of India

Show Answer

Correct Answer: C) Plan Finance Division, Department of Expenditure

4. In the Direct Payment Procedure for State projects under Rule 268 of the General Financial Rules, 2017, what is the role of the Controller of Aid Accounts and Audit (CAAA) after the funding agency makes a direct payment?

A) To issue sanctions for notional release to the State.
B) To advise RBI Nagpur for adjustment entries.
C) To calculate the Rupee equivalent of the direct payment.
D) To consolidate claims for reimbursement.

Show Answer

Correct Answer: C) To calculate the Rupee equivalent of the direct payment.

5. Rule 268(1) of the General Financial Rules, 2017, states that State Departments shall provide for expenditure in the Budget for externally aided projects under which type of schemes?

A) Central Sector Schemes
B) Centrally Sponsored Schemes
C) Plan Schemes
D) Non-Plan Schemes

Show Answer

Correct Answer: C) Plan Schemes

Frequently Asked Questions

What types of external aid are covered under Rule 268 of the General Financial Rules, 2017?

Rule 268 covers State projects financed from external aid sources, including loans, credits, and grants from multilateral or bilateral funding agencies.

How are funds released to State Governments under the reimbursement procedure as per Rule 268 of the General Financial Rules, 2017?

Under the reimbursement procedure, the Controller of Aid Accounts and Audit (CAAA) consolidates disbursements, which are then sent to the Plan Finance Division of the Ministry of Finance for sanction. The Chief Controller of Accounts then issues an Inter-Government (IG) Advice to the Reserve Bank of India, Central Accounts Section, Nagpur, to credit the State Government’s account.

What happens in the direct payment procedure for State projects under Rule 268 of the General Financial Rules, 2017?

In the direct payment procedure, the funding agency directly pays the contractor or supplier. The Controller of Aid Accounts and Audit (CAAA) calculates the Rupee equivalent, and the Plan Finance Division arranges for a notional release to the State and a simultaneous recovery, with adjustments made through the Reserve Bank of India.

Key Takeaways

Rule 268 of the General Financial Rules, 2017, governs the financial flow for State projects receiving external aid.
State Departments must budget for these externally aided Plan Schemes.
Two main fund flow procedures exist: Reimbursement (State spends, then gets reimbursed) and Direct Payment (Funding Agency pays third party directly).
Key central agencies involved include the Controller of Aid Accounts and Audit (CAAA), Plan Finance Division (Ministry of Finance), Chief Controller of Accounts (Ministry of Finance), and the Reserve Bank of India.

Conclusion

Rule 268 of the General Financial Rules, 2017, is fundamental for the transparent and efficient management of externally aided State projects. By clearly delineating budgeting responsibilities and the distinct procedures for reimbursement and direct payments, it ensures accountability and proper utilization of international financial assistance, contributing significantly to the financial governance framework of State-level development initiatives.

Continue to Rule 269 →