Rule 267 of The General Financial Rules 2017 Withdrawal Procedure for Externally Aided Projects

Original Rule Text

Rule 267 Procedure for withdrawal. The concerned administrative Ministries or Departments shall be required to make provision of funds under the relevant head of account as ‘External Aided Component’ in their Detailed Demands for Grants for release of external aid amounts during the year to the respective Project Implementing Agencies. There are mainly two procedures laid down for withdrawal of funds from the loan or grant account:Rule 267 (1) Reimbursement procedure. Under the reimbursement procedure the Project Implementing Agency shall initially spend or incur expenditure and subsequently claim the amount from the Funding Agency through the office of the Controller, Aid Accounts. The remittances shall be accounted as External Loan or Grant receipt in the Consolidated Fund of India. There are two ways of dealing with the reimbursement claims as given below:(i) Reimbursement through Special Account (Revolving Fund Scheme). Under the Revolving Fund Scheme, the Funding Agency disburses the estimated expenditure of four months for the projects as initial advance to Government of India under the respective loan or credit or grant agreement. Office of Controller of Aid Accounts & Audit withdraws the amount specified in the agreement as initial deposit from the Funding Agency, by sending a simple withdrawal application in the prescribed format after the loan is declared effective. Such initial deposit designated in US Dollars is received by Reserve Bank of India, Mumbai and Rupee equivalent shall be passed on to Controller of Aid Accounts & Audit through Government Foreign Transaction (GFT) advice. However, Reserve Bank of India, Mumbai shall maintain a loan wise proforma account for liquidation of advance received from Funding Agency. Office of Controller, Aid Accounts and Audit, on receipt of reimbursement claims from Project Implementing Agency, shall send an advice to Reserve Bank of India, Mumbai advising it to debit the Special Account with the US Dollars equivalent of the amount of the eligible claim. Office of Controller, Aid Accounts and Audit shall consolidate all such claims and submit to Funding Agency for replenishment of Special Account. This shall be accompanied by a statement of debits and credits made during the period by Reserve Bank of India, Mumbai and supporting documents received from the Project Implementing Agency.(ii) Reimbursement outside Special Account: Under the reimbursement procedure (where there is no provision in the loan or credit agreement for the Special Account or the balance in the Special Account is ‘Nil’) office of Controller of Aid Accounts and Audit shall send the reimbursement claims received from the Project Implementing Agency direct to the Funding Agency after checking the eligibility aspect. The Funding Agency shall disburse the eligible expenditure to the borrower’s account with Reserve Bank of India, Mumbai, who shall pass on the Rupee equivalent to the account of the Controller of Aid Accounts and Audit at Reserve Bank of India, New Delhi by issue of Government Foreign Transaction (GFT) advice.Rule 267 (2) Direct Payment Procedure. Under this procedure adopted in some cases the Funding Agency, on the request of the Project Implementing Agency (received through Controller of Aid Accounts and Audit), duly supported by relevant documents, shall directly pay to the contractor or supplier or consultant from the loan or credit or grant account. The Funding Agency, after satisfying itself as to the eligibility of the expenditure etc. remits the amount directly to the account of the payees as per the payment instructions. The Funding Agency apprises the office of Controller of Aid Accounts and Audit and the Project Implementing Agency of the particulars of the payment made. Office of Controller of Aid Accounts and Audit shall work out the rupee equivalent of the foreign currency payment. This rupee equivalent shall be recovered by office of Controller of Aid Accounts and Audit from the Project Implementing Agencies or State Governments which have availed of the Direct Payment Procedure.Note: In the case of Central Projects, Centrally Sponsored Projects and Public Sector or Financial Institutions, the concerned administrative Ministry or Department shall release the fund to the Project Implementing Agency with the instruction to deposit rupee equivalent of the foreign currency that have been availed of under Direct Payment Procedure by them to the account of Controller of Aid Accounts and Audit at Reserve Bank of India, New Delhi or Branch of SBI so authorised.

Visual Summary

PIA Incurs Expenditure

Project Implementing Agency initially spends funds.

Funding Agency Reimburses

Funds claimed via Special Account or direct claims.

Direct Payment Option

Funding Agency can pay contractors/suppliers directly.

Executive Summary

Rule 267 of The General Financial Rules, 2017, meticulously outlines the procedures for withdrawing funds from externally aided projects. It details two primary mechanisms: the reimbursement procedure (which includes options for Special Accounts or direct claims to the Funding Agency) and the direct payment procedure, where the Funding Agency pays contractors or suppliers directly. These guidelines ensure that administrative Ministries make necessary provisions for external aid and that all funds are accounted for with precision and transparency, thereby facilitating the efficient execution of projects.

In-Depth Analysis of the Rule

Introduction: Rule 267 of The General Financial Rules, 2017, provides a critical framework for managing the financial aspects of projects that receive external aid. It specifies the methods through which funds from international loans or grants can be withdrawn, ensuring proper accounting and control.

Breakdown of the Rule:

Provision of Funds: Administrative Ministries or Departments must make budgetary provisions under the ‘External Aided Component’ head in their Detailed Demands for Grants to facilitate the release of external aid to Project Implementing Agencies (PIAs).
Two Main Procedures for Withdrawal:
1. Reimbursement Procedure (Rule 267(1)): This involves the PIA initially incurring expenditure and then claiming the amount from the Funding Agency via the Controller, Aid Accounts & Audit (CAAA). The remittances are recorded as External Loan or Grant receipts in the Consolidated Fund of India. There are two sub-methods:
  - Reimbursement through Special Account (Revolving Fund Scheme): The Funding Agency provides an initial advance (e.g., estimated four months’ expenditure) to the Government of India. The CAAA withdraws this initial deposit. The PIA submits reimbursement claims to the CAAA, which then advises the Reserve Bank of India (RBI) to debit the Special Account. The CAAA consolidates these claims and submits them to the Funding Agency for replenishment of the Special Account.
  - Reimbursement outside Special Account: If no Special Account exists or its balance is nil, the CAAA sends reimbursement claims directly to the Funding Agency. The Funding Agency disburses the eligible expenditure to the borrower’s account with RBI, Mumbai, which then transfers the Rupee equivalent to the CAAA’s account at RBI, New Delhi.
2. Direct Payment Procedure (Rule 267(2)): In certain cases, the Funding Agency directly pays the contractor, supplier, or consultant. This occurs at the request of the PIA (routed through the CAAA) and is supported by relevant documents. The Funding Agency informs the CAAA and PIA of the payment details. The CAAA then calculates the Rupee equivalent and recovers it from the PIAs or State Governments that utilized this procedure. For Central/Centrally Sponsored Projects, the administrative Ministry instructs the PIA to deposit the Rupee equivalent into the CAAA’s account.

Practical Example: Imagine the Ministry of Health and Family Welfare is implementing a large-scale public health project with a loan from the World Bank. Under the reimbursement procedure, the Project Implementing Agency (e.g., a state health department) first pays for medical supplies and services. It then compiles these expenditures and submits claims to the Controller, Aid Accounts & Audit (CAAA). The CAAA processes these claims, either drawing from a pre-established Special Account or sending them directly to the World Bank for reimbursement. Alternatively, for a major equipment purchase, the PIA might request the World Bank (via CAAA) to directly pay the international supplier, simplifying the payment chain while ensuring proper accounting by the CAAA.

Related Provisions

To fully understand the context of fund withdrawal for externally aided projects, consider these related rules:

Learning Aids

Mnemonics

RDP: Reimbursement, Direct Payment – The two main procedures.
SAC: Special Account, Claims – The two ways of reimbursement.

Process Flowchart

STARTReimbursement orDirect Payment?DirectReimbursementPIA Incurs ExpenditureSpecial AccountAvailable?YesNoPIA Claims; CAAA AdvisesRBI Debit Special AccountCAAA Submits to FundingAgency for ReplenishmentPIA Claims; CAAA SendsDirect to Funding AgencyFunding Agency Disbursesto RBI; Rupee to CAAAPIA Requests (via CAAA)Funding Agency PaysContractor DirectlyCAAA Recovers RupeeEquivalent from PIA/StateEND

Multiple Choice Questions

1. Which of the following is NOT one of the two main procedures for withdrawal of funds from externally aided projects as per Rule 267 of the General Financial Rules, 2017?

A) Reimbursement procedure
B) Direct payment procedure
C) Advance payment procedure
D) Special Account procedure

Show Answer

Correct Answer: C) Advance payment procedure

2. Under the Reimbursement through Special Account procedure as per Rule 267(1)(i) of the General Financial Rules, 2017, what is the initial advance from the Funding Agency typically estimated to cover?

A) One month’s expenditure
B) Two months’ expenditure
C) Four months’ expenditure
D) Six months’ expenditure

Show Answer

Correct Answer: C) Four months’ expenditure

3. In the Direct Payment Procedure under Rule 267(2) of the General Financial Rules, 2017, who directly pays the contractor or supplier?

A) The Project Implementing Agency
B) The Controller of Aid Accounts and Audit
C) The Funding Agency
D) The Reserve Bank of India

Show Answer

Correct Answer: C) The Funding Agency

4. As per Rule 267(1)(ii) of the General Financial Rules, 2017, when reimbursement is outside a Special Account, who sends the reimbursement claims directly to the Funding Agency after checking eligibility?

A) The Project Implementing Agency
B) The Administrative Ministry
C) The Controller of Aid Accounts and Audit
D) The Reserve Bank of India

Show Answer

Correct Answer: C) The Controller of Aid Accounts and Audit

5. For Central Projects under the Direct Payment Procedure, according to Rule 267 Note of the General Financial Rules, 2017, what instruction does the administrative Ministry give to the Project Implementing Agency regarding the rupee equivalent of foreign currency availed?

A) To retain it for future project use.
B) To deposit it to the account of Controller of Aid Accounts and Audit.
C) To return it to the Funding Agency.
D) To use it for other departmental expenses.

Show Answer

Correct Answer: B) To deposit it to the account of Controller of Aid Accounts and Audit.

Frequently Asked Questions

What are the primary methods for withdrawing funds from externally aided projects under Rule 267 of the General Financial Rules, 2017?

Rule 267 outlines two main methods: the Reimbursement Procedure (which includes options for Special Accounts or direct claims) and the Direct Payment Procedure.

How does the “Reimbursement through Special Account” work as per Rule 267(1)(i) of the General Financial Rules, 2017?

Under this scheme, the Funding Agency provides an initial advance (e.g., for four months’ estimated expenditure) to the Government of India. The Project Implementing Agency incurs expenditure, claims reimbursement from the Controller, Aid Accounts & Audit (CAAA), which then advises the Reserve Bank of India to debit the Special Account. CAAA consolidates these claims for replenishment from the Funding Agency.

What is the role of the Controller of Aid Accounts and Audit (CAAA) in the direct payment procedure under Rule 267(2) of the General Financial Rules, 2017?

In the direct payment procedure, the Funding Agency pays the contractor or supplier directly at the request of the Project Implementing Agency (PIA), which is routed through the CAAA. The CAAA is then apprised of the payment details, calculates the rupee equivalent, and recovers this amount from the PIA or relevant State Government.

Key Takeaways

Rule 267 establishes two primary mechanisms for fund withdrawal from externally aided projects: reimbursement and direct payments.
The reimbursement procedure allows Project Implementing Agencies to incur expenditure first and then claim funds, either through a revolving Special Account or by direct claims to the Funding Agency.
The direct payment procedure enables Funding Agencies to pay contractors/suppliers directly on behalf of the Project Implementing Agency, with subsequent accounting and recovery by the Controller of Aid Accounts and Audit.
The Controller of Aid Accounts and Audit plays a central role in managing and accounting for these external aid flows, ensuring proper financial management.

Conclusion

Rule 267 of The General Financial Rules, 2017, provides a structured framework for managing the financial flows of externally aided projects. By detailing both reimbursement and direct payment mechanisms, it ensures accountability, transparency, and efficient utilization of international funds, which are crucial for the successful execution of development initiatives.

Continue to Rule 268 →