Re-imagining Digital PFM in India

Authors: Manish Srivastava and Prashanth Chandramouleeswaran

Reimagining Digital Public Financial Management: Harnessing Information Exchange For Citizen-Centric Service Delivery

Over the last two decades, the evolving landscape of public financial management (PFM) has witnessed a remarkable transformation brought about by government agencies adopting technology to perform their duties. The State Finance Departments, through their Integrated Financial Management Information Systems/ Comprehensive Financial Management Systems (IFMIS/CFMS), have set the precedent for others to follow. These digital platforms have successfully harnessed vertical efficiency gains within government departments, leading to benefits in cash management, accounting, streamlining revenue, expenditure, and payments, and improved fiscal accountability.

As these systems become pervasive across the state a new aspiration for governance emerges: information exchange between government agencies across levels. The next wave of digital transformation hinges on the seamless exchange of data between different departments and government agencies, enabled by horizontal interoperability. The Finance Department, as the pioneer in this domain, is best positioned to anchor this transformation. The exchange of data between different government agencies holds immense potential with several key benefits such as:

1. Improved Coordination: Seamless data exchange fosters better coordination among various agencies, culminating in a truly unified "single window" experience for citizens and businesses. This integrated approach eliminates redundancies and enhances service delivery efficiency.

2. Enhanced Data Quality and Reuse: Efficient data sharing enables improved beneficiary identification and targeted benefit delivery. Agencies can collaboratively leverage data to ensure that government resources are directed precisely where they are needed, optimising social impact.

3. Strengthened Compliance Monitoring: Seamless data exchange empowers better compliance monitoring. Real-time access to accurate data enables authorities to make informed decisions and take prompt actions/ decisions.

4. Precise Revenue and Expenditure Forecasting: The exchange of timely and accurate data contributes to precise revenue and expenditure forecasting. This, when combined with Just-In-Time payments (JIT), promotes fiscal prudence and efficient resource allocation across all levels of government.

Government implementing agencies are engaged majorly in service delivery, infrastructure development, and benefits distribution. The initial surge of digital transformation within these agencies was propelled by the implementation of departmental systems, which facilitated data digitisation and the automation of departmental processes. As they approach the next phase of their digital evolution it is necessary to empower these agencies to truly deliver on the ‘One Government’ experience. This transformation can be realised sooner by fostering enhanced coordination and collaboration among these agencies, culminating in the realisation of a unified experience for citizens and businesses.

Unlocking The Potential Through The DIGIT Information Exchange Layer

Figure 1: DIGIT Information Exchange Layer ensures interoperability between government agencies across various levels enabling functional and responsive services, and facilitates market participation to accelerate innovations.

The potential for augmenting governance outcomes is significantly magnified through seamless information exchange. This is where a standardised information exchange layer assumes a pivotal role, propelling service and fiscal event information electronically across agencies and levels in a disaggregated, real-time manner. This reliable conduit ensures comprehensive and timely insights for all stakeholders throughout the PFM cycle. Figure 1 illustrates the possibilities of connecting line departments, parastatals and other agencies seamlessly, without the need for multiple point-to-point integrations. The benefits of the exchange layer across the three key activities are summarised below:

1. Empowering Service Delivery: Unlocking Revenue and Efficiency

The challenges in responsive and functional service delivery are multifaceted, but the pivotal challenge is that the flow of information between funding and implementing agencies is slow and limited. As government service delivery requires multiple actors and interactions to come together across different levels, the exchange of information is critical to bring down the cost of coordination and improve operational effectiveness. This includes real-time information on the financial health of a government agency/department- expenditure, revenue and availability of funds.

An information exchange layer can set the base for the electronic and real-time flow of standardised disaggregated data. For example, imagine a scenario where a government agency is looking to augment its revenue by addressing revenue leakages. The information exchange layer can allow relevant departments to share required data with each other to detect anomalies and plug in the leakages. This financial augmentation can, in turn, fuel service delivery improvements.

1. Accelerating Infrastructure Development: The Power of Real-time Intelligence

Infrastructure development, a cornerstone of progressive governance, can significantly benefit from the power of information exchange. Robust liability and expenditure management, accurate revenue and expenditure forecasts, and comprehensive program monitoring become attainable objectives through this transformative approach.

As an illustrative example, envision a Finance Department that forecasts expenditures with precision through a payments calendar, meticulously synced with real-time information. The approval of project estimates can trigger a synchronised chain of events, enabling optimal resource allocation and expeditious project execution. Visibility on liabilities at an early stage can also minimise sudden unplanned demand for large sums of money.

1. Citizen-Centric Benefits Delivery: Minimising Inclusion and Exclusion Errors

Benefits delivery, a critical dimension of government outreach, gains unprecedented precision through information exchange. An information exchange layer can bring data from multiple departments together to ascertain eligibility and minimise inclusion and exclusion errors. Incorporating such an exchange layer also has profound implications for migrant workers, for instance. Often, these individuals face challenges accessing benefits due to the transient nature of their work. With the information exchange layer in place, their data can be maintained centrally, enabling them to access benefits through PDS irrespective of their location, ensuring continuity in benefits, and safeguarding benefits against leakages while bolstering public trust in governance.

Finance Department As The Anchor To Realise This Vision

The Finance Department (FD) in states is uniquely poised to spearhead the implementation of an information exchange layer for two reasons:

1. Financial Steward of the State: As the custodian of the Comprehensive Financial Management System (CFMS) and the key institution in the financial landscape of the state, the FD plays a pivotal role in ensuring the optimal utilisation of public funds. This vantage point equips the FD to champion the establishment of an information exchange layer that can revolutionise the way information flows across agencies.

2. Linking Outlays to Outputs and Outcomes: Leveraging its comprehensive oversight, the FD can intricately map out the trajectory from budgetary allocations to tangible outcomes. This strategic insight equips the FD to provide invaluable inputs to various Line Departments, enabling them to align policy priorities, budgets, and execution seamlessly. Furthermore, this approach empowers the FD to offer ground-level perspectives before the commencement of the next budget cycle, fostering a dynamic and effective financial planning process.

Creating Value through Information Exchange: By orchestrating this transformation through a digital information exchange layer, the administrative burden of data collation, cleaning, and curation—currently borne by officials across ministries—can be substantially alleviated. This, in turn, equips these officials to channel their efforts into profound analysis and thoughtful policy recommendations.

Key Challenge to Address: While the concept of an information exchange layer holds immense promise, it is essential to address the key challenge associated with it – concerns about data visibility. Many stakeholders hesitate to adopt solutions due to concerns about information exposure. We have addressed this challenge through an architectural foundation of robust authorizations, access limitations, security protocols, privacy measures, and inherent authentications to ensure data can be accessed only by the stakeholders who it is meant for.

Conclusion

The FD’s role of financial stewardship provides an innate potential to implement the vision of an information exchange layer. As we navigate the next set of reforms in governance, the concept of information exchange has the prospect to be the catalyst to unlock unprecedented governance potential. It harmonises diverse government activities, nurtures fiscal prudence, and transforms service delivery. The journey ahead promises an environment where governance is not just digital, but also interconnected, efficient, and truly transformative.