Final Tcs Ifms Report Prep On 29 July 2010

“INTEGRATED F
TATA
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M.S.PATEL INSTITUTE OF MANAGEMENT
1. INTRODUCTION OF INFORMATION
TECHNOLOGY
Information technology (IT) is "the study, design, development,
implementation, support or management of infotech". Information
technology is a general term that describes any technology that helps to
produce, manipulate, store, communicate, and/or disseminate
information. Information refers to data that has been organized and then
communicated. Information technology is a broad term used to refer to
any form of technology used to create, transfer, or store information in all
of its various forms (text, images, sound, multimedia files).
The term "IT" encompasses the methods and techniques used in

information handling and retrieval by automatic means. The means
include computers, telecommunications and office systems or any
combination of these elements.
Information technology, while stirring thoughts and visions of networks,

the Internet, server rooms, racks of switches and routers, and advanced
terms, the 'technology' doesn't necessarily refer only to computer related
issues. Any medium that stores and processes information is also in the
category of information technology.
The back-story of information technology precedes the invention of the

computer. The abacus, used by Asians, Egyptians, Romans, and the Greek
can be termed a source of information technology. Calculators, the first
mechanical one built by German polymath Wilhelm Schickard, or the slide
rule, developed in 1622 by William Oughtred, also comes under the
heading of information technology. Another example would be punch card
machines, expanded upon by IBM in the early to mid 1900's, qualifies the
term information technology.
1.1 Pre-History of Information Technology

• G. Boole developed a mathematics of true values, logic
• Charles Babbage invented a computing machine based on
mechanics, e.g. cogwheels
• Countess Ada Lovelace programmed Babbage’s invention; first
programmer
• Looms were automated in the 18th century
As time progressed along with the advances of inventions and applied

knowledge, computing took shape and became useful in a variety of ways
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other than calculations. Computer science became an academic specialty,
creating computer science departments and classes. As these classes
took shape, separate branches of computer science became distinct areas
of study. Today, Information Technology departments use computers,
data centers, servers, database management system, specialized
software applications and more, managed by system and database
administrators.
1.2 Advent and Development of Information Technology

in India
Today India is known world over as a leader in Information Technology.

This has not happened over a short period of time. A sustained effort by
the Indian Government, corporate houses, and universities has made this
possible. It all started with a small group of initiators within the
government and entrepreneurs outside the government sensing the
opportunities in Information Technology. After a certain passage of time
the government came up with full support to change the environment for
IT. Thus began a series of steps that transformed IT from being just a
sector to an Industry.
Transformation of Information Technology:
From To
IT as a sector IT as an Industry
Providing satisfactory services to Adding value to sustain the growth

existing increases in demand
Government controlled Government facilitated

infrastructure and technology infrastructure and technology
IT for specialists IT for masses
Fulfilling external demand Creating internal demand
The most important thing that came out from this was the advent of
information technology as an industry. In the beginning IT was treated at
par with conventional manufacturing industry, but later on it started
receiving the necessary support as a non conventional service industry.
National Association of Software and Service Companies (NASSCOM) was
established in 1988 as the business strategist of InfoTech for the
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Government of India. NASSCOM is dedicated to framing policies that focus
on the interdependence of business opportunities and social environment.
The main focus of NASSCOM for IT is to
• Add value to IT as an industry

• Take IT to the masses
Even before this time, during the erstwhile license raj, Tata Consultancy
Services Ltd was established with Mr. F C Kohli at the helm. Mr. Kohli is
many times referred to as the father of Indian Software Industry. Mr. Kohli
was the first person to talk about Tandem, first to import an IBM 3090,
first to maintain that mainframes are not dead, and to question the
openness of open systems-even before most of the world addressed these
concerns.
The birth of software industry in India began in 1970 with the entry of
Tata Consultancy Services Ltd (TCS) into the domain of outsourced
application migration work. In the late 1960’s Tata’s created TCS as a
central service center for TATA group companies. A few MIT trained Indian
professionals were recruited and a large computer system was imported.
With IBM having been thrown out of India, the concept of outsourcing
application development work had become a necessity for Indian
companies. Utilizing its excess computer capacity, TCS began doing
outsourced application work for organizations such as Central Bank of
India and Bombay Telephones. Within a few years TCS began sending
young Indian engineers to a joint venture partner in the United States,
Burroughs for training. The trainee engineers excelled at doing platform
conversions and TCS started earning conversion assignments for its
engineers in Germany and elsewhere. Following the success of TCS many
new companies were set up in India. During the years 1968-1984, four
type of companies interlinked in direct and indirect ways to facilitate body
shopping (Indian engineers going overseas to do software programming
onsite). There were established companies like TCS and Infosys
Technologies which supplied programmers to large multinationals in IT
primarily in the US. These multinationals also recruited programmers
through local US companies established by Indians living in the United
States. Such companies in turn recruited manpower through local search
agents (small companies run by Indians living in the United States). These
agents from several states in the United States would contact local agents
in India from a multitude of small companies and operators. The
responsibility of collecting resumes, forwarding them to U.S. placement
agents preparing visa and contract finalization with the programmers was
done by the agents in India. The programmers were paid low wages.
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Commissions were charged by different members of the supply chain.
Sometimes there were subagents spread in different cities and towns in
India. There was an interesting network among revolving players.
Programmers who returned to India after a stint overseas would join a
pool of software engineers who could be hired by the established
companies in India. Often programmers sent onsite by large Indian
companies would move laterally to another assignment in the United
States through a local US agent to prolong their US experience. Later they
would return to India and be in the market for local Indian agents to hire
them. The Indian Diaspora had played a key role in the bodyshopping
exports. Several reports also suggest several instances where Indian
immigrants in the United States helped US buyers to locate Indian
suppliers. Field interviews with US customers reported that the impetus
for outsourcing to India came from employees of Indian origin.
Bodyshopping was and continues to be an attractive strategy for new
entrants into the industry, requiring nothing more than knowledge and
established relations with few potential clients.
1.3 The Era of Outsourcing

While initial development of India’s software industry was based primarily
on bodyshopping work onsite at US firms, in recent years the trend has
been increasingly for Indian firms to conduct software development for
U.S. clients “offshore” in India. This shift was the result of a maturing of
India’s software industry and its international reputation over a decade
and a half and the development of necessary infrastructure and
communications technologies in India that has made offshore work
possible. As the Indian software industry matured, increasing client
confidence in Indian capabilities and quality standards enabled Indian
firms to move their work offshore. With maturity has come a goal to move
up the value chain. Many new companies were set up in the 1980’s by
entrepreneurs with ambitions of creating world class software
development centres. Firms which had started primarily as subcontractors
for technical manpower gradually shifted to managing complete parts or
phrases of projects and then to delivering complete solutions from India.
During this phase most companies made significant efforts to assimilate
good practices in project management and quality and to acquire
internationally recognized quality standards certification. NASSCOM
played an aggressive role in promoting the India brand abroad. In some
ways, during this period, India was building a launching pad for the
eventual take off of its software service industry.
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In this period the Indian government played a facilitating role in advancing
the industry & enabling offshore work in India. Recognizing the growth
potential of the software industry, the government in the 1980s took key
policy actions to open up the sector. Further policy reforms enacted since
1990s have facilitated development of telecommunications and other
infrastructure required for offshore work. In 1990 the government created
software technology parks (STPs) in 39 locations across India to provide
software companies with access to high speed data communications and
single window clearance for regulatory compliance. While few of the larger
firms have made use of STP’s they have provided opportunities for new
firms to launch, and smaller firms to grow, with little investment.
The Indian software industry is now in its third phase- that of take off.
Today most leading companies are operating in the high end software
services business and are also making efforts to enter the products
segment. A new breed of companies, led by second generation software
entrepreneurs, is setting up product-oriented companies. The industry has
weathered ups and downs in the global market, maintaining a high rate of
growth. The industry moved centre stage in the domestic media because
of its visibility in the United States, high market capitalization, and wealth
creation for its employees.
1.4 Role of NASSCOM

The National Association of Service and Software Companies (NASSCOM),
India’s software industry association, was founded in 1988 and has been a
vocal and potent force in lobbying for policy reforms, including rules
limiting access to capital markets, issuance of stock options, easing rules
on foreign currency transactions, and improving telecom infrastructure.
NASSCOM played a significant role in establishing a brand image for India
in the global software services markets by participating in global trade
fairs and events and organizing learning events in India that feature
prominent experts from major markets. Through its annual reports
NASSCOM has become the most reliable source of data and information
about the Indian software industry. NASSCOM activities were influenced
by the dominant software players, who share a great commonality of
interest in terms of policy recommendations and the Indian brand.
NASSCOM’s membership grew from 38 members in 1988 to over 1000
firms in 2008. It was most effective in policy reforms and brand promotion
abroad. NASSCOM was less effective in representing small and medium
scale enterprises or domestic rather export firms.
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1.5 Impact of Information Technology Industry on Indian
Economy
The success of the Indian software industry has had wide-ranging effects
across the Indian economy. Policy changes to enhance exports are
facilitating rapid development of a domestic IT market, offering efficiency
gains through adoption of information technologies. In sharp contrast to
even 15 years ago, Indian business, government, and consumers have
ready access to the newest software products and imported hardware.
The very high standards of management practiced in Indian IT firms and

the tremendous employment opportunities offered by the industry have
had significant effects on the confidence, aspirations and work ethic of
young professionals in India. The leading software firms have pioneered a
movement to modernize Indian management practices, adopting practices
of creative organizations with less hierarchical structures and strong work
ethics. In order to comply with international norms to participate in
international capital markets, IT firms have set new standards in
accounting and corporate governance. They have offered unprecedented
high-paying employment opportunities for the young and educated labour
force, particularly for women professionals.
1.6 Indian firms moving up the value chain

The leading firms have moved up the value chain in software services,
developing organizational and managerial capabilities that enable them to
offer more comprehensive services than merely low cost programming.
One sign of maturity is that the industry increasingly procures fixed price
contracts, rather than the time and materials contracts of the earlier
years. With the greater risk of fixed price contracts comes flexibility in
organizing work, greater management control and an opportunity to earn
higher returns as efficiency improves.
In order to build client value, companies have expanded their capacity to

service a wider range of software development tasks, as well as to move
into new services such as product design and information services
outsourcing. Software development includes analysis and specification of
requirements, software design, writing and testing of software, and
delivery and installation. Indian companies are trying to move beyond
only writing and testing, which require the least skill and account for only
a small portion of the overall project costs, to higher skill levels that
require deeper business knowledge of the industry for which software
solutions are being developed.
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In their quest to climb the value chain, Indian software firms ensured
product quality and reliability by adopting internationally recognized
standardized work processes. An increasing number of firms have met
international certification requirements for key quality standards. For
many, this was an exercise in brand building but the processes put in
place left their hallmark on the quality of software products and services.
1.7 Current Status of the Information Technology

Industry
The industry is estimated to aggregate revenues of USD 73.1 billion in
FY2010, with the IT software and services industry accounting for USD
63.7 billion of revenues. During this period, direct employment is
expected to reach nearly 2.3 million, an addition of 90,000 employees,
while indirect job creation is estimated at 8.2 million. As a proportion of
national GDP, the sector revenues have grown from 1.2 per cent in
FY1998 to an estimated 6.1 per cent in FY2010. Its share of total Indian
exports (merchandise plus services) increased from less than 4 per cent in
FY1998 to almost 26 per cent in FY2010.On the exports front the industry
is expected to gross USD 50.1 billion in FY2010, thus implying the that
major part of this industry’s revenues come from overseas thereby
indicating the scope of growth on the domestic front. As per NASSCOM’s
strategic review 2010 the domestic market for the industry is expected to
grow at almost 8.5% for the next year. This will be made possible through
rise in IT spending by Indian corporations, increased IT spending by the
central as well as state governments in various e-Governance initiatives
and the increasing mass appeal for IT.
1.8 Path Ahead

The beginning of the new decade heralds the slow, but steady end of the
worst recession in the past 60 years. Global GDP, after declining by 1.1
per cent in 2009, is expected to increase by 3.1 per cent in 2010, and 4.2
per cent in 2011, with developing economies growing thrice as fast as the
developed economies. Improving economic conditions signifying return of
consumer confidence and renewal of business growth, is expected to drive
IT spending going forward. IT services is expected to grow by 2.4 per cent
in 2010, and 4.2 per cent in 2011 as companies coming out of recession
harness the need for information technology to create competitive
advantage. Organizations now recognize IT’s contribution to economic
performance extending beyond managing expenditures. They expect IT to
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play a role in reducing enterprise costs, not merely with cost cutting but
by changing business processes, workforce practices and information use.
Movement toward SaaS and cloud computing, shared services, and more
selective outsourcing will take firmer shape as near-term priorities to
address constrained IT budgets.
Government IT spending continues to rise across the world, focusing on

infrastructure, and security. Other areas of spending include BPM, data
management, on demand ERP, virtualization, and efforts to increase and
deliver enterprise managed services on IP networks. Business process
outsourcing spending in 2010 is expected to be increasingly driven by
F&A segment and procurement, followed by HR outsourcing. Providers will
increase their focus on developing platform BPO solutions across verticals
and services.
However, realization of this potential will involve mitigation of several

challenges that India faces currently. Costs are expected to rise with wage
inflation and increased attrition. While India has ample supply of talent, it
is largely trainable in nature, not employable. This leads to incremental
training costs and increased downtime for the industry, which is
challenging keeping in mind quality talent availability in competing
countries. Currently, over 90 per cent of total revenues are generated
from the seven Tier-I locations, which are nearing peak capacities in terms
of infrastructure support. India has to quickly develop other delivery
locations to achieve its 2020 vision. There are concerns around security –
both physical and data related, in service delivery, which would need to
be addressed. Currency fluctuations have also dented India’s
competitiveness, and steps need to be taken to address India’s increased
risk perception. A key impact of the recession has been the rise of
protectionist sentiments in major markets for the industry. The impending
discontinuation of fiscal incentives and frequent changes in fiscal
regulations are making the business environment more challenging. Last
but not the least, a number of new outsourcing destinations seeking to
emulate India’s success have emerged, offering multiple fiscal and
training incentives, making them cost competitive.
Concerted action by all stakeholders is required to capture the

opportunities and mitigate future risks. In doing so, stakeholders
(industry, NASSCOM, and the government) will need to act together in an
unprecedented manner. Efforts should be made to catalyze growth
beyond today’s core markets, towards establishing India as a trusted
global hub for professional services, developing a high caliber talent pool,
building a pre-eminent innovation hub in India.
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India’s technology and business services industry has flourished in the last
decade and a half. A bright future lies ahead and the industry has much to
look forward to, with the potential to quadruple its revenues over the next
decade. Several macro-economic and social trends will support the rise of
the IT-BPO sector in the future, in core and emerging markets. The
government needs to continue nurturing this industry with incentives and
a simplified tax structure that will promote investments, and also will need
to drive the domestic industry by spending on e-Governance projects.
1. TATA CONSULTANCY SERVICES

2.1 History, Present and Future
Tata Consultancy Services Ltd was established in the year 1968 as Tata
Computer Center to provide computer services to other group companies.
Mr. FC Kohli was the first general manager and Mr. JRD Tata was the first
chairman. One of TCS' first assignments was to provide punched card
services to a sister concern, Tata Steel (then TISCO). It later bagged the
country's first software project, the Inter-Branch Reconciliation System
(IBRS) for the Central Bank of India. It also provided bureau services to
Unit Trust of India, thus becoming one of the first companies to offer BPO
services. In the early 1970s, Tata Consultancy Services started exporting
its services. In 1981, TCS set up India's first software research and
development center, the Tata Research Development and Design Center
(TRDDC). The first client-dedicated offshore development center was set
up for Compaq (then Tandem) in 1985. In 1989, TCS delivered an
electronic depository and trading system called SECOM for SIS
SegaInterSettle, Switzerland. It was by far the most complex project
undertaken by an Indian IT company. TCS followed this up with System X
for the Canadian Depository System and also automated the
Johannesburg Stock Exchange (JSE). TCS associated with a Swiss partner,
TKS Teknosoft, which it later acquired. On 9th August 2004 TCS became a
publicly listed company much later than its biggest rivals, Infosys, Wipro
and Satyam. In 2008, the company went through an internal restructuring
exercise that executives claim would bring about agility to the
organization. With effect from January 2009, TCS acquired Citigroup
Global Services, the in-house Indian BPO of Citigroup thus entering the
BFSI segment in a big way. The unit functions as a TCS e-Serve Ltd which
is the Banking BPO of TCS.
Today TCS is considered as the largest private sector employer in India
with core strength in excess of 160000 employees. As per a survey TCS
has lowest attrition rates in Indian IT industry. Today TCS is the largest
provider of information technology and business process outsourcing
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services in India. The company is listed on Bombay Stock Exchange and
National Stock Exchange in India. TCS offers a consulting led, integrated
portfolio of IT and IT enabled services. The areas of business of TCS
include IT services, IT infrastructure services, enterprise solutions,
consulting, business process outsourcing, business intelligence and
performance management, engineering and industrial services, IT and
business solutions for small and medium business enterprises. The
industry verticals of TCS include banking and financial services, insurance,
telecom, media and information services, government, healthcare and life
sciences, energy and utilities, retail and FMCG, travel, transport and
hospitality, Manufacturing, high tech and professional services. TCS has
more than 50 direct and indirect subsidiaries. TCS is headquartered in
Mumbai and operates in more than 50 countries through more than 170
offices. In the year 2009-2010 TCS earned consolidated revenue of Rs.
30,029 crore, an operating profit of Rs. 8018 crore, and a PAT of Rs. 7001
crore. It is by far the market leader in India’s software industry.
As per the words of Mr. N Chandrasekaran, Chief Executive Officer and
Managing Director TCS, Tata Consultancy Services plans to keep its focus
on simple things like remaining close to its customers while helping them
to enhance efficiency and enable their growth. TCS understands that it
must remain frugal and efficient to prosper under changing dynamics of
the market. With increasing verticals across Banking, Financial Services
and Insurance (BFSI), Telecom, Manufacturing and Retail sectors TCS has
all it takes for growth. The company is also looking at expanding overseas
as well as developing talent. High profile contracts from the Indian
government have ensured domestic growth for TCS. Thus Tata
Consultancy Services looks all set to enjoy a long and fruitful life.
2.2 Vision
Global Top 10 by 2010.
2.3 Mission
To help customers achieve their business objectives, by providing
innovative, best-in-class consulting, IT solutions and services.
To make it a joy for all stakeholders to work with us.
2.4 Values
Leading change. Integrity. Respect for the individual. Excellence. Learning
and Sharing.
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2.5 Things that specifically happen at TCS Gandhinagar:
TCS Gandhinagar is a part STP (Software Technology Park) and part non
STP. The domain within TCS Gandhinagar where I worked is non STP. The
critical point worth mentioning here is that in an STP only export work can
be done. Thus if TCS is developing same kind of solutions for a domestic
client and a foreign client, the former will come under non STP whereas
the latter will come under STP.
The major kind of projects undertaken in Gandhinagar are primarily for

various state Governments (industry solution unit), for new growth
markets, telecom sector, infrastructure and legal sectors. The
classification of various projects is done industry wise at TCS
Gandhinagar. For instance the Government is considered as a separate
industry. The internal finance department which takes care of internal
financial management is situated at Ahmedabad. There is a sales team
which is in charge of the bidding procedure at TCS-G. But the main
Marketing Department is at Mumbai. Apart from this people work in either
of the two areas. These areas are functional and technical. I worked in the
functional area.
2. INDUSTRIAL ANALYSIS
It is extremely difficult to ascertain the exact future demand for IT
services as the industries across the world are immense and their services
requiring IT support galore. But the present status of the demand can be
ascertained by knowing the exact number of clients of different
companies. TCS has a client base of 1034 active clients, Infosys which is
the next biggest software service provider has an active client base of
575, Wipro has a client base around 350, HCL technologies has a client
base of around 300. These 4 are the top IT services providers of the
country. They offer software services and consulting services. However
Wipro and HCL also offer hardware which neither TCS nor Infosys offer.
But as per the international norms hardware as well as software is a part
of Information Technology. Apart from these 4, several other companies
such as Mahindra Satyam, Patni Computer Systems, i-flex Solutions, L/T
Infotech etc are also some of the big names of the Indian Information
Technology industry. The technology in the IT industry is a fast changing
one as it acts as a way of unique positioning by different companies. One
more thing worth mentioning is that starting an IT firm is not at all difficult
from the technology point of view. Any person with a bit of computer
knowledge can start an IT firm and can then scale the way up. This has
been precisely the reason for so many garage startups of IT firms all over
the world. Even from investment point of view starting an IT firm is not at
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all difficult, as all one requires is a room and some computers. But once
started, the scale up does require lots of investments. These investments
arise due to marketing, adapting to the latest technology, surviving in a
highly competitive industry etc. It is because of this reasons that only a
handful of companies have become a force to reckon with.
3.1 External Environment - Pestle Analysis
IT Industry In India
The Indian information technology sector has been instrumental in driving

the nation's economy onto the rapid growth curve. According to the
Nasscom-Deloitte study, the IT/ITES industry's contribution to the
country's GDP has increased to a share of 5.2 per cent in 2007, as against
1.2 per cent in 1998. Further, the IT and BPO industries are poised to clock
revenues worth US$ 64 billion by the end of fiscal year 2008, registering a
growth of 33 per cent with exports expected to cross US$ 40 billion and
the domestic market estimated to clock over US$ 23 billion, according to a
study. Simultaneously, the Indian IT services market is estimated to
remain the fastest growing in the Asia Pacific region with a CAGR of 18.6
per cent, as per a study by Springboard Research. India's IT growth in the
world is primarily dominated by IT software and services such as Custom
Application Development and Maintenance (CADM), System Integration, IT
Consulting, Application Management, Infrastructure Management
Services, Software testing, Service-oriented architecture and Web
services. A report by the Electronics and Software Export Promotion
Council (ESC) estimates software exports to register a 33 per cent growth
in the current financial year with export figures during FY 2008 expected
to reach US$ 45 billion. The country's IT exports have, in fact, come quite
far, starting from a few million dollars in the early 1990s. The Government
expects the exports turnover to touch US$ 80 billion by 2011, growing at
an annual rate of 30 per cent per annum.
Political:
• Political stability: Indian political structure is considered Stable
enough expect the fact that there is a fear of hung Parliament (no
clear majority). (+ve)
• U.S. government has declared that U.S companies that Political
outsource IT work to other locations other than U.S. will not get tax
benefit. (-ve)
• Government owned companies and PSUs have decided to Give
more IT projects to Indian IT companies. (+ve)
• Terrorist attack or war. (-ve)
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Economical:
• Global IT spending (demand). (-ve)
• Domestic IT Spending (Demand): Domestic Market grow by 20% &
reach approx USD 20 billion in 2008-09 Nasscom (+ve).
• Currency Fluctuation (-ve)
• Real Estate Prices: Decline in real estate prices has resulted
reducing the rental expenditure (+ve).
• Attrition: Due to recession, the layoffs and job-cuts have resulted
in low attrition rate (+ve).
• Economic attractiveness: Due to cost advantage and other factors
(+ve)
Social:
• Language Spoken: English is widely spoken language in India.
English medium is the most accepted medium of education.(+ve)
• Education: Large number of technical institutes and universities
over the countries provide IT education. (+ve)
• Working age population. (+ve)
Technological:
• Telephony (+ve)
• India has the world lowest call rates
• Expected to have total subscribers base of about 500 million
by 2010.
• India has the second largest telephone network after china.
• Enterprise telephone services, 3G, Wi-max, VPN, poised to
grow.
• Internet Backbone: Due to IT revolution in 90’s india is well
connected with undersea optical cables. (+ve)
New IT Technologies: Technologies like SOA, web 2.0, High
definition content, grid computing, and innovation in low cost
technologies is presenting new challenges & opportunities for Indian
IT industry.(+ve)
3.2 Porter’s Five Forces
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Today's business environment is extremely competitive and in economics
parlance where perfect competition exists, the profits of the firms
operating in that industry will become zero. However, this is not possible
because, firstly no company is a price taker (i.e. no company will operate
where profits are zero). Secondly, they strive to create a competitive
advantage to thrive in the competitive scenario. Michael Porter,
considered to be one of the foremost gurus' of management, developed
the famous five-force model, which influences an industry.
In
the
case
of
both
software outsourcing and BPO, for TCS there are few important suppliers,
because TCS’s inputs are standard commodities and there is little
opportunity for differentiation on the input side.
The four forces that are most problematic are the bargaining power of
customers, the threat of new entrants, the threat of substitutes, and the
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competitive rivalry with existing players. We examine each of these four
forces in their turn for both software services outsourcing and BPO.
In the early days of the software exporting business, the software vendor
market was dominated by a few large global suppliers such as IBM. Indian
firms were viewed as too small to matter for obtaining significant
business. In addition, they competed actively with each other at the low-
end. The result was that TCS and its Indian peers chose components of
the business that were relatively low value-added and relatively simple to
do.
TCS also faced a client market that was dominated by the large banks and
insurance companies. While it actively sought alliances with larger
vendors as a competitive strategy, its most successful strategy was to
directly approach clients and accept the lower rates that its competitive
position necessitated.
Looking ahead, TCS must continue to work to reduce the bargaining

power of customers by trying to move the purchase decision away from
price. This means that TCS must deliver more than undifferentiated
programming by moving up the value chain. Such a movement is difficult
in software services because the customers have deep domain expertise
and almost invariably wish to retain the tasks grouped under strategic
consulting. Moreover, customers understand that if they outsource the
strategic consulting, then their bargaining power will be reduced. TCS
must develop sufficient expertise so as to make outsourcing these tasks a
compelling value proposition. Of course, it is exactly in these realms that
the multinational outsourcing firms such as IBM, Accenture, and EDS are
the most ferocious competitors.
Forging alliances is often viewed as a good strategy to offset clients’

bargaining power. However, building alliances with firms working in
clients’ locations should be discounted as this would further focus TCS in
applications’ development. On the other hand, the acquisition of a
medium-sized American firm with strong client relationships and domain
skills could provide an attractive opportunity. Although costs per
employee would rise, the rise would be small since labor requirements are
lower for higher value-added work.
Meanwhile, the threat of new entrants is declining rapidly as the larger

firms have rapidly increased their size, market share, and credibility with
customers. However, although firms strive to reduce their direct
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competition through product differentiation, in each market segment
there continue to be numerous players.
A key concern for TCS is competition from existing players as it has

generated competition for existing business and created significant
pricing pressures. Globally, firms such as EDS have positioned themselves
as capable of undertaking large, “turnkey” projects in order to
differentiate themselves from competitors such as IBM and Accenture that
focus on higher value-added work such as consulting. This suggests an
organically-driven growth strategy for TCS: that TCS continue to do the
same kinds of work that it currently does, but try to capture a greater
portion of the value-addition by undertaking larger projects. Though it has
already demonstrated a capability in remote project management, it
would be required to further increase this capability.
However, there are some risks to this strategy. TCS’ large size suggests
that it may have already maximized economies to scale in applications
development. Adding scope, however, offers the potential for large gains
since it necessarily involves higher value-added activities. In the early
days, this was difficult, partly due to the technical difficulty in de-
integrating the value-chain beyond the modularization of applications
programming. Over the past few years, however, engineering services,
systems design, and systems integration work have increasingly been
outsourced (within the U.S.), suggesting that, if the skills are at hand, such
work could be done in India.
Most of the American providers of such services offer domain and

software skills. TCS already has the software skills to move into these
areas. But domain skills are a challenge. This reflects a general lack of
domain expertise outside the financial services sector in India. Put
differently, India does not have global-class, nontechnical knowledge in
various other industries. As a result it is difficult to offer the full panoply of
services a firm would want when it considers outsourcing a software
development activity. This may be being rectified as the liberalization of
the Indian economy since 1991 has led to the development of a host of
new industry capabilities, such as in insurance.
These facts indicate that it will be difficult for TCS as an organization

based and staffed primarily in India to change its revenue mix through
organic growth. Acquiring Indian firms doing higher value-added business
is a possibility, but there are few such firms in the Indian business
environment. Essentially, the constraint that TCS faces is environmental
rather than firm specific. In most sectors, Indian business conditions are
17 | P a g e
sufficiently dissimilar to overseas client conditions that local domain
expertise is of low relevance.
The threat of substitutes in software services does exist as technology
tools to speed coding etc. However, at this time the threat of substitutes
seems rather remote.
3.3 SWOT Analysis of Industry
STRENGTHS:
• Leadership in sophisticated solutions that enable clients to

optimize the efficiency of their business.
• Proven “Global delivery model”
• Commitment to superior quality and process execution
• Strong Brand and Long-Standing Client Relationships
• Ability to scale Innovation and leadership.
WEAKNESSES:
• Excessive dependence on US for revenues, 67% of revenues from

USA.
• Weak player in domestic market. Only 1% of revenues from India-
low as compared to peers.
• Low R & D spending as compared to global IT companies – only
1.3% of total revenues.
• Low expertise in high end services like Consultancy and KPO.
OPPORTUNITIES:
•Domestic market set to grow by 20%.

•Expanding into new geographies – Europe, Middle East etc.
•TCS is cash rich (Around US $ 1 Billion).
•Acquiring companies to increase expertise in Consultancy, KPO and
package implementation capabilities
•Opening offices and development centers in cost advantage
countries such as those in Latin America and Eastern Europe.
THREATS:
•Global economic slowdown may continue for several years – hence

low IT spending globally.
•US Govt. against outsourcing.
•Shrinking margins due to rising wage inflation, Rupee-dollar
movement affects revenue and hence margins.
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•Increased competition from foreign firms like Accenture, IBM etc.
•Increased competition from low-wage countries like China,
Indonesia etc.
3.4 SWOT Analysis of TCS
Strength:
• It's highly professionally managed IT consulting and services

company under the belt of TATA.
• Company has performed consistent year on year with weak
economy conditions of world.
• Company has capabilities to deliver new as well as legacy
application. It is in space of services as well as products and high
value chain consulting.
• It has fragmented IT services and SDLC cycle into minute grains
such as S/w testing and grown that business to more than
250million USD. This is the testimonial of efficient management.
• It is the only company initiating Earned value based profit center
for evaluating their performance. HLL is the first company to do so.
• IT is the only company that has survived and surprised investors
with its fixed cost Project delivery model and still making
phenomenal profit despite overloading the project with 10 t o15 %
in terms of resources.
• Part of the Tata group, which helps it gets more international
business.
Cases in point: the $1.2-billion Nielsen deal, Ferrari, and now Jaguar-
Land Rover (bought over by the Tata group)
Weakness:
•Lack of scale compared to global competitors like IBM, HP (which

bought EDS), and Accenture.
•Needs to establish a track record when it comes to large deals
Consulting accounts for less than 4 per cent of global revenues; IBM,
Accenture score on this count.
•Needs to strengthen other service lines besides application,
development and maintenance (ADM) that accounts for nearly 48
per cent of its revenues.
•Man power strength is more than 10,000 employees and thus, it is
challenging to get personalized career development.
•Bad real estate
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•Limited Product Line
Opportunities:
• Change in consumer lifestyles

• Acquisitions
• Available Governmental support
• Available technological innovations
• Growth of the industry of operations
• Decrease in taxation
• Entering niche markets
• Merger or takeover
• Strategic alliances & joint ventures
Threats:
• Financial slowdown, slowing US economy.

• Labour challenges, globally.
• Competition from foreign markets
• Innovative products/services of competitors
• Changing technology
• New competitors entering the market
3.5 Public Policy for Information Technology Industry

With the end of the “License Raj”, the Government of India has made
significant and commendable efforts towards the development of IT
industry in India. Successive Governments, even of different coalitions
have continued with IT supporting policies. There is a separate Ministry of
Communications and Information Technology under which there is a
Department of Information Technology totally devoted for development of
IT sector. The very vision of DIT is “e-Development of India as the engine
for transition into a developed nation and an empowered society.” The
mission of DIT is “e-Development of India through multi pronged strategy
of e-Infrastructure creation to facilitate and promote e-governance,
promotion of Electronics & Information Technology, Information
Technology Enabled Services (IT-ITeS) Industry, providing support for
creation of Innovation / Research & Development (R&D), building
Knowledge network and securing India's cyber space.” The major
functions of DIT are
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• Policy matters relating to Information Technology, Electronics and
Internet.
• Initiatives for development of Hardware / Software industry
including knowledge based enterprises, measures for promoting
Information Technology exports and competitiveness of the
industry.
• Promotion of Information Technology and Information Technology
enabled services and Internet.
• Assistance to other departments in the promotion of E-Governance,
E-Infrastructure, E-Medicine, E-Commerce, etc.
• Promotion of Information Technology education and Information
Technology-based education.
• Matters relating to Cyber Laws, administration of the Information
Technology Act. 2000 (21 of 2000) and other Information
Technology related laws.
• Interaction in Information Technology related matters with
International agencies and bodies
• Promotion of Standardization, Testing and Quality in Information
Technology and standardization of procedure for Information
Technology application and Tasks.
After the economic reforms of 1991-92, liberalization of external trade,

elimination of duties on imports of information technology products,
relaxation of controls on both inward and outward investments and
foreign exchange and the fiscal measures taken by the Government of
India and the individual State Governments specifically for IT and ITES
have been major contributory factors for the sector to flourish in India and
for the country to be able to acquire a dominant position in offshore
services in the world. The major fiscal incentives provided by the
Government of India have been for the Export Oriented Units (EOU),
Software Technology Parks (STP), and Special Economic Zones (SEZ).
3.6 Software Technology Parks (STPs)

For the promotion of Software exports from the country, the Software
Technology Parks of India was set up 1991 as an Autonomous Society
under the Department of Information Technology. The services rendered
by STPI for the Software exporting community have been statutory
services, data communications servers, incubation facilities, training and
value added services. STPI has played a key developmental role in the
promotion of software exports with a special focus on SMEs and start up
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units. The STP Scheme has been extremely successful in fostering the
growth of the software industry. The exports made by STP Units have
grown many folds over the years. Today the exports made by STPI
registered units are INR 215571 Crores about 90% of total software
exports from the Country. Under Software Technology Parks scheme apart
from exemptions available for capital goods (with a few exemptions) there
are also exemptions from service tax, excise duty, and rebate for
payment of Central Sales Tax. But the most important incentive available
is 100 percent exemption from Income Tax of export profits, which has
been extended till 31st March 2011. The strength of the scheme lies in the
fact that, it is a virtual scheme, which allows, software companies to set
up operations in the most convenient and cheapest locations and plan
their investment and growth solely driven by business needs. STP Scheme
is a pan India Scheme, which has centers spread across India; over 8000
units are registered under STP Scheme.
3.7 Special Economic Zones (SEZ) Scheme

In 2005, the Ministry of Commerce, Government of India has enacted the
Special Economic Zone (SEZ) Act, with an objective of providing an
internationally competitive and hassle free environment for exports. A SEZ
is defined as a "specifically demarked duty-free enclave and shall deemed
to be foreign territory (out of Customs jurisdiction) for the purpose of
trade operations and duties and tariffs". The SEZ Act, 2005, supported by
SEZ Rules, came into effect on 10th February, 2006. It provides drastic
simplification of procedures and a single window clearance policy on
matters relating to central and state governments.
The scheme is ideal for bigger Industries and has a significant impact on
future Exports and employment. The SEZ Scheme offers similar benefits
to SEZ units as compared to those under STPI in respect of indirect taxes,
with some minor differences in operational details. There is a however a
significant difference, in respect of income tax holiday. In SEZ Scheme the
exemption from income tax is tapered down over 15 years from the date
of commencement of manufacture. There is 100% exemption of export
profits from income tax for the first five years, 50% for the next five years
and 50% for the five years subject to transfer of profits to special
reserves.
The SEZ policy aims at creating competitive, convenient and integrated

Zones offering World class infrastructure, utilities and services for globally
22 | P a g e
oriented businesses. The SEZ Act 2005 envisages key role for the State
Governments in Export Promotion and creation of related infrastructure.
The main act governing IT industry is Information Technology Act 2000.
3.8 Current Structure of the IT Industry

As mentioned earlier in this report there are hundreds of IT forms in India
and abroad. TCS being the largest Indian company the discussion of
industry structure will be restricted to India.
Although there are hundreds of IT firms, the major market is captured by

the big 5 or 6 companies. Smaller firms have had a positioning problem.
So far they have kept projecting themselves as smaller versions of large
firms like TCS, Infosys, Wipro etc. This has worked against their efforts to
scale up.
The diagram above shows the relative market share of major companies
in the IT industry. As seen TCS as a company has the largest market
share. Although the share of others appears to be huge, on dividing this
segment into hundreds of companies one will understand that the relative
share of each company in this segment will be small. Companies like
Infosys and Wipro are giving a good battle to TCS. Cognizant has also
emerged as a tough competitor in recent times.
Till the year 2007 IT industry was booming. Every one, right from
companies, clients, employees, shareholders, students was gaining. But
with the advent of global financial meltdown, the growth in revenues of
these industries went down drastically. So the past couple of years were
turbulent for the industry on a whole as budgets on IT worldwide were
reduced. However from around May 2009, the situation has improved and
now the industry looks set to enjoy another bout of growth for a long time
to come. However the focus of corporate clientele has changed. Clients
are becoming increasingly unwilling to offer high prices for software
support as in the past. As per an article published on June 23, 2010 in The
Economic Times, the Indian tech firms will be facing decrease in margins
over the next 2-3 years. The article stated explicitly that despite of growth
in revenues, the profit margins will be under pressure. However as per the
article this was not at all a cause for worry. Apart from this the article also
stated that the corporate clients are increasingly shifting from heavy
implementation projects to a SaaS (Software as a Service) model. Thus
though the future offers lots of opportunities, they won’t come without
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challenges for this industry. Having said that this industry’s one phase has
reached maturity and now another phase is all set to start from the
introductory stage. One more challenge for each firm will be to take care
of the high attrition rate that has plagued the entire industry. Each firm
will have to review its HR strategy in the light of new developments.
1. INTEGRATED FINANCIAL MANAGEMENT

SYSTEM
4.1 Introduction
Integrated Financial Management System (IFMS) is an information system
that tracks financial events and summarizes financial information. In its
basic form, an IFMS is little more than an accounting system configured to
operate according to the needs and specifications of the environment in
which it is installed.
Generally, the term “IFMS” refers to the use of information and

communications technology in financial operations to support
management and budget decisions, fiduciary responsibilities, and the
preparation of financial reports and statements. In the government realm,
IFMS refers more specifically to the computerization of public financial
management (PFM) processes, from budget preparation and execution to
accounting and reporting, with the help of an integrated system for
financial management of line ministries, spending agencies and other
public sector operations.
The principal element that “integrates” an IFMS is a common, single,

reliable platform database (or a series of interconnected databases) to
and from which all data expressed in financial terms flow. Integration is
the key to any successful IFMS. In a nutshell, integration implies that the
system has the following basic features:
–Standard data classification for recording financial events;

–Internal controls over data entry, transaction processing, and
reporting; and common processes for similar transactions and
a system design that eliminates unnecessary duplication of
data entry.
Apart from this IFMS is also said to be a computer software application,
(which can be off the shelf package or bespoke software).
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4.2 What is Public Financial Management?
Having used the term Public Financial Management for quite some time, it
becomes necessary to explain the exact nature of it so as to get a better
understanding of IFMS.
Public finance is a field of economics concerned with paying for

collective or governmental activities, and with the administration and
design of those activities. The field is often divided into questions of what
the government or collective organizations should do or are doing, and
questions of how to pay for those activities. Management of such activities
is Public Financial Management. Resource generation, Resource Allocation
and Expenditure Management (resource utilization) are the essential
components of a public financial management. Public Financial
Management (PFM) basically deals with all aspects of resource
mobilization and expenditure management in government. Just as
managing finances is a critical function of management in any
organization, similarly public financial management is an essential part of
the governance process. Public financial management includes resource
mobilization, prioritization of programmes, the budgetary process,
efficient management of resources and exercising controls. Rising
aspirations of people are placing more demands on financial resources. At
the same time, the emphasis of the citizenry is on value for money, thus
making public financial management increasingly vital.
Six critical goals of Public Financial Management
• Fiscal Management:
– Aggregate fiscal position and risk are monitored and
managed.
• Budget Realism:
– The budget is realistic and implemented as intended in a
predictable manner.
• Comprehensive, Policy-based Budget:
– The budget captures relevant fiscal transactions, and is
prepared with due regard to government policy.
• Information:
– Adequate fiscal, revenue and expenditure records and
information are produced, maintained and disseminated to
meet decision-making, control, management and reporting
purposes.
• Control:
– Arrangements are in place for the exercise of control and
stewardship in the use of public funds.
• Accountability and Transparency:
– Arrangements for external transparency and scrutiny of public
finances are operating.
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GOALS CRITERIA
Level 1 – Fiscal management Proper use of public resources

• Flows – revenues, debt, • In accordance with
transfers, capital and recurrent constitutional, legal & regulatory
expenditure requirements
• Balances – internal & external • Avoidance of corrupt practices
debt, assets
• Risk – contingent liabilities
Level 2 – Resource allocation Transparency

• Optimal resource allocation • Information for stakeholders in a
• In accordance with government format that facilitates
policies understanding and analysis
Level 3 – Value for Money Accountability

Management of public resources in Those responsible for the use of public
order to achieve efficiency, economy resources made accountable for their
and effectiveness in expenditure actions and stewardship
4.3 Integration Between Public Finanical Management

And Inegrated Financial Management System
PFM –
26 | P a g e
4.4 How IFMS can help to realize PFM Goals?
With an Integrated Financial Management System in place, the
Government will have an enhanced ability to manage cash, debt and
liabilities and fiscal risk. This enhanced ability will be realized through up
to date and predictive disaggregated information on monitory flows and
balances and proper information on current and predicted contingent
liabilities. The government will be in a better position to allocate resources
as it will have all the historic information on expenditures and their impact
at its beck and call. The budgets will be prepared using a tool that
realistically models relationships, is based on reliable information on
starting points, and enables alternative scenarios to be modelled. Apart
from these advantages, utilizing IFMS will help the Government reduce
financial transaction costs, enable it to compare costs between
units/activities and performance targets leading to greater efficiency.
It would be appropriate to mention here that there are certain things that
an IFMS cannot do. For instance IFMS will not be able to resolve unrealistic
budgets, weak fiscal management, inefficient use of resources, corruption
etc. IFMS is primarily a tool to upgrade systems that are sound but have
their limitations.
Certain critical factors needed for success of IFMS:
• Management commitment and involvement

• Financial management users must drive the process
• Broad support and involvement by all concerned agencies
• Suitable institutional structures
• Human resources with appropriate skills
• Strong project management team with skills and experience
4.5 Request for Proposal

As a part of my project, I was required to go through various requests for
proposals or RFP’s. This is necessary for anyone working in the functional
side at Tata Consultancy Services. Before embarking upon the details
found in these RFPs, I will like to introduce the concept of request for
proposal.
A request for proposal (referred to as RFP) is an early stage in a

procurement process, issuing an invitation for suppliers, often through a
bidding process, to submit a proposal on a specific commodity or service.
27 | P a g e
The RFP process brings structure to the procurement decision and allows
the risks and benefits to be identified clearly upfront.
The RFP may dictate to varying degrees the exact structure and format of
the supplier's response. The creativity and innovation that suppliers
choose to build into their proposals may be used to judge supplier
proposals against each other. Effective RFPs typically reflect the strategy
and short/long-term business objectives, providing detailed insight upon
which suppliers will be able to offer a matching perspective.
Key Objectives to be met through generating Request for Proposals to (IT
service providers):
• Obtain correct information to enable sound business decisions.
• Decide correctly on strategic procurement.
• Leverage the company's purchasing power to obtain a favorable
deal.
• Enable a broader and creative range of solutions to be considered.
Key Benefits of generating Request for Proposals to (IT service providers):
• Informs suppliers (vendors) that your company is looking to procure
and encourages them to make their best effort.
• Requires the company to specify what it proposes to purchase. If
the requirements analysis has been prepared properly, it can be
incorporated quite easily into the Request document.
• Alerts suppliers that the selection process is competitive.
• Allows for wide distribution and response.
• Ensures that suppliers respond factually to the identified
requirements.
• By following a structured evaluation and selection procedure an
organization can demonstrate impartiality - a crucial factor in public
sector procurements.
An RFP typically involves more than a request for the price. Other
requested information may include basic corporate information and
history, financial information (can the company deliver without risk of
bankruptcy), technical capability, product information such as stock
availability (in case of IT manpower availability) and estimated completion
period, and customer references that can be checked to determine a
company's suitability.
RFPs often include specifications of the item, project or service for which a
proposal is requested. The more detailed the specifications, the better the
28 | P a g e
chances that the proposal provided will be accurate. Generally RFPs are
sent to an approved supplier or vendor list.
The bidders return a proposal (in case of IT companies a response) by a
set date and time. Late proposals may or may not be considered,
depending on the terms of the initial RFP. The proposals are used to
evaluate the suitability as a supplier, vendor, or institutional partner.
Discussions may be held on the proposals (often to clarify technical
capabilities or to note errors in a proposal). In some instances, all or only
selected bidders may be invited to participate in subsequent bids, or may
be asked to submit their best technical and financial proposal, commonly
referred to as a Best and Final Offer (BAFO).
Thus an RFP becomes a very important instrument for getting new
projects in an IT industry. The RFP’s that I was required to read as a part
of my project included information about the client (or the purchaser), the
requirements the purchaser wanted in the system (both functional and
technical), scope of the project, current system of doing things and the
improvements in the existing system.
It is only after reading an RFP that one can fully understand the
requirements to be met through the new system.
A part of my project also included designing a response for New Pension
Scheme system which is being developed by TCS as a part of Integrated
Financial Management System. This system might be used by the
Government of Gujarat or any other state Governments as the processes
in all the state governments will be the same. In the later part of this
report I have mentioned in detail about NPS.
4.6 IFMS developed for Government of Gujarat: Some
inputs of the client
Department of Finance, Government of Gujarat, as part of its ongoing
reforms in the e-Governance sector, has taken initiative to achieve
optimum utilization of Information Technology in its functional areas.
It proposes to evolve a Comprehensive Integrated Financial Management
System by integrating various internal and external departments and
applications under its purview.
The scope of this project is to implement an Integrated Financial
Management System for Finance Department for Government of Gujarat
that will provide a long-term solution for carrying out Budgetary, treasury
and pension functions of Government of Gujarat and provide consolidated
and consistent information about the expenditures and revenues across
all the treasuries.
Areas covered under Gujarat IFMS:
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i. Number of Users : 20000 Users
ii. Number of locations : 251 Offices
• 25 Admin Depts.,
• 1 Director Accounts and Treasury,
• 1 Director Pension and Provident Fund,
• 1 Examiner Local Fund,
• 25 District Treasury Offices,
• 2 Pay & Accounts Offices,
• 1 Pension Payment Office,
• 21 District Local Fund Office and
• 174 Sub-Treasury Offices
iii. Size of Data Generated :
• # of bills – 1100000
• # of challans – 250000
• # of cheques – 1050000
• # of Pensioners – 375000
• # of Employees (Pay Fixation) – 516000
• Size of Database over the period of 1 yr – 300 GB (6 months)
Requirement Analysis
i. Time Spent on Gathering requirements : Overall 20%

ii. Levels of Interactions done : Finance Department Officials,
Respective HODs and their staff, Identified representative for each
module, End users for identified locations
iii. Methodology adopted: Existing legacy system study, Gap Analysis,
Suggestion on Process Re-engineering/ Proposition of Opportunity
for improvements.
Finally preparation of Requirement Specifications covering Functional and
Non- Functional requirements with proposed system’s prototypes
However as per my project supervisor Mr. Manish Thaker, the major

functions of all the state governments are more or less the same. Thus
the study of the processes of Gujarat Government can be used later for
IFIMS projects for other state governments as well.
1. BASIC CONCEPTS OF INTEGRATED FINANCIAL

MANAGEMENT SYSTEM
5.1 Government Securities:
A Government security is a tradable security issued by the Central
Government or the State Governments, acknowledging the Government’s
debt obligation. Such securities can be short term (usually called Treasury
Bills, with original maturities of less than 1 year) or long term (usually
called Government bonds or dated securities with original maturity of one
30 | P a g e
year or more). In India, the Central Government issues both Treasury Bills
and bonds or dated securities while the State Governments issue only
bonds or dated securities, which are called the State Development Loans
(SDLs). Government securities carry practically no risk of default and,
hence, are called risk-free instruments. Government of India also issue
savings instruments (Savings Bonds, National Saving Certificates (NSCs),
etc.) or special securities (Oil bonds, FCI bonds, fertilizer bonds, power
bonds, etc.) but they are usually not fully tradable and are not eligible for
meeting the SLR requirement.
The reason for studying about the Government Securities by me was that
TCS is developing a system for Gujarat Government which as a state
government raises loans from the markets as well as invests in
borrowings of the central government. In order to understand and
effectively design a computer system which will meet the stated needs of
the state governments, it becomes necessary to go through extensive
literature published by various government agencies.
State Governments invest regularly in Central Government securities

primarily because of safety which is a must in any public fund
management. State Governments invest in various types of securities,
primary among which are Treasury Bills (T-Bills).
5.2 What are T-Bills?

Treasury Bills, which are money market instruments, are short term debt
instruments issued by the Government of India and are presently issued in
three tenors, viz., 91 day, 182 day and 364 day. Treasury Bills are zero
coupon securities and pay no coupon. They are issued at a discount and
redeemed at the face value at maturity. For example, a 91 day Treasury
Bill of Rs.100/- (face value) may be issued at a discount of say, Rs.1.80,
that is Rs.98.20 and redeemed at the face value of Rs.100/-. The return to
the investors is, therefore, the difference between the maturity value or
face value (i.e., Rs.100) and the issue price. Treasury Bills are issued
through auctions conducted by the Reserve Bank of India usually every
Wednesday and payments for the Treasury Bills purchased have to be
made on the following Friday. The Treasury Bills of 182 days and 364
days' tenure are issued on alternate Wednesdays, that is, Treasury Bills of
364 day tenure are issued on the Wednesday preceding the reporting
Friday while Treasury Bills of 182 days tenure are issued on the
Wednesday prior to a non-reporting Friday. Currently, the notified amount
31 | P a g e
for issuance of 91 day and 182 day Treasury Bills is Rs.500 crore each
whereas the notified amount for issuance of 364 day Bill is higher at
Rs.1000 crore. Government, at its discretion, can also decide to issue
additional amounts of the Treasury Bills by giving prior notice. An annual
calendar of T-Bill issuances for the following financial year is released by
the Reserve Bank of India in the last week of March. The Reserve Bank of
India also announces the issue details of Treasury bills by way of press
release every week.
States also invest in long term or dated government securities. The states
also issue such securities for their own funding needs.
5.3 What are Dated Government securities?

Dated Government securities are longer term securities and carry a fixed
or floating coupon (interest rate) paid on the face value, payable at fixed
time periods (usually half-yearly). The tenor of dated securities can be up
to 30 years. The Public Debt Office (PDO) of the RBI acts as the registry /
depository of Government securities and deals with the issue, interest
payment and repayment of principal at maturity. Most of the dated
securities are fixed coupon securities. The nomenclature of a typical dated
fixed coupon Government security has the following features - coupon,
name of the issuer, maturity and face value.
For example, 7.49% Government of Gujarat 2017 would have the

following features:
Date of Issue: April 16, 2007

Date of Maturity: April 16, 2017
Coupon: 7.49% paid on face value
Coupon Payment Dates: Half-yearly (October16 and April 16) every year
Minimum Amount of issue/ sale: Rs.10, 000
Dated Securities of both Government of India and State Governments are

issued by RBI through auctions which are announced by the RBI a week in
advance through Press Releases and paid advertisements in major dailies
(for dated securities). The investors are thus given adequate time to plan
for the purchase of government securities through such auctions.
Dated securities may be of the following types:
Fixed Rate Bonds: These are bonds on which the coupon rate is fixed for
the entire life of the bond. Most Government bonds are issued as fixed
rate bonds. For example – 8.24%GS2018 was issued on April 22, 2008 for
32 | P a g e
a tenor of 10 years maturing on April 22, 2018. Coupon on this security
will be paid half-yearly at 4.12% (half yearly payment being the half of the
annual coupon 8.24%) of the face value on October 22 and April 22 of
each year.
Floating Rate Bonds: These are securities which do not have a fixed
coupon rate and the coupon is re-set at pre-announced intervals based on
a specified methodology. The coupon is re-set at predetermined intervals
(say, every six months or one year) by adding a spread over a base rate.
In the case of most floating rate bonds issued by the Government of India,
the base rate is the weighted average cutoff yields of the last three 364
day Treasury Bill auction preceding the coupon re-set date. Floating Rate
Bonds were first issued in September 1995 in India. For example, a
Floating Rate Bond was issued on July 2, 2002 for a tenor of 15 years,
maturing on July 2, 2017. The base rate on the bond for the coupon
payments was fixed at 6.50% being the weighted average rate of implicit
yield on 364 day Treasury Bills during the preceding six auctions. Further,
in the bond auction, a cut-off spread (markup over the benchmark rate) of
34 basis points (0.34%) was decided. Hence the coupon for the first six
months was fixed at 6.84%. At the next reset date after six months,
assuming that the average cutoff yield in the preceding six auctions of
364 day Treasury Bill is 6.60%, coupon applicable for the next half year
would be 6.94%.
Zero Coupon Bonds: Zero coupon bonds are bonds with no coupon
payments. Like Treasury Bills, they are issued at a discount to face value.
Capital Indexed Bonds: These are bonds, the principal of which is linked
to an accepted index of inflation with a view to protecting the holder from
inflation. Over the past 5 years, these kinds of bonds have not been
issued. But now with inputs from leading economists and financial
experts, steps are being taken to revive the issuance of the Inflation
Indexed Bonds wherein payment of both the coupon and principal
payments on the bonds will be linked to an Inflation Index (Wholesale
Price Index).
Bonds with Call/ Put Options: Bonds can also be issued with features of
optionality wherein the issuer can have the option to buyback (call option)
or the investor can have the option to sell the bond (put option) to the
issuer during the currency of the bond. A bond (viz., 6.72%GS2012) with
call / put option was issued in India in the year 2002 which will mature in
2012. 6.72%GS2012 was issued on July 18, 2002 for a maturity of 10
years maturing on July 18, 2012. The optionality on the bond could be
exercised after completion of five years tenure from the date of issuance
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on any coupon date falling thereafter. The Government has the right to
buyback the bond (call option) at par value (equal to the face value) while
the investor has the right to sell the bond (put option) to the Government
at par value at the time of any of the half-yearly coupon dates starting
from July 18, 2007.
The dated securities issued by the state governments are known as State
Development Loans. The features of SDL’s are same as central
government issued dated securities. Investments in SDL’s are also
qualified for SLR and are also eligible as collaterals for borrowing through
market repo as well as borrowing by eligible entities from the RBI under
the Liquidity Adjustment Facility (LAF).
These government securities (central as well as state) are issued

through auctions conducted by the RBI.
Auctions are conducted on the electronic platform called the Public Debt
Office – Negotiated Dealing System (PDO-NDS). Commercial banks,
scheduled urban cooperative banks, Primary Dealers, insurance
companies and provident funds, who maintain funds account (current
account) and securities accounts (SGL account) with RBI, are members of
this electronic platform. All members of PDO-NDS can place their bids in
the auction through this electronic platform. All non-NDS members
including non-scheduled urban co-operative banks can participate in the
primary auction through scheduled commercial banks or Primary Dealers.
For this purpose, the urban co-operative banks need to open a securities
account with a bank / Primary Dealer – such an account is called a Gilt
Account. A Gilt Account is a dematerialized account maintained by a
scheduled commercial bank or Primary Dealer for its constituent (e.g., a
non-scheduled urban co-operative bank).
5.4 Different Types of Auctions Used To Issue Securities:

1. Yield Based Auction: A yield based auction is generally
conducted when a new Government security is issued.
Investors bid in yield terms up to two decimal places (for
example, 7.85 per cent, 7.87 per cent, etc.). Bids are arranged
in ascending order and the cut-off yield is arrived at the yield
corresponding to the notified amount of the auction. The cut-
off yield is taken as the coupon rate for the security.
Successful bidders are those who have bid at or below the cut-
off yield. Bids which are higher than the cut-off yield are
rejected.
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An example of a yield based auction of a new Government
Security is given below:
Yield based auction of a new security
• Maturity Date: September 8, 2018

• Coupon: It is determined in the auction (8.22% as shown in
the illustration below)
• Auction date: September 5, 2008
• Auction settlement date: September 8, 2008*
• Notified Amount: Rs.1000 crore
* September 6 and 7 being holidays, settlement is done on
September 8, 2008 under T+1 cycle.
Illustration of fixing of coupon:
Details of bids received in the increasing order of bid yields
Amount Cumulative Price with

Bid
Bid Yield Of bid (Rs. Amount (Rs. coupon as
No.
crore) Crore) 8.22%
1 8.19% 300 300 100.19
2 8.20% 200 500 100.14
3 8.20% 250 750 100.13
4 8.21% 150 900 100.09
5 8.22% 100 1000 100.00
6 8.22% 100 1100 100.00
7 8.23% 150 1250 99.93
8 8.24% 100 1350 99.87
The issuer would get the notified amount by accepting bids up to 5.

Since the bid number 6 also is at the same yield, bid numbers 5 and 6
would get allotment pro-rata so that the notified amount is not
exceeded. In the above case each would get Rs. 50 crore. Bid numbers 7
and 8 are rejected as the yields are higher than the cut-off yield.
2. Price Based Auction: A price based auction is conducted

when the Government (either central or state) reissues
securities already issued earlier. Bidders quote in terms of
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price per Rs.100 of face value of the security (e.g., Rs.101.02,
Rs.100.95, Rs.99.80, etc., per Rs.100/-). Bids are arranged in
descending order and the successful bidders are those who
have bid at or above the cut-off price. Bids which are below
the cut-off price are rejected.
An example of a price based auction of a new Government

Security is given below:
Price based auction of an existing security 8.24% GS 2018
• Maturity Date: April 22, 2018

• Coupon: 8.24%
• Auction date: September 5, 2008
• Auction settlement date: September 8, 2008*
• Notified Amount: Rs.1000 crore
* September 6 and 7 being holidays, settlement is done
on September 8, 2008 under T+1 cycle.
.Details of bids received in the decreasing order of bid price
Amount
Price of Implicit Cumulative
Bid No. Of bid (Rs.
Bid Yield Amount
crore)
1 100.31 300 8.1912% 300
2 100.26 200 8.1987% 500
3 100.25 250 8.2002% 750
4 100.21 150 8.2062% 900
5 100.20 100 8.2077% 1000
6 100.20 100 8.2077% 1100
7 100.16 150 8.2136% 1250
8 100.15 100 8.2151% 1350
The issuer would get the notified amount by accepting bids up to 5.

Since the bid number 6 also is at the same yield, bid numbers 5 and 6
would get allotment in proportion so that the notified amount is not
exceeded. In the above case each would get Rs. 50 crore. Bid
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numbers 7 and 8 are rejected as the price quoted is less than the cut-
off price.
Note: Depending upon the method of allocation to successful bidders,

auction could be classified as Uniform Price based and Multiple Price
based. In a Uniform Price auction, all the successful bidders are required
to pay for the allotted quantity of securities at the same rate, i.e., at the
auction cut-off rate, irrespective of the rate quoted by them. On the other
hand, in a Multiple Price auction, the successful bidders are required to
pay for the allotted quantity of securities at the respective price / yield at
which they have bid. In the example under (ii) above, if the auction was
Uniform Price based, all bidders would get allotment at the cut-off price,
i.e., Rs.100.20. On the other hand, if the auction was Multiple Price based,
each bidder would get the allotment at the price he/ she has bid, i.e.,
bidder 1 at Rs.100.31, bidder 2 at Rs.100.26 and so on.
An investor may bid in an auction under either of the following categories:
Competitive Bidding: In a competitive bidding, an investor bids at a

specific price / yield and is allotted securities if the price / yield quoted is
within the cut-off price / yield. Competitive bids are made by well
informed investors such as banks, financial institutions, primary dealers,
mutual funds, and insurance companies. The minimum bid amount is
Rs.10,000 and in multiples of Rs.10,000 thereafter. Multiple bidding is also
allowed, i.e., an investor may put in several bids at various price/ yield
levels.
Non-Competitive Bidding: With a view to providing retail investors an

opportunity to participate in the auction process, the scheme of non-
competitive bidding in dated securities was introduced in January 2002.
Non-competitive bidding is open to individuals, HUFs, RRBs, co-operative
banks, firms, companies, corporate bodies, institutions, provident funds,
and trusts. Under the scheme, eligible investors apply for a certain
amount of securities in an auction without mentioning a specific price /
yield. Such bidders are allotted securities at the weighted average price /
yield of the auction. The amount reserved for non competitive bidding is
5% of the notified amount. The participants in non-competitive bidding
are, however, required to hold a gilt account with a bank or PD. Regional
Rural Banks and co-operative banks which hold SGL and Current Account
with the RBI can, also, participate under the scheme of non-competitive
bidding without holding a gilt account.
37 | P a g e
In every auction of dated securities, a maximum of 5 per cent of the
notified amount is reserved for non-competitive bids. In the case of
auction for Treasury Bills, the amount accepted for non-competitive bids is
over and above the notified amount and there is no limit placed. However,
non-competitive bidding in Treasury Bills is available only to State
Governments and other select entities and is not available to the co-
operative banks.
5.5 How and in what form can government securities be

held?
The Public Debt Office (PDO) of the Reserve Bank of India, Mumbai acts as
the registry and central depository for the Government securities.
Government Securities are to be held by investors in dematerialized
(demat) form. The investors can maintain their securities in Demat form in
either of the two ways:
SGL Account: Reserve Bank of India offers Subsidiary General Ledger

Account (SGL) facility to select entities who can maintain their securities
in SGL accounts maintained with the Public Debt Offices, of the Reserve
Bank of India.
Gilt Account: As the eligibility to open and maintain an SGL account with
the RBI is restricted, an investor has the option of opening a Gilt Account
with a bank or a Primary Dealer which is eligible to open a Constituents'
Subsidiary General Ledger Account (CSGL) with the RBI. Under this
arrangement, the bank or the Primary Dealer would maintain the holdings
of its constituents in a CSGL account (which is also known as SGL II
account) with the RBI as a custodian on behalf of the Gilt Account holders.
The servicing of securities held in the Gilt Accounts is done electronically,
facilitating hassle free trading and maintenance of the securities. Receipt
of maturity proceeds and periodic interest is also faster as the proceeds
are credited to the current account of the custodian bank / PD with the RBI
and the custodian (CSGL account holder) immediately passes on the
credit to the Gilt Account Holders (GAH).
Investors also have the option of holding Government securities in a

dematerialized account with a depository (NSDL / CDSL, etc.). This
facilitates trading of Government securities on the stock exchanges.
These government securities can also be traded. There is an active

secondary market for trading of the government securities. State
Governments as such do not participate in such a trading but the
38 | P a g e
securities issued by the state government are traded in these secondary
market.
The Reserve Bank of India has specified certain Do’s and Don’ts for
dealing in government securities. Here is a list:
Do’s
• Segregate dealing and back-up functions. Officials deciding about

purchase and sale transactions should be separate from those
responsible for settlement and accounting.
• Monitor all transactions to see that delivery takes place on
settlement day. The funds account and investment account should
be reconciled on the same day before close of business.
• Keep a proper record of the SGL forms received/issued to facilitate
counter-checking by their internal control systems/RBI
inspectors/other auditors.
• Use CSGL/ Gilt Accounts for holding the securities and maintain such
accounts in the same bank with whom the cash account is
maintained.
The Don’ts issued by the central bank are not applicable to the state
government and hence are not mentioned in this report. But on seeing the
list of Do’s one can easily appreciate the need for a system which can
easily manage the investment portfolio of state governments. Such a
system has been designed by Tata Consultancy Services.
It becomes important to understand the manner in which the transactions

in government securities get settled both in primary market as well as
secondary market.
Primary Market
Once the allotment process in the primary auction is finalized, the

successful participants are advised of the consideration amounts that they
need to pay to the Government on settlement day. The settlement cycle
for dated security auction is T+1, whereas for that of Treasury bill auction
is T+2. On the settlement date, the fund accounts of the participants are
debited by their respective consideration amounts and their securities
accounts (SGL accounts) are credited with the amount of securities that
they were allotted. In case of retail participants/ individuals who do not
maintain accounts with the RBI, they can tender a cheque, the proceeds
39 | P a g e
of which will be collected through clearing process after which securities
are issued to them.
Secondary Market
The transactions relating to government securities are settled through

the member’s securities / current accounts maintained with the RBI, with
delivery of securities and payment of funds being done on a net basis. The
Clearing Corporation of India (CCIL) guarantees settlement of trades on
the settlement date by becoming a central counter-party to every trade
through the process of novation, i.e., it becomes seller to the buyer and
buyer to the seller. All outright secondary market transactions in
Government Securities are settled on T+1 basis. However, in case of repo
transactions in government securities, the market participants will have
the choice of settling the first leg on T+0 basis or T+1 basis as per their
requirement.
5.6 What is the relationship between Yield and Price of a

bond?
If interest rates or market yields rise, the price of a bond falls. Conversely,
if interest rates or market yields decline, the price of the bond rises. In
other words the yield of a bond is inversely related to its price. The
relationship between yield to maturity and coupon rate may be stated as
follows:
• When the market price of the bond is less than the face value, i.e., the
bond sells at a discount, YTM > current yield > coupon yield.
• When the market price of the bond is more than its face value, i.e., the
bond sells at a premium, coupon yield > current yield > YTM.
• When the market price of the bond is equal to its face value, i.e., the
bond sells at par, YTM = current yield = coupon yield.
How is the yield of a bond calculated?
An investor who purchases a bond can expect to receive a return from

one or more of the following sources:
• The coupon interest payments made by the issuer;
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• Any capital gain (or capital loss) when the bond matures or it is sold;
and
• Income from reinvestment of the coupon interest payments or interest-

on -interest.
The three yield measures commonly used by investors to measure the

potential return from investing in a bond are briefly described below:
i) Coupon Yield
The coupon yield is simply the coupon payment as a percentage of the

face value. Coupon yield refers to nominal interest payable on a fixed
income security like Government security. This is the fixed return the
Government (i.e., the issuer) commits to pay to the investor. Coupon yield
thus does not reflect the impact of interest rate movement and inflation
on the nominal interest that government pays.
Coupon Interest / Face Value
Illustration:
Coupon: 8.24%
Face Value: Rs.100
Market Value: Rs.103.00
Coupon yield = 8.24/100 = 8.24%
ii) Current Yield
The current yield is simply the coupon payment as a percentage of the

bond’s purchase price; in other words, it is the return a holder of the bond
gets against its purchase price which may be more or less than the face
value or the par value. The current yield does not take into account the
reinvestment of the interest income received periodically. Current yield =
(Annual coupon rate / purchase price)*100
Illustration:
The current yield for a 10 year 8.24% coupon bond selling for Rs.103.00
per Rs.100 par value is calculated below:
Annual coupon interest = 8.24% x Rs.100 = Rs.8.24
Current yield = (8.24/Rs.103)*100 = 8.00%
The current yield considers only the coupon interest and ignores other
sources of return that will affect an investor’s return.
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iii) Yield to Maturity
Yield to Maturity (YTM) is the expected rate of return on a bond if it is
held until its maturity. The price of a bond is simply the sum of the
present values of all its remaining cash flows. Present value is calculated
by discounting each cash flow at a rate; this rate is the YTM. Thus YTM is
the discount rate which equates the present value of the cash flows from
a bond to its current market price. In other words, it is the internal rate of
return on the bond. The calculation of YTM involves a trial-and-error
procedure. A calculator or software can be used to obtain a bond’s yield-
to-maturity easily.
There is day count conventions used in calculating bond yields. These day
count conventions refer to the method as to how the numbers of days are
counted for calculation of prices and yields of bonds. As the use of
different day count conventions can result in different prices/ yields, it is
appropriate that all the participants in the market follow a uniform day
count convention.
For example, the conventions followed in Indian market are given below.
Bond market: The day count convention followed is 30/360 which means
that irrespective of the actual number of days in a month, the number of
days is taken as 30 per month and the number of days in a year is taken
as 360.
Money market: The day count convention followed is actual/365 which

means that the actual number of days in a month is taken for months
whereas the number of days in a year is taken as 365 days. Hence, in the
case of Treasury bills which are essentially money market instruments,
365 day convention is followed.
An example as to how the yield of a Treasury Bill is calculated

It is calculated as per the following formula
Yield = (100 – P)/P * (365/D) * 100
Wherein;
P – Purchase price
D – Days to maturity
Day Count: For Treasury Bills, D = [actual number of days to
maturity/365]
Illustration
Assuming that the price of a 91 day Treasury bill at issue is Rs.98.20, the
yield on the same would be
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Y = (100-98.20)*365*100/98.20*91 = 7.3521%
What is duration of a Bond?
Duration of a bond is a measure of the time taken to recover the initial
investment in present value terms. In simplest form, duration refers to the
payback period of a bond to break even, i.e., the time taken for a bond to
repay its own purchase price. Duration is expressed in number of years.
Fundamentally the government securities (both state and central) are

considered risk free. However there are certain risks which are
associated with G-Secs.
Market risk: Market risk arises out of adverse movement of prices of the
securities that are held by an investor due to change in interest rates. This
will result in booking losses on marking to market or realizing a loss if the
securities are sold at the adverse prices. Small investors, to some extent,
can mitigate market risk by holding the bonds till maturity so that they
can realize the yield at which the securities were actually bought. This is
also the reason for state governments not indulging in any kind of
secondary market transactions of the central government.
Reinvestment risk: Cash flows on a Government security includes fixed

coupon every half year and repayment of principal at maturity. These
cash flows need to be reinvested whenever they are paid. Hence there is
a risk that the investor may not be able to reinvest these proceeds at
profitable rates due to changes in interest rate scenario. The state
governments need to be extremely careful in mitigating this risk as they
are investing public funds in the central government securities.
Liquidity risk: Liquidity risk refers to the inability of an investor to

liquidate (sell) his holdings due to non availability of buyers for the
security, i.e., no trading activity in that particular security. Usually, when a
liquid bond of fixed maturity is bought, its tenor gets reduced due to time
decay. For example, a 10 year security will become 8 year security after 2
years due to which it may become illiquid. Due to illiquidity, the investor
may need to sell at adverse prices in case of urgent funds requirement.
However, in such cases, eligible investors can participate in market repo
and borrow the money against the collateral of the securities. This is
typical of a state government. Whenever (as mentioned in cash
management system) a state government is short of funds, the first step
taken by RBI is to discount the T-Bills held by the state government. This
is an example of market repo.
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5.7 Liquidity Management Assistance to the States
Though the receipts and the expenditure of the states are matched in the
annual State Budget, there could be temporary mismatches in the cash
receipts and expenditure during the course of the year. Central
Government and RBI have instituted mechanisms that enable States to
tide over such short term liquidly problems. These are as follows:
I. WMA Facility to State Governments
The Ways and Means Advances (W&MA) provided by RBI to the States are
governed by Section 17(5) of the RBI Act, 1934. This Section authorizes
the RBI to extend WMA to the State Governments which are repayable not
later than three months from the date of making the advances. These
advances are meant to be temporary to provide a cushion to the States to
carry on their essential activities despite mismatches on fiscal
transactions and to avoid disruptions to the normal and necessary
financial operations of the State. At present all the State Governments
except Jammu and Kashmir and Sikkim have signed such agreements with
RBI. The scheme is revised from time to time. Currently it is based on the
recommendations of the Bezbaruah Committee.
The RBI provides accommodation to the State Governments through two
facilities. These are: (i) Normal WMA facility and (ii) Special WMA facility
which is secured against Government of India securities held by the State
Governments with RBI. These facilities have been in existence since 1937
and 1953 respectively.
• Normal Ways and Means Advances
Normal WMA limits were earlier related to the minimum balance held by
each State. The present system of WMA is based upon the
recommendations of the Bezbaruah Committee under the Chairmanship of
Shri M.P. Bezbaruah. Bezbaruah Committee had recommended
substantial enhancement of limits of WMA. Based on the
recommendations of the Committee normal WMA was enhanced to Rs.
9875 crore from the earlier limit of Rs. 8935 crore from 1 March, 2006 for
26 States. The total normal WMA limit was further enhanced to Rs.9925
crore with effect from April 1, 2007 for 26 States and one UT (Pondicherry)
and continues to be the same from April 1, 2008 and April 1, 2009.
• Special Ways and Means Advances
The State Governments are sanctioned Special Ways and Means Advances
based on their holdings in Government of India (GOI) dated securities/
Treasury Bills since 1953 when a uniform limit of Rupees two crore was
allocated to each State. The limits were raised from time to time. Special
WMA Scheme continues to be linked to the investments made by State
44 | P a g e
Governments in the Government of India securities, i.e., dated securities
and Treasury Bills as per recommendations of Bezbaruah Committee. A
lower and uniform margin of five per cent has been applied on the market
value of the securities for determining the operating limit of Special WMA.
The States are required to avail of Special WMA limits first before seeking
accommodation under the normal WMA limits.
• Overdrafts of State Governments
States' overdrafts (OD) with Reserve Bank of India represent their drawls
exceeding the authorized limits of WMA, both normal and special. The OD
regulation scheme was first introduced in 1972. Since then, the scheme
has regularly been revisited. The salient features of revised OD scheme
are as follows:
(a) The number of days that a State can be in overdraft at present is
14 consecutive working days.
(b) The norms of restricting overdraft to 100 per cent of the normal
WMA limit will continue. If the overdraft exceeds this limit for five
consecutive working days for the first time in a financial year, the
Reserve Bank will advise the State to bring down the overdraft level
within the 100 per cent of WMA limit. If, however, such irregularity
occurs on a second or subsequent occasion in the financial year, the
Reserve Bank will stop payments notwithstanding the above
provision, which permits the State an overdraft up to 14 days.
(c) No State Government will be allowed to be in overdraft for more
than 36 working days in a quarter. If this is not adhered to,
payments will be stopped. This regulation was made applicable from
April 1, 2003.
(d) The rate of interest on overdraft will be:
(i) Overdraft up to 100 per cent of normal WMA limit- two per cent
above the Repo rate, and
(ii) Overdraft exceeding 100 per cent of the normal WMA limit-five
per cent above the Repo Rate.
II. Central Government’s Intervention in State’s Liquidity

Mismatch
In addition to Ways and Means Scheme of Reserve Bank of India as
detailed above, Ministry of Finance, Government of India also assists the
States to overcome mismatch in their receipts and expenditure. This is
done by way of (a) advance payments of State's entitlements of NCA,
share in Central Taxes, Revenue Deficit Grants and Small Saving Loans.
(b) Advances under Ways and Means Scheme of Central Government.
45 | P a g e
(a) Advance release of States’ Entitlements of Plan and Non-
Plan Assistance
The Government of India, when requested by the States, considers the
advance release of monthly entitlements of the States consisting of
normal central assistance, share in central taxes, revenue deficit grants,
small saving loans.
(b) Ways and Means Scheme of Central Government
Ways and Means Advances are provided by the Government of India to
supplement the effort of the State Governments to meet temporary cash
imbalance. It is provided for temporary mismatch in revenue and
expenditure. Annual Budget provision for ways and means advance is
made in the Demand Head of Plan Finance-I, Division in the Department of
Expenditure. It carries a rate of interest as determined by Government of
India from time to time. At present the ways and means advances given
to the States by Government of India attract a rate of interest of 8.5%.
This advance is to be repaid within the year and cannot be spilled over to
next financial year. Amount of ways and means advance to be given to a
State and repayments is decided by the Ministry of Finance.
These are the concepts necessary to understand debt management and
cash management. To understand the financial concepts of any
Government, one must understand a concept called as budget.
5.8 What is a Budget?
References to budget can be found in Kautilya’s Arthashastra. It states
that the Chancellor should first estimate revenue from each place and
sphere of activity under different heads of accounts and then arrive at a
grand total. The actual revenue is to be estimated by adding receipts into
the treasury for current year and delayed payments received which were
due in earlier year/s. From this deduct the expenditure on king, standard
rations, other exemptions granted by King and authorized postponement
of payments into treasury. The outstanding revenues were estimated from
work under construction for which revenue will accrue on completion,
unpaid fines, unrecoverable dues, uncollectible sums, advances to be
repaid by officers etc.
The origins of the modern Budget can be traced to the Norman period,
where two departments dealt with finance- the Treasury and the
Exchequer. The Treasury received and paid out money on behalf of the
monarch. The Exchequer, had a ‘lower office’ which received money, and
an ‘upper office’, concerned with regulating the Kings accounts.
The term ‘budget’ has been derived from the old French word ‘bougette’,
which means a leather bag or wallet. The first use of the term ‘budget’
46 | P a g e
may date back to 1733 financial statement by Walpole as Prime Minister
and Chancellor of the Exchequer. A cartoon of him opening a patent
medicine seller’s wares was published at the time, as a satirical comment
with the caption ‘The Budget Opened’. (‘Budge’ is an old word for a bag or
small case).
Initially, “budget” referred solely to the Chancellor’s annual speech on the
nation’s finances. Now, the term is used for an annual financial statement
of income and expenditure of a government.
5.8.1 Indian Budget process

The budget is prepared by the Finance Minister with the assistance of
number of advisors and bureaucrats. The Finance Minister seeks the view
of the industry captains and economists prior to preparation. Various
accounting and finance related organisations send in their opinions and
suggestions .The budgeting exercise in India remains mainly the domain
of bureaucrats to participate and influence the outcomes.
Normally, the budget-making process starts in the third quarter of the
financial year. The budget has four stages viz., (1) estimates of
expenditures and revenues, (2) first estimate of deficit, (3) narrowing of
deficit and (4) presentation and approval of budget.
Stage 1: Estimates of expenditures and revenues
Part A: Estimates of Expenditure
The process begins with various ministries providing initial estimates of
plan and non-plan expenditures. The ministries discuss the plan
expenditures with the Planning Commission. The Planning commission
allocates resources for continuing plan programmes and decides on the
new programmes that can be undertaken on the basis of a tentative
estimate or resources available, that is provided to it by the finance
ministry. The financial advisors of the ministries prepare the non-plan
expenditures. The expenditure secretary consolidates them and after
intensive discussion with financial advisors, budget estimates are set for
the ensuing fiscal year.
The majority of the non-plan expenditure is accounted for by interest
payments, subsidies (mainly on food and fertilizers) and wage payments
to employees.
Part B: Estimates of Revenue
Apart from estimating the expenditure, an assessment of expected
revenues likely to flow into the government treasury has to done as a
47 | P a g e
concurrent exercise. Revenue receipts are of two types – capital and
current receipts.
Capital receipts include repayment of loans given by the government,
receipts from divestment of public-sector equity and borrowings – both
domestic and external. Current receipts include mainly, tax revenues,
receipts by way of dividends from public-sector units and interest
payments on loans given out by the central government.
The amounts to be received by way of tax revenues is estimated on the
basis of existing rates of taxation and taking into consideration the likely
growth and inflation rate over the ensuing fiscal year.
On the capital receipts side, targeted amounts to be realized through
divestment of public sector equity and amounts to be realized by way of
repayments of loans is made. All the estimates are provided to the
revenue secretary.
STAGE 2: First estimates of deficit
After the estimates of revenue and expenditure are made, they are
matched together. This provides the first estimate of expected shortfall in
revenue to meet projected expenditure. The government then, in
consultation with the chief economic advisor, decides on the optimum
level of borrowings to meet this deficit. The figure of external borrowings
is known as much of the external borrowing by the government consists of
bilateral and multilateral assistance which is known by the time budget
exercises are undertaken. The level of domestic borrowing depends partly
on the desired level of fiscal deficit that the government targets for itself.
A part of the revenue gap is left unfilled to be met through the issue of ad
hoc treasury bills.
STAGE 3: Narrowing of the deficit
After the targets for the fiscal deficits and the overall budget deficit is
decided, any remaining shortfall is filled through a revision in tax rates if
feasible , keeping in mind the fiscal incentive structure the government
wishes to put in place to stimulate the growth in different sectors.
Following the initial plans, if any changes need to be made adjustments
are made to the expenditure; usually the plan expenditure has to be
modified. The non plan expenditure comprises of interest payments,
subsidies and administrative expenditure. Due to the political sensitivities
involved in reducing subsidies, non-plan expenditure of the government is
inflexible about changing it and it is the plan expenditures which get the
axe after pre-emption have already been made for non-plan expenditure.
STAGE 4: The Budget
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The presentation of the Budget for the ensuing fiscal year (beginning April
1) is usually done on the last working day of February. The Indian
constitution has made the Parliament supreme in financial matters. The
Union government, under Article 112 of the constitution, is required to lay
an annual financial statement of estimated receipts and expenditure
before both Houses of Parliament. It can levy taxes or disburse funds only
on approval in both houses of Parliament. However, the proposal for
taxation or expenditure has to be initiated within the Council of Ministers–
specifically by the Minister of Finance. The Finance Minister presents
before the Parliament, a financial statement detailing the estimated
receipts and expenditures of the central government for the forthcoming
fiscal year and a review of the current fiscal year.
Under Article 114 of the Constitution, the government can withdraw
money from the Consolidated Fund of India only on approval from
Parliament and so it has to get the Appropriation Bills approved by
Parliament. This authorizes the executive to spend money. Article 265 of
the Constitution prohibits the government from collecting any taxes
without the authority of law. Therefore, the government comes up with
the Finance Bill. The Bill may levy new taxes, modify the existing tax
structure or continue the existing tax structure beyond the period
approved by Parliament earlier. The bills are forwarded to the Rajya Sabha
for comment. The Lok Sabha, however, is not obligated to accept the
comments and the Rajya Sabha cannot delay passage of these bills. The
bills become law when signed by the President. The Lok Sabha cannot
increase the request for funds submitted by the executive, nor can it
authorize new expenditures.
The proposals in the budget come into force on April 1. Between the
presentation and effective date there is a gap of 1 month during which the
Lok Sabha can review and modify the government’s budget proposals.
This does not happen most of the time and the Parliamentary scrutiny of
proposals and the passage of the budget gets completed in May, well
after the commencement of the new fiscal year. Since the proposed
budget has to be effective from April 1, the government usually seeks an
interim approval to meet emergent expenditures that have to be incurred
pending the approval of the budget.
This is called the vote-on-account and the sanctions given by the passage
of the vote-on-account get automatically overridden once the Budget is
approved by Parliament.
5.8.2 State Budget
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Each state government has its own budget, prepared by the state’s
minister of finance in consultation with appropriate officials of the central
government. Primary control over state finances rests with the state
legislature. However, State finances are which latter reviews the state
government accounts annually and reports the findings to the state
governor for submission to the state’s legislature.
Because of its greater revenue sources, the central government shares its
revenue received from personal income taxes and certain excise taxes
with the states. It also collects other minor taxes, the total proceeds of
which are transferred to the states. The division of the shared taxes is
determined by financial commissions established by the president, usually
at five-year intervals.
The central government also provides the states with grants to meet their
commitments.
Budget documents
1. Key to Budget
This document provides an understanding of the budget documents
2. Budget Highlights
This statement gives the key features of the budget
3. Annual Financial Statement
Annual Financial statement is the main document. This statement shows
the receipts and payments of the government under the three parts in
which government accounts are kept.
4. Budget at a Glance
Budget at a Glance provides an overview of government finances. It’s
more like a balance-sheet of the Union or state. It gives a broad break up
of tax revenues, other receipts, and expenditure-plan and no-plan
allocation of outlays by ministries. Progresses towards implementation of
Budget proposals announced in previous years are listed in the
Implementation Budget.
5. Expenditure Budget
Expenditure Budget Volume I and II explain the provisions made. While
Volume I explains the provisions ministry-wise, Volume II analyses
expenditure trend over the years with regard to Plan and non-Plan
expenditure.
6. Receipts Budget
Receipts Budget gives details of revenue receipts and capital receipts and
explains the estimates so as to make them intelligible to an ordinary
citizen. It also include trend of receipts over the years and details of
external assistance
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These documents are common to both the central as well as state
governments.
Conclusion: The budget documents are fascinating. These documents
are not just numbers. Scrutinizing them, one can understand the intention
of the government, its priorities, its policies, and its allocation of financial
resources, among different regions, sectors, industries which create a sea
change in the lives of the people affected by it. Budget numbers express
an enormous volume of information. One trained in budget analysis can
discover the government’s expressed as well as hidden priorities. They
may be interested in rural development by-creating employment
opportunities, or providing elementary education to children, drinking
water facilities to the villages, or health services in remote areas or
whether their focus is on urban development with creation of industries ,
satellite towns , improvement in facilities or it wants to provide optimum
resources to both.
Basic Concepts of the State Budget:
As per article 202 of the constitution of India, the governor of a state shall
cause to be laid before the house or houses of the legislature of the state,
a statement of the estimated receipts and expenditure of the state for a
financial year. This estimated statement of receipt and expenditure for a
financial year named in the constitution as the “Annual Financial
Statement” is commonly known as “Budget”.
Maintenance of State Government Account:
State Government (as well as central government) accounts are

maintained in 3 parts
1. Consolidated fund of the state
2. Contingency fund of the state
3. Public Accounts of the state
1. Consolidated Fund: All receipts are to be credited and all

expenditure are to be met from this fund with the approval of the
legislature.
The consolidated fund of the state is formed out of all revenues
received by the state, all loans raised by treasury bills, loans from
market borrowings and negotiated loans, ways and means
advanced and all money received towards recovery of loan
advanced by state government from time to time. Similarly the
expenditure from the consolidated fund can be met for
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charges/services as are voted by the legislatures or charged
appropriations as included in the annual financial statement.
2. Contingency Fund: It is a notional fund where money is not actually

kept for expenditure. It is an arrangement to meet emergent
expenditure for which there is no approval of the legislature.
Expenditure is met from contingency fund with approval of governor
in anticipation of approval of the legislature.
This fund is in the nature of an imprest for meeting unforeseen and
emergent expenses. The fund is placed at the disposal of the
Governor, who can authorize expenditure from the fund subject to
post-facto sanction of appropriation by the legislature. The
transaction under the fund is guided by the rule framed for this
purpose.
The advance made from the fund to meet the urgent and emergent
expenditure is required to be recouped by necessary supplementary
provision within the financial year. In exceptional cases where
advance is given at the last part of the financial year, when there is
no chance to recoup the same by necessary provision through
supplementary, the same can be recouped in the next financial
year.
3. Public Accounts: Expenditure from Public Account does not require

the approval of the legislature but the net receipt in the public
account is taken into account for balancing the Budget.
The Public Accounts as defined in Article 266(2) of the Constitution
of India comprises all public money received by or on behalf of the
Govt, which are not credited to the consolidated fund of the state.
The public accounts comprises of the followings:
➢ Unfunded Debt (Shares of small savings and provident

fund)
➢ Deposit and Advances
➢ Reserve Funds
➢ Remittances and Suspense
The unfunded debt (Provident Fund) and Deposit and Advances
record transactions in respect of which Government acts only as a
banker by receiving amounts which is paid afterwards and make
advances other than loans, which are repayable.
The suspense and remittances are only adjusting heads and all
entries in these accounts are eventually cleared by corresponding
Credit/Debit to the final head of accounts.
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Composition of the Consolidation Fund
Revenue Expenditure
Expenditure on salary, pension, interest payment, subsidy, old age

pension, electricity, water charges, motor vehicle, contingent expenditure
and maintenance of capital assets like roads, buildings, irrigation works
etc, is termed as revenue expenditure. The revenue expenditure is in fact
an establishment related and maintenance of house keeping related
expenditure.
Capital Expenditure
The expenditure on construction of buildings, roads, irrigation projects,

power house, flood control work, water supply etc which result in creation
of permanent assets is termed as capital expenditure. (but maintenances
of capital assets is in Non Plan expenditure)
Here it becomes important to note down that the term non plan
expenditure is just a nomenclature and the expenditure is actually a
planned one.
Revenue Receipt:
By state Government- own Tax and Non- Tax revenue
From central government- share in central taxes and grants-in-aid
Revenue Receipt of the state government consists of the following:
(a) State’s own tax revenue
• Sales Tax
• Motor Vehicle Tax
• Electricity Duties
• Stamp and Registration fees
• Land revenue
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• State excise duty
• Professional Tax
• Entry Tax
• Entertainment Tax
• Luxury Tax
(b) State’s own non tax revenue
• Interest payment on loans and advances given by the state

government to various corporations, cooperatives, government
servants etc
• Dividends on investments by the State Government
• Irrigation water rate
• Water tariff on urban water supply
• Fees and fines collected in schools and colleges
• User charges in medicals
• Mining Royalty
• Forest Royalty
Revenue Receipt from Central Government:
(c) Share in central taxes:
State’s share as per the recommendation of the Finance Commission from

income tax, basic excise duty, additional excise duty, railway passenger
fare etc
Now instead of share from this few central taxes, State’s share has been
recommended at x% on all central taxes excluding surcharge on income
tax under the award of Eleventh Finance Commission.
(d) Grants in aid from the Centre:
• Non Plan revenue deficit grant, Centre’s share under Calamity Relief
Fund, up-gradation and special problem grant as recommended by
the Finance Commission
• Grant portion of the central assistance for state plan (70% loan +
30% grant)
• Grant under Centrally Sponsored Plan Schemes (State share varying
from 50% to 10% and central’s share from 50% to 90%)
• Grant under Central Plan Schemes
(e) State’s own Revenue and State’s total Revenue:
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State’s own tax and own Non Tax are called State’s own revenue whereas
State’s total revenue consists of State’s own revenue, share in Central
taxes and grants from the Centre.
Capital Receipts
• Recovery of loans and advances given to various corporations, co-

operatives and Government servants
• Loan portion of the central assistance, small saving loan, market
borrowing, loan from NABARD, LIC, GIC, HUDCO etc, and loan from
General Provident Fund Account (GPF) of the employees
• Misc. Capital Receipts such as proceeds of disinvestment, and sale
of capital assets etc.
Source of Loan for the State Government
1. Internal Source (Internal Borrowing)

• Market Borrowing
• Loan from GPF account
• Loan from NABARD, LIC, GIC, HUDCO, NCDC etc
• Small Savings Loan
2. Loan from Government of India
• Loan portion of the State Plan Assistance (30% grant, 70%
loan)
• Loan Portion of additional central assistance under Externally
Aided Project (30% grant, 70% loan)
• Loan portion of other central assistance given for specific
programme
• Small Savings loan though treated as internal borrowing is
loan from GoI and this is being paid to GoI
I. Normal State Plan Assistance: Determined by the Planning

Commission on yearly basis (70% loan + 30% grant).
II. Additional Central Assistance under EAP: The World Bank
Loan and Grant from DFID or other agencies are passed on
State Government to GoI as additional Central Assistance
under EAP. (70% loan + 30% grant).
III. Voted Expenditure and Charged Expenditure: Voted
Expenditure requires the approval of the voting of the
legislature, Charged Expenditure does not require the voting
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of the legislature but is placed before the legislature along-
with the voted amount.
For instance the expenditure of Speaker, Deputy Speaker,
Governor, and office establishment, judges of high court,
administrative tribunal, Gujarat Public Service Commission,
regulatory commission and decrial dues arising out of court
judgment are treated as charged expenditure.
Also the payment of interest, repayment of principal are also

booked as charged expenditure.
IV.Revenue Expenditure and Capital Expenditure: Revenue

Expenditure is an establishment related and maintenance
expenditure- salary, pension, interest, subsidy, maintenance
of capital assets while Capital Expenditure is an expenditure
which results in creation of assets such as road, bridges,
dams, power house etc.
5.8.3 Types of Plans:
1. State Plan: When a new programme is taken up by the state

government it is normally taken under State Plan. After Completion
of the project or at the end of the Plan period the programme if felt
necessary to be continued is transferred to non-plan.
2. Non-Plan: When a road is constructed, the expenditure is booked
under planned but thereafter the expenditure on the maintenance
of the road is taken under the non-plan.
3. Central Plan: 100% funding by the Central Government.
4. Centrally Sponsored Plan: Expenditure is shared by Central
Government and State government in an agreed ratio varying from
50% to 90%.
5.8.4 Different types of Deficits:
1. Revenue Deficit: The gap between Revenue Receipt and Revenue

Expenditure is called Revenue Deficit.
2. Fiscal Deficit: The excess of expenditure (both Revenue and Capital)
over the Revenue Receipt and Recovery of Loans taken together
represents the Fiscal Deficit. It also represents net borrowing during
a year.
Fiscal Deficit = Revenue Receipt + Recovery of Loans – Total
Expenditure (including Capital Expenditure but excluding
repayment of Loans and Advances)
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3. Primary Deficit: The primary deficit represents the Fiscal Deficit less
the Interest Payment. It represents the net borrowing to meet the
expenditure excluding the interest payment.
4. Budgetary Deficit: Budgetary Deficit represents the net borrowing
from RBI at the end of the year. The Budgetary Deficit indicates that
the total expenditure has exceeded by that amount from all
Revenue Receipt, all Recovery of Loans and Advances, all Loans and
the net balance in the Public Account etc. It is a borrowing from RBI
in advance which is recouped in the next year.
The deficits are measured as a percentage of GSDP (Gross State Domestic

Product)i.e. dividing the deficit amount by GSDP multiplied by 100.
5.8.5 Types of Sub- Budget:
Expenditure Budget Vol 1: Expenditure Budget Vol 1 deals with

revenue and capital disbursements of various Ministries/Departments and
gives the estimates in respect of each under ‘Plan’ and ‘Non Plan’. This
also gives analysis of various types of expenditure and broad reasons for
the variation in estimates.
Under the present accounting and budgetary procedures, certain classes

of receipts, like payments made by one department to another and
receipts of capital projects or schemes are taken in reduction of the
expenditure of the receiving department. The estimates of expenditure
included in the Demands for Grants are for the gross amounts while the
estimates for expenditure included in the Annual Financial Statement
(Budget) are for the net expenditure as will be reflected in the accounts,
that is, after taking into account the recoveries. The document
Expenditure Budget makes certain other refinements like netting
expenditure of related receipts so that inflation of receipts and
expenditure figures are avoided and there can be a better appreciation of
the magnitudes of various expenditure. Contributions to International
Bodies are shown in a separate annex. A statement each showing (i) the
estimated strength of establishment of various Government Departments
and provision made therefore and (ii) Plan grants and loans released by
Ministries/ Departments directly to State and District level autonomous
bodies.
Expenditure Budget Vol 2: The provisions made for a scheme or a

programme may spread over a number of major heads in the Revenue
and Capital sections in a Demand for Grants. In the Expenditure Budget
Vol 2, the estimates made for scheme/programme are brought together
and shown on a net basis at one place, by major heads. To understand the
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objectives underlying the expenditure proposed for various schemes and
programmes in the Demand for Grants, suitable explanatory notes are
included in this volume in which, wherever necessary, brief reasons for
variations between the Budget estimates and revised estimates from the
current year and requirements for the Budget year are also given.
Receipts Budget: Estimates of receipts included in the Annual Financial

Statement (Budget) are further analyzed in the document ‘Receipts
Budget’. The document provides details of tax and non-tax revenue
receipts and capital receipts and explains the estimates. The document
also provides the arrears of tax revenues and non-tax revenues, as
mandated under the Fiscal Responsibility and Budget Management Rules
2004. Trend of receipts and expenditure along with deficit indicators,
statement of revenues foregone, statement of liabilities, statement of
contingent liabilities, statements of assets and details of external
assistance are also included in Receipts Budget.
Detailed Demands for Grants: The Demands for Grants are followed by
the Detailed Demands for Grants laid on the table of the Legislative
Assembly some time after the presentation of the Budget, but before the
discussion on Demands for Grants show further details of the provisions
included in the Demands for Grants as also of actual expenditure during
the previous year. A break up of the estimates relating to each
programme/organization, wherever the amount involved is not less than
Rs. 10 lakhs, is given under a number of object heads which indicate the
categories and nature of expenditure incurred on that programme, like
salaries, wages, travel expenses, material and equipment, grants-in-aid
etc. At the end of these Detailed Demands are shown the details of
recoveries taken in reduction of expenditure in the accounts.
Plan Outlay: Plan expenditure forms a sizeable proportion of the total

expenditure of the State Governments. The Demands for Grants of the
various ministries show the Plan expenditure under each head separately
from the Non-Plan expenditure. The Expenditure Budget Vol 1 also gives
the total Plan provisions for each of the Ministries arranged under the
various heads of development and highlights the budget provisions for the
more important Plan programmes and schemes. A description of
important schemes included in the Plan along with the objectives, targets
and achievements is given in the Performance Budget of the respective
Ministry. Variations in the estimates of Plan expenditure are also
explained in this document.
Performance Budget: Physical and financial aspects of major

programmes and schemes are included in the Performance Budgets
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presented to Legislative Assembly separately by the
Ministries/Departments. Performance Budgets are prepared and circulated
to Members of Legislative Assembly by all Ministries/Departments dealing
with developmental activities. The Performance Budget presents the
budget of the Ministry/Department in terms of functions, programmes and
activities. It also includes a statement on the programmes and
performance of the various public sector undertakings under the
Ministry/Department indicating, among other things, the capacity installed
and utilized, physical targets and achievements, results of operation,
return on capital etc. Performance Budget serves the management as a
tool of administrative and financial control in the implementation of
development programmes.
5.9 Maintenance of Govt finances:

5.9.1 Broad outlines of the process for preparation of State
Govt Accounts
The broad outlines are indicated below:-
a) All receipts in India on behalf of each state Govt & on behalf of each
Union Territory shall be paid into its treasury or the bank, and initial
accounts of such receipts shall be maintained at the treasury.
b) Receipts realized in the public works, Forest and any other departments
which may be authorized in this behalf shall be paid into a treasury or
bank in the lump and accounted for at the treasure merely as receipts on
behalf of such departments. The detailed accounts of such receipts shall
be kept by the departmental officers concerned.
c) Payments in India on behalf of the State Governments shall ordinarily

be made either at its treasury or the bank, but some departmental officers
may be authorized to withdraw sums in lump from treasury or the bank
for making payments. In the former case, the initial accounts of payments
shall be kept at the treasury, and in the latter case, such accounts shall be
maintained by the departmental officer concerned. The accounts referred
to in the clause do not relate to the accounts maintained by Govt servant
in respect of expenditure incurred from permanent advances (i.e. cash
imprests)
• Officers of the Civil Departments who pay their receipts into the
Consolidated Fund or the Public Account or withdraw money for
expenditure there-from or from the Contingency Fund in the lump
will submit detailed accounts of their transactions to their respective
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Accountant General. Some specified Departmental officers may be
required to render to the Accountant General compiled accounts of
their transactions classified under prescribed heads of accounts.
d) At the beginning of each month, each Accountant General will receive

from the treasuries under his Jurisdiction monthly accounts supported by
the requisites schedules, vouchers, in respect of the transactions which
took place in the treasury during the previous month. Each State or
Central treasury, which renders accounts to a state account general, will
submit a double set of accounts, one for transactions of the State Govt &
the other for transactions of the Central Govt.
e) From the accounts furnished by treasuries & Civil Departmental

Officers, referred to in clauses (b) and (c) above, Departmental Classified
Abstracts will be compiled by the Civil Account Officers showing the
monthly receipts and payments pertaining to each department for the
whole account circle, classified under the relevant major, minor, sub and
detailed heads. Separate classified abstracts will be maintained for each
department, each group of small departments or each major heads of
account not relating to any particular department or departments
according to local convenience. The transactions adjustable against a
department or against a major head not relating to any particular
department which are intimated to the Civil Accounts Officer by another
Accounts Officers as well as all book adjustments against a departmental
or other major head which are initiated in the Accounts office itself will
also be incorporated in the relevant departmental Classified Abstracts, so
that the latter may include monthly all transactions of whatever nature
connected with the receipts and payments pertaining to each department
or major head of account. From these classified abstracts, separate
Departmental Consolidated Abstract showing the progressive totals month
by month under major, minor, sub, and detailed heads of revenue receipts
and service payments will be compiled. Separate Consolidated Abstracts
will be maintained for each of account or for a group of departments or
major heads of accounts as may be found convenient. The Departmental
Classified Abstracts and the Departmental Consolidated Abstracts for the
Central transactions will be compiled separately from those for
departments of the State Govt.
f) The transactions pertaining to Debt, Deposit and Remittance heads

appearing in the Treasury Cash Accounts and List of Payments and in the
Departmental and other Abstracts will be collected for the whole circle of
account under each head of account from month to month in a Detail
Book. From the figures in the Detail Book, the Consolidated Abstract of
Debt, Deposit, Remittance, Suspense transactions will be prepared
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showing the progressive totals month by month under each major head in
the “Public Debt”, “Loan and Advances”, sectors of the Consolidated Fund
and those in the Public Account. This abstract will also show the
progressive totals under such minor, sub and detail heads as may be
found necessary. Separate Detail Book and Consolidated Abstracts will be
maintained for Central and State transactions.
g) The final stage of compilation will be the preparation of the Abstract of

major head totals showing the receipts and disbursements by major heads
during and to end of the month from the Departmental Consolidated
Abstracts and the Consolidated Abstract of Debt and Remittance
transactions. From the consolidated Abstracts for State and Centre
respectively will also be compiled the monthly and the annual accounts of
the State Govt and of Union Territory Govt with legislature and material
for the annual accounts of the Central Govt and of Union Territory
Administrations.
The cash balance of the State Govt in the books of the Accountants
General at the close of each month will then be reconciled with the
balances shown in the Cash Accounts rendered by Treasury Officers and
with the statements of closing balance received from the Central Accounts
Section of the Reserve Bank. Reconciliation of figures under the head
“8675-- Deposits with Reserve Bank” in respect of transaction of the
Central Govt/ Union Territory Govt and Administrations arising in their
books will be effected by the Accounts General.
h) A copy of the monthly account of each State Govt , will be submitted to

it by the Account General concerned. A copy of the monthly account of
transactions finally adjusted in their books in respect of Union Territory
Administrations, relevant portion relating to a Union Territory Govt, and of
Central Govt Civil pensions will be rendered by the Account General to the
Controller General of Accounts, vide Rule 14(f) above.
i) Each Accountant General will work out the progressive figures during
the year of the Central and State accounts with which he is concerned. On
closing the accounts for March (Supplementary), a progressive account of
the transactions and accounts relating to annual receipts and
disbursement of State Govt/ Union Territory Govt. A progressive account
of the Union Territory Administrations and relevant transactions of Union
Territory Govt for which budget provision is made in the composite Grants
of the central Govt and transactions under the Public Account will be sent
by the Accounts General to the controller General of Accounts, vide Rule
(j) above.
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Annual Accounts ( including Appropriation Accounts) in respect of State
Govt, and Union Territory Govt with Legislature are prepared by the
concerned Accountant General and submitted to the Comptroller and
Auditor General of India for approval and transmission to the Governor of
the State, Administrator of the Union Territory Govt concerned, along with
his report thereon in terms of Article 151 (2) of the Constitution/Section 49
of Union Territories Act, 1963 and section 11 of the Comptroller and
Auditor General's (Duties, Power and Conditions of Service) Act, 1971 for
being laid before the Legislature.
5.10 Banking Arrangements of State Government

Each State Govt has made a separate agreement with the Reserve Bank
of India by virtue of which the general banking business of the Govt (in
which business is included, the receipt, collection, payment & remittance
of moneys on behalf of that Govt) is carried on and transacted by Reserve
Bank, in accordance with and subject to the provision of the agreement
and of the Reserve Bank of India Act, 1934, and in accordance with and
subject to such orders as may from time to time be given to the Reserve
Bank by the State Govt. The operation of each State shall, however, be
confined to the offices and branches of the Reserve Bank of India and the
bank which have been designated as falling within the area of that
particular State. The receipt and payment of moneys on behalf of a state
outside its jurisdiction shall ordinarily be arranged through the Accountant
General of the State in which the transaction takes place. (The govt of
Jammu & Kashmir and Sikkim have not so far entered into agreement with
the Reserve Bank of India for the conduct of their general banking
business by the Reserve Bank).
Each office or branch of the Reserve Bank, or the State Bank of India
acting as agent of the Reserve Bank, shall keep separate account of cash
transactions undertaken by it on behalf of the State Govt within whose
area it is situated. All transactions which cannot be debited or credited
directly to the account of the Central Govt with the Bank and transactions
of other State Govt shall also be taken to the account of the Govt of the
State in which they occur. Statement of these transactions together with
all supporting vouchers, challans, paid cheques etc. shall be forwarded by
each office and branch of the bank daily to he local Treasury officer or to
the Accountant General as the case may be. The transactions shall also be
reported to Central Account Section, Reserve Bank Of India,
Nagpur.
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(Note: With effect from 1st February, 1978 transactions on account of
discharge value of, and periodical interest on securities of State Govt, as
well as receipts on account of subscriptions against market loans floated
by State Govt are taken by the officers of the Reserve Bank of India
directly against the cash balance of the State Govt concerned with the
Central accounts section of the Reserve Bank of India, Nagpur.)
Complete accounts of the Central Govt and each of the State Govt with
the Bank shall be maintained by the Central Accounts Section o the
Reserve Bank at Nagpur which shall also act as a general clearing house
for the adjustment of (i) all transactions between different State Govt and
(ii) such transactions between the Central and State Govt as may be
specified by the Central Govt. All adjustments to be made between the
accounts of different State Govt as well as all payments which one of
these Govt has to make to another shall be advised by the Accountant
General authorized in this behalf to the Central Account Section of the
Reserve Bank which will pass the necessary entries in the accounts of the
Govt concerned, maintained in its books. Similarly, such adjustments in
the case of specified transactions between the Central Govt and the State
Govt will be advised to the Central Accounts Section of the Reserve Bank
by the Accountant General authorize in this behalf for making monetary
settlement in the accounts of the Govt concerned maintained in the books
o the Bank. Details of transfers affected in its books against the balance of
the State Govt or of the Central Govt a the case may be, on account of
adjustment advised by Accounts Officers authorized for the purpose, shall
be communicated by the Central Accounts Section of the Bank to the
originating as well as to the effected Accounts Officers or Account Officer
of the concerned ministry/Department of the Central Govt at the close of
each day.
At the close of the accounts of each month, a statement of closing

balance of each State Govt in the books of the Bank after taking into
accounts all the cash transactions in all the offices, branches and agencies
of the bank and the adjusting transactions in its own books shall be
forwarded by the Central Accounts Section to the Accounts Officer
concerned.
5.10.1 State Transactions in Central Treasuries
Cash balance held in the treasuries of the Central Govt from part of the
Consolidated Fund, Contingency Fund and the Public Account of India.
Such treasuries exist in those Union Territories whose accounts have not
been separated from audit and continue to the compiled by the
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Comptroller and Auditor General of India. Transactions on behalf of State
Govt arising in these treasuries shall be classified in the treasury accounts
under the head “8658 – Suspense Accounts – Suspense Accounts (Civil) –
Accounts with Accountant General and settled in cash by exchange of
cheques/demand drafts as the case may be. (NOTE: At present the
settlement of the transactions by the exchange of cheques/demand drafts
is resorted to in cases where the transactions taking place in Union
Territory accredited to an Accountant General are adjustable against the
cash balances of a State, whose accounts are maintained by another
Accountant General. These transactions initially taken in the Central
Section of accounts under the head '8685 Suspense Accounts- Cash
Settlement Suspense Account'.)
5.10.2 Transactions of the other Governments, including

Central Government in State Treasuries
Cash balances held in Central treasury form part o the Consolidated Fund,
the Contingency Fund and the Public Account of the State to which the
treasury belongs. The treasury Rules of each State Govt issued under
article 283 of the Constitution, however, provide that moneys may be
received and payments made on behalf of other State Govt, by a State
Treasury.
Similarly, moneys may be received and payments made by such

treasuries on behalf of the Central Govt in the case of certain specified
transactions. All such receipts and payments on behalf of other State Govt
and Central Govt shall be taken in the first instance against the cash
balance of the state concerned. On receipt on intimation of such
transactions through the monthly treasury account or otherwise the
Accountant General shall take the following action:
(a) In case of transactions pertaining to the other State Govt, the

Accountant General shall make the requisite adjustments through the
Central Accounts Section of the Reserve Bank against the balances of the
other State Govt concerned
NOTE (i): This procedure shall also be applicable to moneys received in

the office of the Accountant General on behalf of another State and book
entries made in the office of the Accountant General affecting the
accounts of another State Govt.
NOTE (ii): As the general banking business of the State Govt of Jammu &
Kashmir is at present, not conducted by the Reserve Bank of India, the
settlement of transactions between the State Govt and other State the
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Centre / is affected in cash or by demand drafts in accordance with the
instructions contained in separate order.
(b) In the case of such transactions of the Central Govt, including Railways
/ Postal / defence Departments at State treasuries (both banking and non-
banking), these shall be accounted for by the treasuries in the State
Section of Treasury Account under the head 'PAO Suspense – Transactions
adjustable by PAO ministry / Department of ….......' below the Major head
'8658 – Suspense Accounts' for necessary cash settlement by the State
Accountant General with the Pay and Accounts Office.
5.11 Functional Details of Different Offices:
5.11.1 Department of Finance: Some of the main functions of the

Finance Department of every state are as follows:
i. Monitoring receipts and expenditure of the state

ii. Allocating and monitoring of budget
iii. Accessing availability of funds for various schemes and monitoring
the status of government investment in equities, loans, debentures
etc
iv. Union Pensions
v. State Pensions and Pension rules
vi. Commutation of Pensions
vii.Compassionate Funds
viii.Small Savings Scheme
ix. Treasuries
x. Appropriation Bill
xi. Re-Appropriation
xii.Finance Commission
xiii.Loans and Advances to local bodies
xiv.Matters connected with or arising out of the appropriation accounts
and audit report and Public Accounts Committee
Moreover, Department of Finance is the administrative department

controlling Directorates like the Directorate of Pension and Provident
Fund, Directorate of Accounts and Treasuries etc.
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5.11.2 Directorate of Pension and Provident Fund: The
Directorate of Pension and Provident Fund deals with the scrutiny and
authorization of pension cases of government employees/officers. Pension
case papers are handled by about ten branches and each case has to
move to various branches. It is a state-level office and has no subordinate
offices at the district or taluka level. And considering the nature of
functions of this office, it deals with government employees/officers and
pensioners as well as government offices, which means it does not have
direct interaction with citizens.
5.11.3 Directorate of Accounts and Treasuries: The Directorate

of Accounts and Treasuries administers the functioning of Treasuries,
including sub-treasuries, joint director offices.
Some of its main functions are listed below:
i. Monitoring of treasury operations

ii. Monitoring of pension cases disposed off at the treasury and the
office of divisional joint director
iii. Internal audit, store and cash verification of other government
departments
iv. Monitoring of CAG and AG audit
v. Conducting special audit as per the order of Finance Department
vi. Monitoring of monthly accounts sent by Treasuries to AG
vii.Issuing instructions to Treasuries and Sub-Treasuries to execute
bans on payment as per the order of Finance Department
viii.Giving opinion on various financial matters referred by other
Departments
ix. Reconciliation of departmental expenditure at AG level
Treasuries & Sub Treasuries Information: Treasuries are the nodal offices
for all financial transactions of the Government in the district. They
manage both payment and receipts of the Government.
The Sub-Treasuries work as an extension of the Treasuries at the Tehsil

level. The Drawing and Disbursing Officers who are authorized to draw
money can present their claims in the Treasury.
5.11.4 Accountant General (AG): The office of the Accountant

General is part of the Indian Audit & Accounts Department under the
Comptroller & Auditor General of India (CAG). The main function of this
office is the compilation and consolidation of Civil Accounts of the
respective State Government. It compiles and submits monthly Civil
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Accounts to the State Government. Annual Finance and Appropriation
Accounts are prepared and presented to the Governor of the respective
state for lying on the table of State Legislative Assembly (Vidhan Sabha).
This office also issues Drawing and Disbursing Authorities to the
respective Drawing and Disbursing Officers and conducts periodical
inspection of treasuries.
6. DETAILS OF DIFFERENT MODULES WHICH

ARE PART OF INTEGRATED FINANCIAL
MANAGEMENT SYSTEM
6.1 Annual Development Plan Module:

1. General Administration Department (Planning) will generate a file to the
finance department asking for the amount of resources decided for the
next financial year.
2. The finance department will reply to this and
3. Based on that GAD (Planning) will decide sector wise- sub sector wise
deployments (outlays) and generate a new file.
4. This file will be transmitted in order of regular hierarchy for approval.
5. Once the necessary approval is obtained, GAD(PLNG) will issue a letter
along with reports of sector-sub sector wise outlays to secretaries of
different departments asking scheme wise outlays and some other
information provided by planning commission New Delhi.
6. As the various departments will receive letter/report from GAD
(planning) specifying sector wise/sub sector wise outlays, respective
planning branch will create a file for each of the sub sector concerned to
the department, and generates scheme wise outlays and attaches the
write-up.
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7. Then the consolidated file is forwarded in the regular hierarchy of the
respective department.
8. The planning branch of the department will write a letter along-with
various reports (sub-sector wise) to the GAD (Planning) as a part of formal
procedure.
9. Thus the GAD (Planning) will receive such reports from various
departments.
10. Now GAD will prepare a separate file for each sub sector and if a sub
sector is shared between more than one department than consolidated
outlays will be prepared.
11. Again the file will be forwarded in the regular hierarchy and necessary
approval will be sought.
12. GAD will issue sector/sub sector wise outlays to all departments and
invites for discussion.
The process of Annual Development Plan will flow as follows:

1. The entire process described above will be for before discussion
phase.
2. As soon as the process is completed a discussion will be held
between Chief Minister, Chief Secretary, Principal Secretary
Planning, and the secretaries of all the departments.
3. In such a discussion a final size of the plan will be decided.
4. Now the entire process is repeated but the main difference now will
be that this process will be on an after discussion basis and will
carry the final amount of the plan.
5. After finalization of plan, book for the Annual Development Plan is
prepared and sent for the approval of planning commission and
legislative assembly.
This entire process is proposed to be made online by employing Tata

Consultancy Services as a service provider. The government as well as
TCS feels that by adopting an online system, several benefits such as
reduction in paperwork, automatic data consolidation and validation will
accrue.
I was fortunate to get an official document from TCS of Government of

Gujarat related to a Tribal Development Plan as a part of ADP. On reading
that document I came to know about how the government actually
undertakes planning in different departments. That particular document
was concerned with implementing Tribal Sub Plans of Tribal Development
Department. On reading the document I could appreciate the intricacies
involved in planning the various schemes and making budgetary
allocations for the same.
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A briefing as to what the document stated: On the basis of
recommendations of a committee, it was decided by the Government to
earmark 17.57% of the outlay of the state’s annual development plan
every year for Tribal sub plan. As this decision was taken in the middle of
the year, additional budgetary allocations had to be made subject to full
utilization of already allocated outlay and under preparedness to absorb
more funds during the current year. It will be the responsibility of the
Tribal Development Department to finalize the sectoral, sub-sectoral
outlays and schematic outlines and outlays. After deciding the inter-
sectoral, sub-sectoral and schematic outlays under tribal sub plan, the
tribal development department shall communicate the breakup of outlays
to be provided for tribal sub-plan to all concerned administrative
department.
Name of the document: Tribal Development Department,

Resolution No. TAP/1092/1928/CHH, Government of Gujarat
6.2 E-budget Module:

Some features of e-budget: e-budget is a tool which will enable the
relevant officers of the state government to electronically process
Receipt, Expenditure (Plan or Non Plan) and Revised Estimates. As and
when various Heads of Departments will give their estimates, this e-
budget module will enable their consolidation. Proposals are generated by
various government departments to get grants. These proposals can be
tracked online because of e-budget module. The calculations involved in
preparation of budgets are astronomical; this module will enable accurate
and dynamic calculations. Certain guidelines are needed to be followed
while preparing a budget, by adopting an online approach these
guidelines will always be followed taking the chances of any need for
correction later to almost zero. Also the module will enable ease of
electronic exchange of data with the external entities like Treasury,
Accountant General Office etc.
Issues to be tackled by e-budget:
• Monitoring and Tracking of Budgetary proposals

• Linkage with ADP
• Aggregation of budget proposals
• Online Budget Publication Printing with Errata/addendums
• Incorrect & Incomplete Budget Proposals
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• Data Exchange with AG & Treasury
• Trend Analysis and Decision Making
The objectives of e-budget are
1. Monitoring and Controlling: As budget is an important exercise of

the state, lots of monitoring and controlling activities are required.
These activities include online tracking of budgetary proposals,
comparative study of proposed estimates against previous year’s
detail, incorporation of budgetary guidelines, validation of planned
budget against annual development plan etc. These activities are
performed with ease because of this module.
2. Performance: The performance of various budgetary activities has
been improved by adoption of IT. These improvements have
occurred in consolidation and aggregation of proposals which has
been automated; in the AG accounts, which are now incorporated
electronically; in the publication of budgets online, which is now
done without any errors; in availability of budgetary details for
State, Department, and HoD on one click.
3. Accuracy: Because of e-budget module there is now robust
validation engine for checking critical business rules at various
levels like budget head structure, also the Proposal’s cycle time has
reduced by correctness and completeness in it.
The various stakeholders of e-budget are the Finance Department, the
Assembly, the Planning department, the Accountant General’s Office,
the Administrative Department.
Functions of an e-Budget:
a) Budget Publication and MIS

b) Management of Contingency Fund
c) Budget Head Structure Configuration
d) Budget Guidelines
e) Expenditure Estimates
f) Re-appropriation and Surrender of fund
g) Supplementary Demand
h) Expenditure estimates
i) Receipt estimates
j) Revised estimates
k) Direct Upload Receipt Budget
l) Direct Upload Exp Budget
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The e-Budget module will interact with the following external entities:
• Accountant General Office’s System

• Grant
• Annual Development Plan
• Treasury
6.3 Debt Management Module:

Debt Management features of the State Government will include
Debt Management Related Functions:
• Loan Receipt
• Loan Repayment/ Interest Payment
• Debt Consolidation
• Template Generation (Time Promissory Notes, Memo etc)
Cash Management Related Functions:
• Daily Position Monitoring

• T-Bill Investment/Rediscounting/Maturity
• Integration with Debt Management
Process Flow of Debt Management:
Typically a state government’s debt will be from 4 sources:
i. Government of India Loan

ii. Institute Loan (Institutes will include the likes of NABARD, HUDCO
etc)
iii. NSSF Loan
iv. Market Loan
(i) Government of India Loan: The Central Government gives loans

to the State Governments for various development related
projects. Often several foreign agencies also give loans to the
State Governments routed through the Central Government.
Management of these loans becomes an integral and important
function of the state treasury and AG. Often there are certain
complications involved in such loans, such as different
components of loans, grants etc. The grant component is not to
be repaid, whereas the loan component has to be repaid.
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The process involved while receiving GoI loan: The central
government will issue a sanction order to the respective state
government and RBI Central Accounts Section (Nagpur). As the
state account finances are maintained at RBI CAS, it will credit
the state Government account as per the amount mentioned in
the sanctioned letter. As and when the repayments arise the
treasury will make the necessary arrangements and the state AG
will issue an advice to the RBI CAS as well as to the state
government (Finance Department). All these debits and credits
are reflected in the Daily Position Statement which is an
interaction tool between RBI CAS and AG office.
Integration of Daily Position Statement (from RBI CAS) with the

system will be an integral part of the system.
System being proposed by TCS: In order to have an ease of

debt management TCS has designed a system which will take
care of capturing loan details in totality. This will be the most
important function of the system as it will be only on the basis of
this function that it will be able to perform its other functions
such as generating repayment schedules as per the terms and
conditions of the loan, verifying payables as per AG’s advice sent
to RBI CAS and State Government’s finance department, capture
any kind of discrepancy between different records, reconcile as
and when necessary etc. The system will be an important source
of MIS reports.
These MIS reports will include:
a. Details of loans outstanding month wise/year wise/ministry wise

b. Payable details (Principal + Interest) month wise/year
wise/ministry wise
c. Details of loan at particular interest rate or between particular
band of interest rates (interest rate profile of loans under this
category)
d. Maturity profile of different loans
e. Tracking of the loans received against budgetary estimates
f. Graphical analysis of the loans outstanding, repaid, received
(Ministry wise, scheme wise, year wise)
Characteristics of Government of India Loan:
GoI loan will be typically for a period of 10 to 25 years. Interest will

be as per the respective agreement. At times there will also be a
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moratorium period, wherein no repayments towards the principal
are to be made. The repayment schedules will be individual loan
specific, and will normally consist of 10 installments a year
consisting of interest and principal.
(i) Institute Loan: Institutes such as National Bank for Agriculture

and Rural Development (NABARD), Housing and Urban
Development Corporation Ltd (HUDCO) etc often give loans to
state governments. These loans are different from traditionally
given loans. These institutes along with giving loans & taking
interest are also concerned with the knowledge of how these
loans are utilized. Also the manner of disbursement of these
loans is different. Initially while the Budget is prepared, the
decisions as to what amount of loans have to be taken; the
purposes for which these loans have to be taken etc are made.
Various Government Departments make provisions in their
Budgets for the amount of institute loans and the purpose of
these loans. On the basis of these budgets, the department will
send a proposal to the institute for obtaining the necessary
sanctions. Once the institute issues the necessary sanctions, it
will issue a sanction letter to the concerned department. The
funds are not disbursed at the time of sanction but during the
course of project execution whenever any expenditure is incurred
by the department, a notification will be sent to the institute for
reimbursement of the same. The department will send a letter to
the finance department for verification. This letter will be signed
by the Chief Engineer of the beneficiary department, Secretary of
the Beneficiary Department, Additional Secretary of the Finance
Department and Joint Secretary- Institutional Finance of Finance
Department. It will be at the Finance Department that the
verification of budget availability and actual expenditure incurred
till date will be done. Based on the request received for
reimbursement of expenditure as loan, institutions will scrutinize
the request received against the loan sanctioned, progress of
projects and other supporting documents. Thereafter the
institute will initiate the process of issuing cheque and will
intimate the finance department about the date of collection of
cheque. The finance department in turn will prepare Time
Promissory Notes (TPN). This TPN is nothing else but an
undertaking about repayment of loan and regular payment of
interest as per the prescribed rate and schedule. Against such a
TPN issue to the relevant institute, cheques are collected
physically by the officials of Finance Department. These cheques
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are deposited in a bank along-with a challan. This challan will be
acknowledged by the bank on a specified date in the future and
is kept as a record of the amount deposited.
As per the repayment schedule, whenever an amount is due, FD
will undertake internal processing regarding the amount to be
paid and thereafter will issue a formal order mentioning the
project wise amount to be repaid. The DMO of FD will forward the
details to the Cash section. In the cash section the DDO will
prepare a bill in proper format and submit it to the Treasury
office for issuing cheque. Once the cheque is prepared in the
Treasury, the cash section of FD will collect the cheque and
submit it to the DMO cell of FD. A responsible official of DMO will
submit the cheque to the institute and get the necessary
acknowledgement. Between the amount released and repayment
made reconciliation will be made in every 6 months. Also
reconciliation is done with the Accountant General’s office for the
head wise amounts booked in the budget.
The system being proposed by TCS will perform several functions

such as capturing loan details, generating TPN for each loan,
generating repayment schedules as per loan terms and
conditions. The system will also process payables and forward
details to cash section so that the cheque can be issued from
there. Once the cheque is received by DMO, the status of
payables will be updated as paid along-with relevant cheque
details. The system will enable integration with the treasury
office and also will have an interface with AG office.
The MIS generated by the institute loan will have:
○ Status of loans institution wise/project wise/tranche wise

○ Details of loans outstanding month wise/year
wise/institution wise
○ Payable details (Principal + Interest) month wise/year
wise/institution wise
○ Details of loan at particular interest rate or between
particular band of interest rates (interest rate profile of
loans under this category)
○ Tracking of the loans received against budgetary
estimates
○ Graphical analysis of the loans outstanding, repaid,
received (Institution wise, project wise, tranche wise)
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Characteristics of Institutional Loan: The institutional loan is for
duration of 7 years, with annual interest rate of 6.5%. There is a
moratorium period of 2 years. The payment schedule is different
for principal component and interest component. While the
principal is to be repaid in 5 equal instalments after the
moratorium period is over, the interest has to be paid every
quarter on the amount of loan outstanding as on that date.
(i) National Small Savings Fund ( NSSF) Loan: People from all over
India invest in Kisan Vikas Patra, Post Office Monthly Income
Account, 15 Years Public Provident Fund Account, Post Office
Time Deposit Account, 5-Years Post Office Recurring Deposit
Account, Post Office Savings Account, National Savings
Certificate(VIII Issue), Deposit Scheme For Retiring Govt.
Employees-1989, Deposit Scheme For Retiring Employees of
Public Sector Companies 1991, all these form part of NSSF. The
rate of interest on an average on these schemes works out to be
around 8%. These schemes are essentially under the umbrella of
the Central Government. Now Central Government provides
these loans to the state governments in accordance with the
amount invested by that state’s inhabitants. For e.g. if a total of
Rs. 1000 crores have been invested by the people of Gujarat in
the NSSF schemes then the Government of Gujarat will receive
these 1000 crores at an interest rate of 9.5% from the Central
Government.
The process of receiving, management and repayment of NSSF
loan is again different then other processes mentioned in relation
with other loans. Initially the Finance Department of the State
Government as well as RBI CAS (Nagpur) will receive a sanction
(notification) of net amount released during the year. RBI CAS
will credit the amount in the account of the State Government
and the same will be reflected in the Daily Position Sheet which is
sent to the AG as well as to the FD of the State. On the due date
of repayment the amount will be debited from the state
government’s account by RBI CAS and is again reflected in the
Daily Position Sheet.
The system being proposed by TCS will have to track each and
every loan by verifying the payables against the payments made
by RBI CAS (as will be reflected in daily position sheet). The
system will have to reconcile with AG for the payment accounted.
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The system will have to generate repayment schedule as per the
terms and conditions of the loan.
The MIS generated by NSSF system will include:
○ Details of loan received, repaid and outstanding (Year
wise, month wise)
○ Payable details (Principal + Interest) month wise/year
wise
○ Tracking of the loans received against budgetary
estimates
○ Trend analysis of loans received, repaid & outstanding
(Graphical reports)
○ Details of loan at particular interest rate or between
particular band of interest rates (interest rate profile of
market loans)
(i) Market Loans: State Governments often take loans from open
markets to finance their capital expenditure requirements. Now
the states by themselves do not have any powers to raise such
money directly. They have to provide a notification to the RBI for
raising this money on behalf of the state government. RBI does
so by conducting the auction process described in this report
itself. The process of obtaining market loan starts with the state
government issuing notification regarding floating of Government
stock along with various details of tenure, starting date, amount,
repayment schedule to the RBI. Thereafter notices will be issued
to the market participants (interested bidders) who in turn will
submit their bids to the RBI. The RBI after concluding with the
auction will send all the details such as amount of bids received,
amount of bids accepted, interest rate decided etc to the state
governments. Thereafter on a regular basis the state’s debt
management office will track the loans as per the terms and
conditions of the loans. These terms and conditions first appear
on the RBI CAS statement.
The system being developed by TCS will be able to provide a

variety of information to the concerned official of the client staff.
Such information will include market loan receipt details (month
wise along with month wise payment details, loan tenure,
interest rate etc), market loan repayment liability details (along
with the payment date, loan amount, breakup of interest and
principal component, description of the loan etc), market loans
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outstanding details (year wise, weighted average interest rate of
that particular year etc), market loans outstanding details (month
wise), market loans repaid (along with date of receipt, date of
repayment, amount of interest paid, amount of principal paid,
loans repaid for which interest rate etc). Also the system will be
able to reconcile the amount paid with the amount payable and
interface with external entities like AG.
Such market loans have some characteristics for tenure, rate of

interest etc. The tenure of a typical market loan is of 10 years. It
may differ in some cases though. The interest rate as already
mentioned is determined through the auction process.
Repayment of the principal will be done at maturity (at par) while
interest is paid twice a year (every 6 months).
6.4 Cash Management Module:

Management of its cash is an important function for any entity, be it a
business organization, NGO, or a Government. In case of a state
government the main banker is RBI which undertakes transactions of the
state through its agency banks. All the receipt and payment transactions
of the state are executed by these agency banks (all public sector banks
as well as some private banks). The net amount of the state governments
account is settled by these banks with RBI.
The banks through their link offices will send the daily records of
transactions to RBI Public Accounts Department (PAD). (Gujarat’s RBI PAD
is situated at Ashram Road, Ahmedabad). RBI PAD in turn will send these
daily statements to RBI CAS Nagour. RBI CAS will work out the overall
balance position of the state and generate a Daily Position Statement
(DPS). DPS will consist of transactions reported by RBI PAD,
intergovernmental transactions recorded directly at RBI CAS and all other
transactions affecting the cash position of the state. This DPS is forwarded
to the state government and AG office on a daily basis.
Daily Position Statement will consist of the following kind of

information:
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• All the debits and credits of agency banks (these include all
the receipts of Government and all payments of
Government executed by agency banks), the Treasury
offices also generate daily totals of debits and credits and
these are reconcile with the bank records.
• All the intergovernmental advices such as Loan/Grant
received from the central government, liaison office
transactions, interstate settlements
• Investments in T-Bills, rediscounting of T-Bills, maturity
proceeds of the investments etc
• Ways and Means advances and their repayments
• Overdraft advances and their repayments etc
Now based on the daily position of the state, the state will be either in
deficit or surplus. If the state is in surplus then the excess funds of the
state will be invested by the RBI. If the state is in deficit then primarily the
T-Bills will be discounted, if however there are no T-Bills then RBI will give
Ways and Means Advances (WMA). Once the approved limit of WMA is
over, then special WMA (at a higher rate of interest) is given, if even
special WMA gets exhausted then the state has to take the overdraft
facility (at an even higher rate of interest). These various advances are to
be repaid as soon as the state comes in a surplus position.
6.5 Guarantee Management Module:

A Guarantee in finance is promise by one party (the guarantor) to assume
responsibility for the debt obligation of a borrower if that borrower
defaults. The person or company that provides this promise is also known
as a guarantor. The situation in which a guarantee is most typically
required is when the ability of the primary obligor or principal to perform
its obligations under a contract is in question, or when there is some
public or private interest which requires protection from the consequences
of the principal's default or delinquency. In most common law
jurisdictions, a contract of guarantee is only enforceable if recorded in
writing and signed by the surety and the principal.
Guarantee Issue
State Governments give guarantees for repayment of capital, loans, fixed

deposits etc, raised and dividend/interest payable by State
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Corporation/Statutory bodies, Municipal Corporations, Municipalities,
Nagar Panchayats, Cooperative Banks/Societies, Joint Stock companies
etc. The guarantee can be for loan, bond or tripartite agreement. In case
of default by the borrowing organization, State Government has to honour
the amount defaulted within the limit of amount guaranteed. The amount
paid by State Government to the lender has to be recovered from the
parent department of the defaulted organization.
Such Guarantees are an example of non fund based financing and the
state governments providing them earn income on them. The fees
charged by the state governments will be in the range of 0.25% to 2% of
the amount Guaranteed. However for guarantees provided to social
organisations, no such fees will be charged. The respective department
which has taken this facility will deposit the guarantee fee every year in
the month of April. This fee will be calculated on the outstanding amount
of guarantee. For instance if the state government has given a guarantee
of repayment of Rs. 100 crore loan by XYZ Department, but later on
because of subsequent payments made by XYZ Department the loan
amount has fallen to Rs 70 crores, then the fee calculated will be on Rs 70
crores and not on Rs 100 crores.
All the state governments have created Guarantee Redemption Fund

(GRF); all the fees received towards guarantee are credited to GRF. In
case of default by any department, initially the amount available in GRF is
to be utilized. The surplus funds available in GRF are parked in
Government Securities and the interest earned on such securities is
credited to GRF.
Process involved in Guarantee issue: The organization in need of

guarantee will intimate its parent department. Such intimation will include
all the details like amount of funds needed, the project for which these
funds will be utilized, the tenure for which these funds are needed etc.
The respective department will conduct a feasibility study and in turn
intimate the finance department. The finance department will conduct a
necessary check on the credit history of the organization, the risk profile
of the organization. If the FD finds everything in order then it will issue a
sanction order for guarantee. Such an order will include the amount of
guarantee, tenure, the fees chargeable for the guarantee etc. The FD
would have given guarantees to different organizations and by calculating
the risk profiles of different organisations, will calculate an overall
weighted average risk of guarantees given. On receipt of the sanctioned
order the relevant department will pay the guarantee fees in the treasury
and intimate the finance department. Based in the sanctioned order the
department will issue an order or resolution mentioning the amount of
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guarantee, tenure of the guarantee, name of the beneficiary organization,
name of the lender etc. Such a resolution is given to both, the borrower as
well as the lender. Based on such a letter an agreement is signed between
the lender and the borrower and the funds are released by the lender.
Subsequently the concerned department keeps on informing the finance
department about the progress of the project, manner of fund utilization
etc.
Let’s take an example to understand the process in a better manner:
Energy
Finance
State
Treasury
andDepartment
Bank
GuaranteePetrochemicals
of
Issue
GIPCL
(GoG)
Department
(GoG)
India
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In the diagram the organization requiring guarantee is GIPCL, the parent
department of GIPCL is Energy and Petrochemicals Department, the
arrows point out the process flows of guarantee issue. As seen from the
diagram GIPCL will generate a request to its parent department which in
turn will forward it to the Finance Department. The finance department in
turn will issue a sanction order after proper scrutiny and forward the same
to the Energy and Petrochemicals Department (EPD). The guarantee fee is
paid by the EPD to the Treasury which will reconcile the amount with the
FD. The resolution generated by EPD will be transferred to GIPCL as well
as to SBI.
Guarantee Vacation
The borrowing organization will start repaying the loan to the lender as
per the terms and conditions of the loan. Simultaneously the organization
will also inform its parent department about the repayments made, based
on which the department will issue necessary orders to the FD for
vacating the guarantee. FD in turn will issue order for vacating the
guarantee as per the order of the department and will send notifications
to the department and the organization. In case of a default the creditor
will inform the parent department of the default case. This parent
department will in turn inform to the FD which as a guarantor will make
the payment to the lender. FD will recover the amount from the
concerned parent department in due course of time.
The same example which we took up for understanding Guarantee issue,

we take up to understand Guarantee Vacation.
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Energy
Finance
and
GIPC
SB
Department
Guarantee Petrochemicals
Vacation
Department
(GoG)
LI
82 | P a g e
GIPCL will start paying SBI as per the terms and conditions of the loan and
inform EPD. EPD in turn will issue an order to the FD to vacate the
guarantee as per the amount repaid. FD will vacate the guarantee as per
the order and issue notifications to GIPCL and EPD. In case of a default by
GIPCL, SBI will send a notice to EPD which in turn will inform FD.
The system being developed by TCS will enable more effective

management of State Government Guarantees. The client staff will be
able to see on any date the outstanding amount of guarantees
department wise. This can enable effective follow-ups of the FD with the
respective departments and the exact contingent liability of the State can
be known. Also the system will allow the client staff to check the exact
records of guarantees vacated, along with the dates on which the
respective guarantees were vacated. The system will also provide the
purposes whose guarantees have been vacated to enable informed
decision making in the future. Also the system will perform functions
which will assist in effective administration. The system will capture the
sanction details as given by FD in both the FD as well as the parent
department, will capture details of the guarantee availed (parent
department order), will capture all the details of fees and penalties
received against the guarantees given, will track the accumulations in
Guarantee Redemption Fund, will be able to conduct the process for the
payments to be made to the lender in case of default, will be able to track
the recovery of amount from the parent department.
Guarantee Management MIS:
• Department-Wise Summary of Outstanding Guarantees

• Outstanding Guarantees Over The years (Loan/Bond/Tripartite
Agreement)
• Guarantee Vacated by the State Government
• Guarantee Fee Received
• Department-Wise Guarantee Risk Amount
• Institution-Wise Government Guarantee Given/Vacated &
outstanding (with Graphical analysis)
• Type of organization wise (Statutory corporations, Joint Stock
companies, Municipalities/Nagar Panchayat) reports
• Risk Classification Report
• Registers for GRF Investment sales/purchase
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6.6 Online Bill Processing by DDO Office Module:
The staff of the DDO office will prepare various online bills and send them
to the DDO for verification. The DDO will check and verify the online bills
and send the same for processing to the Treasury (after applying digital
signature). The inward clerk at the treasury will generate tokens against
online bills received and send them to the auditor for approval. The
auditor at the Treasury will check the bills and either approve or reject
them. If the auditor approves the bills, he sends them to the check writer
to generate the respective cheques online. In case any of the bills are
rejected then those will be sent to the outward counter with reasons of
rejection to be sent back to the DDO office. For the approved bills, the
cheques will be generated online and sent to the custodian of the
treasury, the custodian in turn will forward it to the outward counter. From
the outward counter the generated cheques will be sent to the DDO office
(This entire process is online). Simultaneously in the treasury, vouchers
will be prepared and detail posting of the cheques issued will be done
which will get reflected in the books of accounts (Again the entire process
of voucher generation, posting etc will be done online).
Some examples of the kinds of Bills generated in various Government

departments:
• Medical Bill (GTR-29)

• T A Bill (GTR-35)
• Abstract Bill For Contingent Charges (GTR-45)
• Refund Of Revenue (GTR-61)
• Grant In Aid Bill (GTR-62)
• Grant In Aid Panchayat (GTR-62A)
• Grant In Aid Local Bodies (GTR-62B)
• Grant In Aid Others (GTR-62C)
• Scholarship/Stipend (GTR-63)
• Bill For Withdrawal Of Final/Dav/Other Gpf (Other Than Class-Iv)
(GTR-75)
• Bill For Withdrawal Of Final/Dav/Other Gpf (Class-Iv) (GTR-76)
• Group Insu Scheme (GTR-77)
• Group Insu Scheme (Insu & Saving Fund) On Ones Demise (GTR-78)
• Group Insu Scheme (Saving Fund) On Ones Retirement & Resi (GTR-
79)
• Refund Of Deposit (GTR-81)
• Refund Of Lapsed Deposit (GTR-83)
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• Advance Bill (GTR-85)
• Court Fee Refund (CFR)
• Detailed Bill For Contingent Charges (GTR-44)
6.7 Earnest Money Deposit (EMD) Module- Receipt to

Refund:
In most of the purchase contracts EMD is involved. It is as a protection
means to the seller in case the buyer defaults. By definition EMD is a
portion of the down payment that accompanies a purchase agreement.
When the purchase agreement is signed by the seller and returned to the
buyer, the deposit is generally held in a trust account. In most of
government contracts EMD is involved. For instance, if certain amount is
to be deposited as a part of tender of a government contract, then such
an amount will be considered as EMD by the government. On successful
bidding by any one or more parties the amount has to be refunded. Any
state government will receive crores of rupees as EMD every year in
respect of its various projects. Thus its management becomes very
important. As a part of IFMS, TCS is developing a system exclusively for
EMD management.
Accordingly, first EMD challan posting will be done as a proof of receipt of

such an amount. Thereafter the system itself will enable the cash account
to be updated with the latest EMD receipt. Now if in future this money
becomes a right of the government, then the money will simply be
transferred to the relevant account by an accounting entry. But if the
money has to be refunded then actual cash will be reduced. Thus a
separate module within the system itself is needed to enable ease of
recording such a refund case.(At times even if the contract is accepted,
then also EMD has to be refunded against a security deposit) Once it
becomes clear that a particular amount is to be refunded, then the system
will enable an inward refund bill generation. Once such a bill is generated,
it will go for cardex verification (The power to generate a refund bill is with
the DDO. Cardex is DDO identification number. Such a bill generation is
similar to any other kind of bill generation (As needed for grant
allocation)). Once cardex verifies the bill, it will be sent for an audit to
check whether it is authentic and against a real EMD. Here there will be
EMD credit verification of the party to whom the refund is to be made.
Once the audit work is performed, the bill is finally sent for cheque
preparation. The cheque is prepared and sent for printing. It would be
worth mentioning here that the cheque won’t be actually printed, but only
a print like soft copy of the cheque will be generated. Thereafter the
cheque will be sent to the custodian and from there to the outer counter.
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There will be different outer counters for different cheques with each
counter having a minimum and maximum limit of amount of cheques to
be disbursed.
Now a payment advice will be generated as a proof of the payment being

made. Such a payment advice is necessary to enable effective posting in
the books. Thereafter voucher generation and distribution will take place.
On the basis of these vouchers, posting is done in the books. Ultimately a
list consisting of various payments (made during a particular time frame)
will be generated.
6.8 Cyber Treasury Portal Module: (Online integration

with Banks)
The cyber treasury portal is a portal for electronic payments of various
kinds of taxes/duties which are payable to the state government. This
facility is for the common tax payers which will include individual tax
payers, proprietary firms, small partnership firms etc. This facility is
available 24*7*365 and the amount paid using this portal will be instantly
credited to the state government account.
This portal as developed by TCS will be concerned with certain activities

such as
a. Registration of users on Cyber Treasury Portal (i.e. personal

and other details, users will be the tax payers)
b. User Profile Management (features such as recognizing login
ID, password, facility to change details as and when required)
c. Challan Preparation on Cyber Treasury Portal (to be filled up
by users in the required format)
d. Challan Payment on Bank’s Portal (external interface)
e. Cyber Receipt Generation and Acknowledgement
f. Reconciliation of data
g. Digitally signed E-scroll upload by Bank Admin
h. E-scroll Verification and Approval by Treasury Admin
i. Detail Posting of approved Challans in IFMS
The various activities will have to be performed in an orderly and

sequential manner.
The first step in the process will be user registration. As soon as the home
page of the treasury module will be opened there will be an option for new
users to register themselves. For the sake of understanding let’s take an
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example of Mr. Patel who is an accountant in a firm and has to make a
payment of value added tax on behalf of his firm. Mr. Patel will have to
register himself on the treasury portal by filling in the requisite details.
These details include:
Personal Details: Includes name, address, contact number, e-mail ID name

of the firm etc.
Security Details: Includes password, security question etc
Identification Details: The user will have to submit a proof of identification.

This will be done by uploading a soft copy of driving license, PAN card,
passport or any other legal document.
Mr. Patel will also have to mention the treasury and the sub treasury
where the challan is to be deposited by clicking on the link given. Mr. Patel
will have the option to register for different purposes challans. Once Mr.
Patel is registered a screen showing various kinds of information
pertaining to him will be displayed.
Once the registration process is complete, the system will integrate the
new registration in the legacy system. This is necessary for future
references.
Once the registration process is over, Mr. Patel can login to the system
whenever the tax payment has to be made. This can be done by using the
login ID and password.
When Mr. Patel will login to the system, he will have to click on the
relevant challan for making e-payment (the names of only those challans
for which Mr. Patel has registered will be displayed). In our case the
relevant challan is for VAT. Once Mr. Patel clicks on VAT challan, he will
have to fill in the challan and confirm it. Once confirmed the challan will
have to be submitted for making e-payment. As soon as Mr. Patel submits
the filled challan, he will be guided on to the respective Banks’ portal.
(This is an example of external interface with banks. This bank will be
from among a group of authorized banks, and Mr. Patel will have to select
one from this group.(the bank will be the one where Mr. Patel has an
account) The finance department (GoG) will have a tie-up with these
banks). Once on the bank portal, Mr. Patel will use his net banking
credentials and login.
All the information which Mr. Patel has filled in the challan will be shown
on the bank’s portal and Mr. Patel has to select the account from which he
wants to make the payment. Once the account has been selected, a
screen will be displayed where Mr. Patel will be able to look at all the
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details of the challan and the account selected. Mr. Patel will confirm
these details and once confirmed a unique Challan Identification Number
(CIN) will be generated on the banks end to uniquely identify different
challan payments. This CIN will be displayed on the screen of Mr. Patel
after a few moments, and Mr. Patel will have to confirm the payment by
clicking on the confirm button and the amount will be debited from his
account.
All the accounting work for all such transactions will be done by Treasury
Office Gandhinagar. As such sending an email to the user is not
mandatory in such cases, some banks may do so as an additional service
to their customers.
After the relevant amount has been debited, the banks will generate a
unique cyber receipt with a unique reference number as a proof of the
transaction. This cyber receipt will be displayed on the screen of Mr. Patel
and he can either take a print out of the same or save a copy for future
reference. All this features will be system enabled. Once the transaction is
completed Mr. Patel will be directed back to the treasury portal where CIN
and bank reference number will be displayed. The system will also enable
Mr. Patel to see the details of the payments made if he so wishes. With
this the interaction with Mr. Patel gets over.
Next will be the reconciliation between the banks and the treasury. Before
the end of the working day, banks will send the reconciliation report for all
the online transactions carried out during the day with a naming
convention
Reconciliation_Report_<BankName>_<ddmmyyyy>
This report will be uploaded by the administrator of the treasury to update

the status of all the transactions of challan e-payment. Automatically the
system will show a list of all the transactions that have been matched,
unmatched.
The banks will also upload e-scroll soft copy on the cyber treasury portal,
and it is on the basis of this e-scroll that the final accounting records will
be updated.
The treasury administration will also have to verify the e-scroll by

approving the list of challans. Once these challans are approved they will
be transferred on to the IFMS.
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External Interface with RBI, AG, Banks:
As part of IFMS, any kind of external interface is very critical. An external

interface with such entities as Reserve Bank, Accountant General and
Banks becomes all the more important given its day to day requirements.
An AG is an auditor of the state government just as an auditor is there for

a company.This module of IFMS will enable the auditor to generate reports
for all kinds of government transactions such as receipts, expenditure,
loans (given and taken), guarantees etc. These reports are generated on
the basis of information to the AG via the system itself. As part of its
external interface regular inputs are sent to the AG of the state by the
system.
Now as mentioned in the cash management section in this report, various

banks operate as agents of RBI and executive various kinds of
transactions of the state governments. These banks send a daily scroll (as
a record of all the transactions) to the state treasury. These scrolls will be
for receipt as well as expenditure of the state (These scrolls are to be
captured by the system itself). The junior clerk at the district treasury
office will upload both expenditure as well as receipt scrolls on the
system, will upload cheques (for payments) and challans (for receipts),
automatically all these records will get reflected in the list of payments
(expenditure) and in the cash account (receipts), thus updating the books.
The banks will be sending records (scrolls) of state’s position to the

treasury on a daily basis. This position is known as Reserve Bank Deposit
(RBD) of the state. It is so known as banks are ultimately the agents of RBI
and these are balances of the state with the banks. RBD can be in
negative or positive. If RBD for a particular bank is in negative then it
indicates that the state has made payments in excess of its receipts for
that day from that particular bank. The case will be exact opposite when
RBD is in positive. Now there will be several such banks and daily there
might be either positive or negative RBD. On any day, by taking all the
previous records (till the particular day) the net position of the state will
be worked out. If the state is just meeting its minimum balance
requirement then no steps will be taken, if the state is in excess, the
amount will be invested in 14 Day intermediate T-Bills, and if the state is
falling short of the minimum balance requirement then the WMA
mechanism will come into picture. The RBD position as mentioned in the
bank updates and as captured in the treasury will be reconciled and if any
discrepancy arises then it will be reported to the respective bank and a
discrepancy report will be generated. Now the agency banks will also be
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sending a daily report to the RBI of the state governments’ position. These
reports will be sent to the state treasury (as RBI scroll) and again a
reconciliation of the details captured at treasury and at RBI will be done
(On the system itself). If any discrepancy arises then it will be clarified by
necessary inputs from the banks, RBI and treasury.
6.9 Grant Release Module:

The grants under State Government are distributed
From To
Departm Controlling Drawing and

ent Officer (CO) Disbursement Officer
(DDO)
Finance *
Department * * *
Controlling
* *
Officer (CO)
Note: Areas marked by * indicate grant distribution.
The system will have the facility to generate reports for grant distribution
for all the above mentioned cases. Apart from this the system will be able
to generate reports for all the grants received by various CO’s as well as
various DDO’s as on a particular date. (These will come under transaction
screens)
Benefits of this module as envisioned:
• Effective and efficient distribution of grant at all levels up to DDOs

• Makes grant distribution process more transparent as detail about
grant distribution at all levels will be available to FD
• Validates grant distribution with approved budget detail
automatically which adds up control in the overall process
• Real-time MIS of grant distribution across state
• Facility of Audit Trail
For different reports generated by the system, there will be different

screens and the details of these screens being almost the same; they do
not warrant a separate explanation.
90 | P a g e
Apart from this, the system will generate reports (under the heading
report screens)
• detailing total grants given by Finance Department to other

departments
• that will be mapping CO and head, DDO and head (under a
particular head what amount of grant has been released)
• detailing total grants released from department to CO
• detailing total grants released from CO to DDO
• detailing total grants released from department to department (for
example from agricultural department to education department)
• detailing total grants released from department to DDO
• detailing total grants released from CO to CO
• grants not distributed by CO
This will help in cross verifying within the system itself, the amount of
grants received and disbursed by various entities.
Detailed External Interfaces:
The system will be having detailed interfaces with RBI, Banks and AG.
Interface with RBI: The main feature of this interface will be to capture
RBD figures as received from RBI and compare it with RBD figures
received from Banks (via various treasuries and sub-treasuries) on a daily
basis. The system will provide features of entering receipt/payment details
bank wise and branch wise and help in calculating RBD. This would also be
captured in respective Treasury Office/Sub Treasury Office. Also the
figures received from RBI will be uploaded centrally in DAT through this
system itself and the reconciliation process takes place at DAT on the
system itself. The discrepancy reports will be generated (whether any
discrepancy is found or not) through the system. In case any settlement
process with the banks is needed, then it will be done by RBI and the
details will be uploaded on the system (on DAT platform).
Interface with AG: AG office is primarily concerned with the audit of

various transactions to ensure that public funds are being utilized
properly. In order to facilitate the AG office, several documents are sent
from the treasuries. Now under the present system, data entry is being
done at the AG office of all these documents. The system being developed
by TCS will avoid such duplication. The interface with AG will be primarily
concerned with generation of text file of treasury data between two given
dates, (The audit work will be carried out on the basis of this data). This
text file will then be integrated into the system present at the AG office
and thus will avoid re-posting of voucher data. Thereafter the system at
the AG office will take over.
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Interface with Banks: The bank interface of IFMS is primarily concerned
with uploading of e-scrolls received from various banks into the IFMS.
Upon such an upload, the data from these scrolls would be imported into
IFMS and thus will eliminate data entry of individual challans at the
treasury.
6.10 Pension Processing Module:

The basic process flow of this module will start with pension office sending
a request case to Directorate of Pension and Provident Fund (DPPF). Here
at DPPF the case will be reviewed and checked for details such as
• Pensioner and Family Details

• Pensioner Service Details
• Pensioner Pay Details
• Pensioner Recovery Details
On the basis of above details the pension details of the pensioner will be
calculated. The system will enable the pension file (details) to be
forwarded as per the government system. The process flow for obtaining
the services certificate will also be the same. All the kinds of transactions
such as receipt of pension request, preparation of pension case, saving of
such cases, forwarding through various levels of hierarchy, calculation of
pension will be done within the system itself and shown on the computer
screen.
All the kinds of reports such as pension inward report, pension payment
order, commuted value of pension order, and branch wise status of
pension cases will be generated by the system itself. Thus the system as
developed by TCS will be able to incorporate the existing process of the
government and replace the existing manual system by an online system.
6.11 Expenditure and Receipt Accounting Module:

This module is primarily concerned with taking into consideration the
receipts and expenditure of the state government. It is similar to the
books of accounts maintained in corporate bodies. This module holds
extreme importance as the documents maintained here are extremely
important for decision making on part of the Government.
The process flow is different for expenditure accounting and receipt

accounting. For expenditure accounting the cheque advice reports will be
the first inputs. These reports will be obtained from respective treasuries
and sub-treasuries itself. On the basis of these reports, vouchers will be
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distributed as per major heads to the in-charge personnel within the
system itself. Thereafter detail posting on the basis of these vouchers will
be done and all kinds of reports such as payment subsidiary register, RBD
report, major head-wise payment jotting etc will be generated in the
system itself. These reports will be open to access for future references as
well as will be printer friendly. Similarly for receipt accounting the major
and first input will be the bank scrolls and challans. On the basis of this
input detail posting of challans will be done and the books updated. The
posting will be done as per treasury and sub-treasury. Here again various
kinds of reports such as receipt subsidiary register, date wise receipt
summary, cash account etc will be generated. Again all this reports will
also be open to future access and printer friendly.
6.12 Stamp Processing Module:

Sale of stamp papers is an important source of revenue for the
government. Stamp management is an important function of the
Treasuries. There is a process involved behind those stamps we collect
from retail vendors.
First the vendor (these are government approved vendors) will give a
hand written challan at the counter. With the submission of this challan at
the counter, the system will come into the picture. Initially there will be
stock verification of the desired stamps. Once it is confirmed that there is
adequate stock with the treasury, an online challan preparation will be
done. Subsequently an enfacement number will be generated for the
challan. Such a number will be unique. This number will be written on the
challan and given back to the vendor. The vendor will take the challan and
pay money along-with the challan in the bank. The bank will be sending
such acknowledged challans back to the treasury. The bank will also be
sending a detailed scroll of various challans received (the scroll will have
the numbers of various challans) to the stamp officer at the treasury. At
the treasury challan verification will be done on the system itself. Once it
is confirmed that everything is in order, the challan will be approved for
stamp sale. Now the stamps will be transferred from double lock register
to single lock register. Simultaneously it will be verified that the minimum
required stock is there. Subsequently stamps will be issued to the vendor
who in turn will sell to the common man. If the minimum requirement is
not met then fresh order* for stamps be given to the stamp issuing
authority. Either way the inventory will be updated. All this features will be
system enabled. The challans will be sent to book branch, discount reports
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will be prepared (discounts are given to vendors as a remuneration), the
consolidated discount bill will be sent to the book branch.
* For issuing fresh orders to the stamp issuing authority, indent will be
prepared and sent to the appropriate authority via the system itself.
Indent preparation is a necessary step for issuing fresh orders of stamps.
The system provides with various models to prepare, edit, consolidate
indent.
6.13 Personal Deposit (PD) Account Module:

Organisations like educational institutes, boards, corporations, nigams,
societies request for such account.
Note: It is mainly the government departments that open a PD or PDPLA

account with the Treasury.
• The depositors will request the finance department for opening of

PD account
• Finance Department issues the sanction letter to the treasury office
in case account opening is agreed. This order consist of details like
FD order number, date, institute name, head structure, name of
operator, opening balance, if any, account should be interest
bearing or non interest bearing
• Treasury office prepares the Sanctioned order based on the FD
generated letter and start process on opening an account
• The relevant information mentioned in FD order, date on which
account created, controlling officer’s (account operating authority)
signatures is maintained
• Existing system generates the PD account number which will be
given to organization
• The newly generated account details will be mentioned in the PD
ledger
The money in such an account can be deposited either through bank or

finance department.
1. Through Bank: The depositor will fill in a challan and deposit the
amount in the bank. The bank will be sending a scroll and deposited
challans to the treasury office. Here the processing will be done by
the relevant staff member. The PD account will be credited with the
relevant amount.
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2. Through FD: The FD can credit the relevant PD account directly in
case grant-in-aid is to be provided to the account holding institution.
The payment process will start with the issuance of cheque book to the
depositor. Whenever any payment is to be made from this account, the
depositor will issue a cheque which on being deposited in the bank will
ensure payment from the bank. The bank in turn will send the cheque to
the treasury along-with the scrolls. These cheques and scroll is sent to the
deposit branch by the treasury for detailed cheque posting. This payment
made from the PDPLA account will have to be refunded by the treasury.
The account holder will submit bills for refund and the treasury will
dispatch a cheque against the same. The person in charge of all this
processes will generally be the DDO of the relevant department.
Through the system being developed by TCS all the processes from
cheque book issue, PDPLA account creation, posting of receipt challans,
posting of payment vouchers will be done on the system itself.
The system will also be able to generate various kinds of reports such as
incorporation of bank intimation for new account, head wise account
summary, date wise accounts summary, ledger cum passbook. The
system will also be able to generate reports related to inoperative
accounts (accounts which have had no activity since a particular date), no
transactions accounts. Also reports showing date wise minimum balance
and month wise minimum balance will be generated (this holds
importance as the interest calculation is done on the minimum balance of
the month).
6.14 House Building Advance/Motor Car Advance

Module:
Any government servant can apply for the long term advance. This long
term advance can be house building advance (HBA) or Motor Car Advance
(MCA). The applicant needs to feel in the form given/prescribed by the
respective bank. Applicant will fill in the relevant data in the prescribed
form and forwards the same to DDO. DDO then verifies the data and signs
on that form & forwards them to the respective bank.
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For the recoveries, at the time of preparation of pay bill, DDO’s need to
prepare schedule statements for the GPF, loan recoveries etc. These loan
recoveries need to be updated under the particular account head. The
schedules along with the pay bill are submitted to the Treasury office.
Through the system designed by TCS the above mentioned process will be
totally system enabled.
Note: In describing the modules, I might have used at several instances

the word ‘Treasury’ for explaining something. The reader should know
that this has been done just to avoid ambiguousness in writing. There is
not one but 25 district treasury offices and 174 sub-treasury offices.
6.15 New Pension Scheme
The Government of India (GOI), vide notification dated 22nd December

2003 issued by Ministry of Finance, Department of Economic Affairs has
introduced a new Defined Contribution Pension Scheme known as the New
Pension System (NPS) replacing the existing system of Defined Benefit
Pension System. The New Pension System came into operation with effect
from 1st January 2004 and is applicable to all new employees to Central
Government service, except to Armed Forces, joining Government service
on or after 1st January 2004. The employees of Central Autonomous
organizations, State Governments/Union Territories (UTs) and the
Autonomous organizations of the respective State Government/UT are
also eligible to join the NPS. The employees who join the NPS will be
known as ‘Subscribers’ in the NPS. The GOI established Pension Fund
Regulatory and Development Authority (PFRDA) on 10th October 2003 to
develop and regulate the Pension Funds under the NPS. PFRDA has
appointed National Securities Depository Limited (NSDL) as the Central
Record Keeping Agency (CRA) to maintain the records of contribution and
its deployment in various pension fund schemes for the employees.
For the purpose of accessing the CRA system, Nodal offices and
Subscribers need to get registered afresh in the CRA system. Upon
registration, the entities will be allotted unique Registration Numbers,
User ids and passwords, which can be used by the nodal offices and
subscribers for accessing the NPSCAN/CRA system. The Subscribers, upon
registration, will be allotted a PRAN by CRA which shall be used by nodal
offices while uploading subscriber contribution information to the CRA
system.
96 | P a g e
6.15.1 The NPS architecture is summarized as shown below:
1. The new pension scheme (NPS) announced by the Government of India

initially targeted new entrants to central government service (excluding
Armed Forces). After a few months, it was made available to all other
citizens of India. Each member of the new pension scheme will be allotted
a unique personal retirement account (PRA) number. This pension system
will initially be based on two types of sub accounts created by individual
members:
a) A Tier I non withdraw able and tax deferred pensions account (for
all individuals), and
b) A Tier II withdraw able savings account with no tax advantages

(for all individuals subject to minimum deposits per year in the Tier I
account).
The number of such sub accounts may be altered as the system evolves
and depending on the needs and performance of the NPS.
97 | P a g e
2. A member will accrete savings towards his retirement into his PRA
through his working life. This PRA will stay with the member regardless of
where he stays or Works – including spells of unemployment, self
employment, changes in jobs or location. He will be able to use a
nationwide network of competing pension service providers (POPs) to
access this system for opening a PRA, accreting new Contributions,
receiving account or system information and for obtaining retirement
benefits.
3. A member will have complete control on how his contributions and

savings in his PRA are managed. He will be able to select a professional
Pension Fund Manager (PFM) from a pool of competing pension fund
managers. Each PFM in this system will offer a choice of three simple and
standard pension schemes with different risk and return profiles. If he
desires, the member will be free to allocate his savings across multiple
PFMs and schemes. If a member is unable to select a PFM, his savings will
be directed to a 'Default' scheme. He will also be able to seamlessly
switch his savings between fund managers and products as and when he
desires. With individual accounts and complete freedom of choice, a
member will be able to easily alter his risk profile in an optimum fashion
over time – he will be able to move from a high return scheme with
relatively higher risk at a young age, to a low or near zero risk, modest
returns portfolio when approaching retirement if he desires. The member
will receive periodic, consolidated statements of his PRA which will reflect
his wealth in his PRA across various products and PFMs. This will be the
sum total of his contributions at that point in time and the returns that
these contributions have earned.
4. On retirement, a member will be able to use a part of his savings

accumulated over the years in his PRA to buy an annuity to obtain a
pension for the rest of his life.
5. In this process of accumulating retirement savings, the Pension Fund

Regulatory and Development Authority (PFRDA) will provide the members
of this scheme with a sound regulatory framework and an umbrella of
safety with respect to prevention of fraud and malpractice.
6.15.2 Stake Holders:
• Points of presence(pop)
• Central record keeping agency
• Pension fund manager
• Trustee bank(Bank of India)
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• Annuity service provider
• NPS Trust
• Provident Fund Regulatory & Development Authority
• Subscriber
6.15.3 Roles & Responsibility of Stake Holders
• Point of presence:
Point of presence is the first point of interaction of the NPS
subscriber with NPS architecture. This POP acts as a collection point
and extends a number of services to the customers.
LIST OF POPs
1. Allahabad Bank
2. Axis Bank Ltd.
3. Bajaj Allianz General Insurance Co Ltd.
4. Central Bank of India (CBI)
5. Citibank N.A.
6. Computer Age Management Services Private Ltd.
7. ICICI Bank Ltd.
8. IDBI Bank Ltd.
9. IL&FS Securities Services Ltd.
10.Kotak Mahindra Bank Ltd.
11.Life Insurance Corporation of India (LIC)
12.Oriental Bank of Commerce (OBC)
13.Reliance Capital Ltd.
14.State Bank of Bikaner & Jaipur (SBBJ)
15.State Bank of Hyderabad
16.State Bank of India (SBI)
17.State Bank of Indore
18.State Bank of Mysore
19.State Bank of Patiala
20.State Bank of Travancore
21.The South Indian Bank Ltd.
22.Union Bank of India (UBI)
23.UTI Asset Management Company Ltd.
• Central Recordkeeping Agency(CRA):
National Securities Depositories Limited (NSDL) has been appointed

as the Central Record Keeping Agency by the Pension Fund
Regulatory and Development Authority (PFRDA). It has, accordingly,
taken over the roles and responsibilities of the Central Pension
Accounting Office with regard to the NPS w.e.f. 1st June, 2008.
99 | P a g e
PAOs shall remit the pension contributions, including Government’s
matching contribution, in respect of Government employees
covered under the NPS to the CRA w.e.f. the salary of June, 2008..
For this purpose, the individual subscribers (new entrants to
government service excepting Armed Forces on or after 1st January,
2004) the state government employees (for states adopting NPS),
DDOs, PAOs and (and equivalent designations in other accounting
formations) need to get registered afresh in the CRA system.
• Pension Fund Manager(PFM):
Appointed PFs would manage the retirement savings of subscribers

under the NPS. PFs would use their secure access codes to confirm
receipt of netted assets and instructions regarding fund allocation,
confirm allocation of funds and communicate the NAV of each
scheme to CRA on a regular basis. The PFs will be required to invest
strictly in accordance with guidelines issued by the PFRDA.
List of fund managers
1. ICICI Prudential Life Insurance Company Limited

2. IDFC Asset Management Asset Management Company
Limited
3. Kotak Mahindra Asset Management Company Limited
4. Reliance Capital Asset Management Company Limited
5. SBI Pension Funds Limited
6. UTI Retirement Solutions Limited
• Trustee bank (Bank of INDIA):
A trustee, the bank will be the custodian bank pension fund

managers. The bank’s role is to receive the pension money coming
from the centre and then pass it on to the three fund managers
which have already been appointed.
• ASP:
Annuity Service Providers (ASPs) are be appointed by PFRDA to
maintain the annuity contribution of subscribers through their
various schemes. Subscribers will have the option to invest their
amount into one or more annuity schemes upon
retirement/resignation. ASPs would be responsible for delivering a
regular monthly pension (annuity) to the subscriber for the rest of
his/her life.
100 | P a g e
• NPS TRUST:
A trust appointed under INDIA TRUST act, 1882 is responsible for
taking care of the funds under the NPS in the best interest of
subscribers.
• Pension Fund Regulatory & Development Authority:

PFRDA is the regulator for the NPS. PFRDA is responsible for
appointment of various intermediaries in the system such as Central
Record Keeping Agency (CRA), Pension Funds, Custodians, NPS
Trustee Bank, etc. PFRDA shall also monitor the performance of the
various intermediaries. PFRDA has a significant role to play in
safeguarding the interest of subscribers. It will regulate the manner
in which subscriber contributions are invested by PF(s) and will
make all efforts to ensure fair play for subscribers. It shall also
ensure that all stakeholders comply with the guidelines/regulations
issued by PFRDA from time to time.
• Subscriber:
Subscribers will have complete control on how their contributions
and savings in PRAN are managed. They will be able to select a
professional Pension Fund (PF) from a pool of competing Pension
Funds. Each PF in this system will offer a limited number of simple,
standard investment schemes with different risk and return profiles.
They will also be able to seamlessly switch savings between
investment schemes subject to such conditions as prescribed by
PFRDA from time to time.
• CRA Facilitation Centre:

CRA-FC is the entity appointed by NSDL to extend various services
under NPS, to its users across the country. The entities who have
been appointed as CRA-FC shall establish multiple branches across
the country to provide services to the nodal offices such as Pay &
Accounts Office (PAO) or equivalent office under Central and State
Government.
As per present scope of CRA, following services shall be offered by

the CRA-FC
1. Acceptance of Application for allotment of new PRAN

2. Acceptance of Subscriber request for change in signature
photograph.
• POP/POP-SP Details:
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The Government of India has decided to roll out the NPS for all
citizens of India from 1st May, 2009. Hence, various facilities (like
opening Permanent Retirement Account, contributing to NPS etc) will
be required to be provided to all the citizens (known as ‘Subscribers’
in the NPS architecture) at various locations across India. These
processes shall be carried out through the entities known as Points of
Presence (POPs) appointed by the PFRDA. POPs’ shall provide the
services under NPS through their network of branches called POP
Service Providers (POP-SP).
• Pay and Accounts Officer (PAO):

The pay and accounts officer will be serving as a link between DDO
and NPSCAN system. (NPSCAN being the system of CRA). The
following are the main functions of PAO:
 Consolidate DDO registration form and forward it to CRA for
registration.
 Facilitate registration of Subscribers by consolidating the
Application for allotment of PRAN received from the concerned
DDO and forward it to the CRA-FC.
 Upload Subscriber Contribution File (SCF) to NPSCAN system.
SCF will contain subscriber wise details of pension contribution
such as PRAN, Pay month and year, Subscriber Contribution
amount and Government Contribution amount etc.
Note: NPSCAN: NPSCAN is a platform which is envisaged to
maintain subscriber pension account information and
contributions. Access to CRA will be provided to the Nodal
Office through NPSCAN system www.npscan-cra.co.in. NPSCAN
will provide PAO the facility to update the subscriber details in
CRA for subscribers associated with it. Further PAO can raise
grievance through the CRA site www.cra-nsdl.co.in.
The steps are explained in the following diagram:
CRA to
Consolidation
FVU
FPU
Digitizatio
Validation
Upload
Subscriber of
Contribution File (SCF) Upload by PAO
DDO
n of wise
ofNPSCAN
Records
Subscriber
Records
Contribution
Records
Note 1: To facilitate the digitization and consolidation of the pension

contribution details of the Subscribers, CRA has developed a utility called
102 | P a g e
File Preparation Utility (FPU). It is a JAVA based utility which can be easily
installable on a desktop machine.
Note 2: File Validation Utility (FVU) is a Java based utility developed by the
CRA to ensure that SCF prepared by DTA/DTO is in conformity with the
file formats of CRA.
 PAO will deposit the contribution amount in the Trustee Bank as

per the SCF uploaded in NPSCAN. This contribution amount will
be invested in various schemes of PFM, based on the Scheme
Preference of Subscribers for which SCF has been uploaded.
 PAO will update through NPSCAN, the Switch requests, New
Scheme Preference requests, Withdrawal Requests, the request
for change in subscriber details received from Subscribers
 PAO will raise grievance on behalf of DDO and the subscriber.
 PAO will resolve the grievance raised against it by any entities
in the CRA system
However, before performing the above-mentioned functions, PAO
shall have to register itself with CRA. The system designed by TCS
will enable PAO to do so. Now the question arises as to who is this
PAO? The PAOs are the ones who have the authority to release
payments on behalf of the Government and to collect revenues of
the government.
• Drawing and Disbursement Officer (DDO):
A DDO is perhaps the most fundamental link in both administrative

as well as financial functions. He derives the powers from the
Government or from the Head of Department, regional head and
head of office, the three- tier structure of administration. This
structure helps the DDO to carry out assigned functions effectively.
A DDO is “ an officer who by virtue if his position as the Head of

Office or any officer, who has been declared as disbursing officer by
Government is DDO”. The two most important conditions are that he
must be a gazetted officer and hold independent charge of a post.
The post of DDO cannot be distinguished separately in every
Government office. He is not necessarily the accounts officer from
the finance department. He is most probably from the respective
department itself. The powers of a DDO include, power to withdraw
funds from the treasury, subject to budget provisions and proper
sanction. An example to illustrate the importance of this post: The
state government budget or even the central government budget
103 | P a g e
largely depends upon the figures of actual receipts and expenditure
for the previous 3 years. The basis of expenditure is taken as
indicative with some scope for the incremental effects. A DDO has to
prepare the budget estimate of his/her office in the basis of such
record. In the revised estimate, the DDO has to consider the actual
expenditure for 4/8/9 months as a base. Each DDO in the state will
have a code number without which the treasury office will not
entertain their claims.
6.15.4 Main Features of the New Pension System
The new pension system would be based on defined contributions. It

will use the existing network of bank branches and post offices etc.
to collect contributions. There will be seamless transfer of
accumulations in case of change of employment and/or location. It
will also offer a basket of investment choices and Fund managers.
The new pension system will be voluntary.
The system would, however, be mandatory for new recruits to the

Central Government service (except the armed forces). The monthly
contribution would be 10 percent of the salary and DA to be paid by
the employee and matched by the Central Government. However,
there will be no contribution from the Government in respect of
individuals who are not Government employees. The contributions
and returns thereon would be deposited in a non-withdraw able
pension account. The existing provisions of defined benefit pension
and GPF would not be available to the new recruits in the central
Government service.
In addition to the above pension account, each individual can have a

voluntary tier-II withdraw able account at his option. Government
will make no contribution into this account. These assets would be
managed in the same manner as the pension. The accumulations in
this account can be withdrawn anytime without assigning any
reason.
Individuals can normally exit at or after age 60 years from the

pension system. At exit, the individual would be required to invest at
least 40 percent of pension wealth to purchase an annuity. In case
of Government employees, the annuity should provide for pension
for the lifetime of the employee and his dependent parents and his
spouse at the time of retirement. The individual would receive a
104 | P a g e
lump-sum of the remaining pension wealth, which she would be free
to utilize in any manner. Individuals would have the flexibility to
leave the pension system prior to age 60. However, in this case, the
mandatory annuitisation would be 80% of the pension wealth.
There will be one or more central record keeping agency (CRA),

several pension fund managers (PFMs) to choose from which will
offer different categories of schemes.
The participating entities (PFMs, CRA etc.) would give out easily
understood information about past performance & regular NAVs, so
that the individual would able to make informed choices about
which scheme to choose.
Insights from Gujarat Government into the NPS (Being one of the
state governments which might take TCS developed software for New
Pension Scheme):
New Defined Contribution Pension Scheme being introduced with
effect from 1.4.2005 Government of Gujarat, Finance Department,
G.R.No.NPN2003GOI10P Sachivalaya, Gandhinagar
An announcement was made by the Central Government in the Parliament

during presentation of the Budget of 2003-2004 to introduce a new
structured known as Contributory Pension Scheme for the candidates to
be recruited in the services of the Central Government. As one of the
measures towards this end, the Government of India has introduced a
New Defined Contribution Pension Scheme with effect from 1.1.2004 for
its employees except the Armed Forces. The Government of India has also
framed an interim method as detailed rules and regulations were to be
framed for the implementation of this Scheme. The issue of covering the
employees to be appointed in the services of the State Government as
well as the employees to be appointed in the Board / Corporations of the
State and the employees to be appointed on the teaching and
nonteaching posts of all Grant-in-Aid. Institutes and other such Institutes
where Pension Scheme is in vogue today, under the aforesaid New
Defined Contribution Pension Scheme of the Government of India, was
under consideration of the Government for quite some time.
After careful consideration, it is decided to implement this New Defined

Contribution Pension Scheme from 1st April, 2005 and as such, this New
Defined Contribution Pension Scheme shall apply to the following
employees:
105 | P a g e
(1)All employees of Government and Panchayat who may be appointed on
or after 1st April, 2005;
(2)Employees who may be appointed in the Board / Corporations where at

present the scheme to get retirement benefits equivalent to those of the
State Government employees is in vogue and all teaching and
nonteaching employees who may be appointed on or after 1st April, 2005
in the GrantinAid Institutes where the present Pension Scheme is in
vogue.
(3)Employees already appointed prior to 1st April, 2005 under the practice
adopted by the State Government for appointment on Monthly Lumpsum
Salary and the employees who may be appointed now onwards on
Monthly Lumpsum Salary through the regular recruitment procedure
applicable as per Government orders in force and who may be converted
in the regular payscale on or after 1st April, 2005.
(4)Teaching and nonteaching employees already appointed or to be

appointed under the 'Vidya Sahayak' or "Shikshan Sahayak' Scheme of
the Education Department of the State Government as well as the
teaching and nonteaching employees appointed under the aforesaid
Scheme who would get salary in the regular payscale on or after 1st April,
2005.
The deduction of contribution of the New Defined Contribution Pension

Scheme shall commence from the employee's salary from the month
subsequent to the month of joining the service, e.g. in the case of an
employee appointed in the month of April2005, his contribution shall be
recovered from the salary of May to be paid on 1st June, 2005. Separate
detailed orders, guidelines and the accounting procedure to be adopted
for implementation of the decision contained in this Resolution shall be
issued separately. Thus one can see that even the state governments are
keen to adopt NPS and have in fact decided to go with an online system
for its implementation where the role of Tata Consultancy Services comes
in.
As a management student I was keen to explore the other side of such an

important development by the Government. So I came up with some
concerns regarding New Pension Scheme
• Government abdicating from responsibility of providing pension
• Private management Vs public management
• Vagaries of capital markets- investment in Government Bonds
• No guaranteed returns
• Foreigners will control pension sector (walk away with pension
wealth?)
106 | P a g e
• Premature withdrawals not allowed
Thus there are certain downsides also to NPS but the overall benefits do
outweigh the costs.
7. LEARNING FROM THE SUMMER PROJECT
7.1 Augmentation of Soft Skills:
a) It gave me the opportunity to work in office, in the corporate

atmosphere.
107 | P a g e
b) Till now I had been learning about the work place, the culture at
different organizations, useful management tools, personal relations
skills, quantitative skills, etc. But this training gave me the opportunity
to use that learning in the real situation.
c) The project helped me in enhancing my communication skills.
d) It was a nice experience to build interpersonal relationships with
different people.
e) Hours of work increased my stamina to work long hours and also
realized importance to finish the work on time.
f) The formulation of project report increased my patience and ability
to work hard.
7.2 Learning:
Summer training helped me to realize the importance of each and

every subject. It gave me the knowledge about the IT industry and
some concepts related to it about which I was totally unknown.
I have also come to know about the practical use of Information
Technologies and Communications Technologies in Governments. I
have come to know about the new projects of Government of Gujarat
for upgrading the system.
I have realized that IT industry is very much useful for managing the
business processes efficiently hence it’s the necessary to all the
Industries to keep with the latest IT upgrades.
108 | P a g e
8. RECCOMMENDATIONS
The first and foremost recommendation for TCS is to change its vision
statement. In my humble opinion it is short sighted. TCS needs to have
a vision that will show its leadership qualities and long term thinking.
Based on current situation, TCS strategists can adapt their positioning

and direction, paying particular focus to the following issues to ensure
long-term market success:
Expect to see the landscape continue to consolidate, clients will seek to

cut costs and focus on fewer provider relationships as the economy
worsens. TCS should take this opportunity to improve their market
positioning.
Ensure marketing articulates your value proposition to all stakeholders

concerned. In a post recession, marketing can work as a differentiator.
TCS should shift focus from Low cost advantage to high quality services
commanding a premium being the pioneer in the industry.
Especially in IFMS projects, with better co-ordination and

communication with customers (Government Authorities) and technical
people (software developers), functional team can get better outputs
with respect to time and quality.
109 | P a g e
9. BIBLIOGRAPHY
Books:
PRASANNA CHANDRA, 2008, Financial Management (7th Edition),
New Delhi: Tata McGraw- Hill Publishing Company Limited.
Documents of TCS:
RFP of rajasthan government projects

Powerpoint Presentations of Different Modules of IFMS
Websites Concerned:
http://www.wikipedia.com/
http://www.google.co.in/
http://www.npscra.nsdl.co.in/
http://rbi.org.in/
http://www.tcs.com/
http://www.scribd.com/
110 | P a g e

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“INTEGRATED F

The term "IT" encompasses the methods and techniques used in

Information technology, while stirring thoughts and visions of networks,

The back-story of information technology precedes the invention of the

1.1 Pre-History of Information Technology

As time progressed along with the advances of inventions and applied

1.2 Advent and Development of Information Technology

Today India is known world over as a leader in Information Technology.

Transformation of Information Technology:

Providing satisfactory services to Adding value to sustain the growth

Government controlled Government facilitated

IT for specialists IT for masses

Fulfilling external demand Creating internal demand

• Add value to IT as an industry

1.3 The Era of Outsourcing

1.4 Role of NASSCOM

The very high standards of management practiced in Indian IT firms and

1.6 Indian firms moving up the value chain

In order to build client value, companies have expanded their capacity to

1.7 Current Status of the Information Technology

1.8 Path Ahead

Government IT spending continues to rise across the world, focusing on

However, realization of this potential will involve mitigation of several

Concerted action by all stakeholders is required to capture the

1. TATA CONSULTANCY SERVICES

To make it a joy for all stakeholders to work with us.

The major kind of projects undertaken in Gandhinagar are primarily for

3.1 External Environment - Pestle Analysis

The Indian information technology sector has been instrumental in driving

3.2 Porter’s Five Forces

Looking ahead, TCS must continue to work to reduce the bargaining

Forging alliances is often viewed as a good strategy to offset clients’

Meanwhile, the threat of new entrants is declining rapidly as the larger

A key concern for TCS is competition from existing players as it has

Most of the American providers of such services offer domain and

These facts indicate that it will be difficult for TCS as an organization

• Leadership in sophisticated solutions that enable clients to

• Excessive dependence on US for revenues, 67% of revenues from

•Domestic market set to grow by 20%.

•Global economic slowdown may continue for several years – hence

3.4 SWOT Analysis of TCS

• It's highly professionally managed IT consulting and services

•Lack of scale compared to global competitors like IBM, HP (which

• Change in consumer lifestyles

• Financial slowdown, slowing US economy.

3.5 Public Policy for Information Technology Industry

After the economic reforms of 1991-92, liberalization of external trade,

3.6 Software Technology Parks (STPs)

3.7 Special Economic Zones (SEZ) Scheme

The SEZ policy aims at creating competitive, convenient and integrated

The main act governing IT industry is Information Technology Act 2000.

3.8 Current Structure of the IT Industry

Although there are hundreds of IT firms, the major market is captured by

1. INTEGRATED FINANCIAL MANAGEMENT

Generally, the term “IFMS” refers to the use of information and

The principal element that “integrates” an IFMS is a common, single,

–Standard data classification for recording financial events;

Public finance is a field of economics concerned with paying for

Level 1 – Fiscal management Proper use of public resources

Level 2 – Resource allocation Transparency

Level 3 – Value for Money Accountability

4.3 Integration Between Public Finanical Management

Certain critical factors needed for success of IFMS: