Public Accounts Committee flags failure to transfer ₹9,222 crore in cess collections to designated reserve funds

Published 2026-09-10 · Updated 2026-09-10 · 3 min · 569 words

UPSC CSE Context

Why in News

PAC flagged non-transfer of ₹9,222 crore cess collections to designated reserve funds in 2024-25, based on CAG Report No. 6 of 2026.

Syllabus Connection

GS Paper 2: Parliament and State Legislatures – functioning, conduct of business, powers of committees; GS Paper 3: Government Budgeting.

Exam Relevance

Highlights parliamentary oversight, fiscal accountability, and the distinction between cess and tax, relevant for both Prelims and Mains.

Core Issue

Cess collections not transferred to reserve funds, undermining earmarked purpose.

Key Development

PAC questioned Finance Ministry over ₹9,222 crore shortfall in cess transfers to four reserve funds.

Stakeholders

• Public Accounts Committee (PAC)
• Union Finance Ministry
• Comptroller and Auditor General (CAG)
• State Governments
• Citizens

Static Knowledge

High-Value Background

• Cess is a tax levied for a specific purpose and must be utilized only for that purpose, unlike general taxes.
• Reserve funds are created under statutory provisions or executive orders for earmarked expenditures.

Exam Linkage

• Useful for questions on parliamentary financial control and the role of PAC in ensuring executive accountability.

Concepts in Context

• Cess proceeds are not part of the divisible pool and hence not shared with States, increasing central fiscal space.
• Consolidated Fund of India holds all government revenues, and appropriations require parliamentary approval.

Institutions and Mechanisms

• Public Accounts Committee examines CAG audit reports and ensures accountability of executive spending.
• CAG audits government accounts and reports irregularities to Parliament.

Dynamic Analysis

Parliamentary Oversight

• PAC's criticism signals weak compliance with parliamentary committee recommendations.
• Non-transfer undermines the constitutional principle of legislative control over public funds.
• Repeated non-compliance may erode institutional credibility of parliamentary committees.
• Finance Ministry's justification of fiscal prudence challenges the sanctity of earmarked funds.

Fiscal Federalism

• Cess not shared with States reduces their revenue share, intensifying fiscal asymmetry.
• States bear the burden of cess but do not receive proportional benefits, straining Centre-State relations.
• Growing reliance on cesses shrinks the divisible pool, undermining the Finance Commission's role.

Fiscal Management

• Diverting cess to general expenditure blurs the line between earmarked and general revenue.
• Idle balances in reserve funds may indicate poor planning or deliberate parking of funds.
• Large shortfalls in specific funds like PMSSN affect targeted welfare programs.
• Government's borrowing to finance expenditure while holding idle cess funds raises efficiency concerns.

Governance and Accountability

• Lack of timely transfers reflects weak internal controls and monitoring mechanisms.
• Dormant reserve funds and deposit accounts indicate poor fund utilization and oversight.
• Need for periodic review of cess objectives and sunset clauses to prevent misuse.

Prelims Takeaways

• Public Accounts Committee is a parliamentary standing committee that examines CAG reports.

Mains Value Addition

Arguments

• Earmarked funds must be used for intended purposes to maintain fiscal credibility and public trust.
• Parliamentary committees' recommendations should be binding to ensure executive accountability.
• Cess proliferation without sunset clauses distorts fiscal transparency and federal equity.

Examples

• PMSSN shortfall of ₹6,646 crore in 2024-25 despite collections of ₹21,085 crore.
• Oil Industry Development Fund: only ₹902 crore transferred against cumulative collections of ₹3,12,782 crore.

Data Points

• ₹9,222 crore not transferred to four reserve funds in 2024-25.
• Cess collections were ₹3,89,220 crore, 10.25% of gross tax revenue in 2024-25.

Counterpoints

• Finance Ministry argues excess transfer to MUSK offset PMSSN shortfall.

Way Forward

• Strengthen PAC follow-up mechanisms to ensure compliance with its recommendations.
• Improve transparency by publishing fund-wise cess collection and utilization data.
• Rationalize cesses and consider merging them into general taxation if objectives are met.

Primary/reference source: Economy