Control over the Financial System in India
India's financial system is regulated and controlled by several key institutions to ensure
transparency, accountability, and efficient management of public finances. The three primary entities
that exercise control over the financial system are:
1. Ministry of Finance (Government of India)
The Ministry of Finance is the apex body responsible for managing the economic and financial
matters of the Government of India. It plays a central role in the formulation of fiscal policies,
budgeting, taxation, and the overall financial administration of the country. The Ministry is divided
into several departments, each responsible for specific financial functions.
Key Departments of the Ministry of Finance:
a) Department of Economic Affairs (DEA):
- Handles economic policy, preparation of the Union Budget, financial markets, and government
borrowings.
- Manages India's relationship with international financial institutions like the World Bank, IMF, and
foreign governments.
- Responsible for the formulation of fiscal policies and monitoring macroeconomic indicators.
b) Department of Expenditure:
- Oversees government spending and monitors public expenditure.
- Responsible for releasing funds to ministries and departments, setting expenditure norms, and
ensuring budgetary compliance.
c) Department of Revenue:
- Deals with tax policy, direct and indirect taxes (e.g., income tax, GST), and revenue mobilization.
- Ensures that the tax administration system functions efficiently and fairly.
d) Department of Financial Services (DFS):
- Oversees the functioning of banks, insurance companies, and financial institutions.
- Responsible for formulating policies related to banking regulation, financial inclusion, and
insurance.
e) Department of Investment and Public Asset Management (DIPAM):
- Responsible for managing government investments in public sector enterprises and strategic
disinvestment.
Role of the Ministry of Finance in Financial Control:
- Budget Preparation: The Ministry prepares the Union Budget, outlining the financial plan for the
year.
- Expenditure Control: Monitors government spending, ensuring it aligns with budgetary
provisions.
- Revenue Mobilization: Formulates policies to efficiently collect taxes and revenue.
2. Comptroller and Auditor General (CAG) of India
The CAG is an independent constitutional authority established under Article 148 of the Indian
Constitution. It ensures that government funds are spent according to the law. The CAG audits the
accounts of the Union and State governments and submits reports to Parliament and state
legislatures.
Functions of the CAG:
- Auditing government accounts to ensure legal compliance.
- Reporting to Parliament and State Legislatures.
- Auditing autonomous bodies and government companies.
- Acting as a regulator of public financial management.
3. Parliament
Parliament exercises the ultimate control over the financial system. It approves the Union Budget,
scrutinizes government spending, and holds the executive accountable through various
mechanisms.
Financial Powers of Parliament:
- Budgetary Control: No money can be spent without Parliament's approval.
- Parliamentary Committees: Public Accounts Committee (PAC) examines CAG reports, while the
Estimates Committee scrutinizes budget estimates.
- Question Hour and Debates: Members of Parliament can question ministers about financial
policies.
- Cut Motions: MPs can propose to reduce budgetary allocations.
Conclusion:
In India, financial control is a multi-tiered process involving the Ministry of Finance, the CAG, and
Parliament. These institutions ensure the balance between financial flexibility for the government
and accountability to the people.
