Para 2.12 — CAM

2.12 ACCOUNTING OF TRANSACTIONS UNDER RESERVES AND RESERVE FUNDS

2.12.1 Any device to render the grants non-lapsing by withdrawing such amounts to a Fund is contrary to the strict principles of sound budgetary and financial controls. However, such a course is adopted in certain cases with the cognizance and approval of the competent authority (Cabinet/Parliament etc.) to constitute a specific Reserve or Reserve Fund. These Reserves or Reserve Funds may be classified under the following three categories according to the sources from which they are funded:

(i) Funds accumulated from grants made by another Government and at times aided by public contribution, e.g., Fund formed from subvention from the Central Road and Infrastructure Fund; Fund for Economic Development and Improvement of Rural Areas;

(ii) Funds accumulated from sums set aside by the Union or State Governments from the CFI or the Consolidated Fund of the State, as the case may be, to provide reserves for expenditure to be incurred by themselves on particular purposes, e.g., the various Depreciation or Renewals Reserve Funds created in respect of commercial departments and undertakings;

(iii) Funds accumulated from contributions made by outside agencies to the Union or State Governments, e.g. Deposit Account of grants made by the Indian Council of Agricultural Research; deposit account of grants made by the Indian Central Cotton Committee.

2.12.2 The main principles which would govern the procedure for accounting of expenditure met from Reserves or Reserve Funds and its exhibition in estimates and accounts are set out below:-

(i) A grant to the Union or State Government by another Government should be treated as ordinary revenue of the recipient Government irrespective of whether the grantor Government retains control over the expenditure from the grant or not.

(ii) A grant from an outside agency to the Union or a State Government made without reserving control over the expenditure there from should also be treated as ordinary revenue of Government.

(iii) Where reserves are created out of the grants mentioned in sub-paras

(i) and

(ii) above or out of moneys set aside by the Union or State Government from the CFI or the State, as the case may be, the transfers to and the expenditure from the reserves are required to be through appropriation by the Parliament/Legislature.

What This Means

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Key Points

• 1Reserve Funds make grants non-lapsing, which is an exception to normal budgetary principles
• 2Creation of Reserve Funds requires approval from Cabinet or Parliament
• 3Three categories: funds from outside agencies, internal government transfers, and corpus/earmarked funds
• 4Each category has a specific accounting treatment prescribed in the CAM
• 5The PAO must ensure transactions under Reserve Funds are correctly classified and accounted for

Practical Example

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Frequently Asked Questions

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