Para 4.11 — MSO (A&E)

MSO (A&E)mso-ae

4.11 Although it is the function of Government to determine the source from which capital expenditure shall be financed it is one of the duties of the Accountant General (A&E) to bring to the notice of the proper financial authoirity cases in which their decision seems contrary to the principles of sound financial administration. The principle of
prudent finance was once enunciated by the Government of India in the following terms:-
Two conditions must be fulfilled before it would be justifiable for Government of India to spend loan funds on unproductive purposes. These are firstly that the objects for which the money is wanted are so urgent and vital that the expenditure can neither be avoided, postponed nor distributed over a series of years and secondly that the amount is too great to be met from the current revenues.
And it may be said generally that the cost of all comparatively small schemes whether productive or unproductive ought to be met from Revenues.

What This Means

While the government decides how to finance capital expenditure, the Accountant General has a duty to flag cases where the financing decision appears financially unsound. The Government of India's principle of prudent finance states that loan funds should only be used for unproductive purposes when the expenditure is urgent, cannot be postponed, and is too large to be met from current revenues. Small schemes should generally be funded from revenue, not borrowings.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Key Points

1The AG must flag cases where capital expenditure financing appears contrary to sound financial principles
2Loan funds for unproductive purposes are justified only when expenditure is urgent, vital, and too large for revenue
3Small schemes, whether productive or unproductive, should be funded from revenues
4Two conditions must be met to justify borrowing for unproductive purposes: urgency and size
5The government makes the final decision, but the AG has a duty to advise

Practical Example

A state government proposes to borrow Rs. 500 crore to construct a memorial park (unproductive asset). The Accountant General should bring to the government's notice that this may violate prudent finance principles — the project is not urgent, could be phased over several years, and borrowing for unproductive purposes should be avoided when revenue could fund it gradually. However, if a state needs emergency flood relief infrastructure costing Rs. 2,000 crore that cannot wait, borrowing would be justified.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Frequently Asked Questions

Can the Accountant General stop the government from using borrowed funds for unproductive purposes?▼

No. The AG can only bring such cases to the government's notice and advise against it. The final decision rests with the Executive government.

What are the two conditions for using loan funds on unproductive purposes?▼

First, the expenditure must be so urgent and vital that it cannot be avoided, postponed, or spread over multiple years. Second, the amount must be too large to be met from current revenues.

Should productive capital expenditure also be met from revenue?▼

For small productive schemes, yes — the cost should be met from revenue. Borrowing is generally reserved for large capital projects where the investment is expected to generate returns sufficient to service the debt.

This explanation was generated with AI assistance for educational purposes. Always refer to the official gazette notification for authoritative text.

Para 4.11 — MSO (A&E)

Original Rule Text

What This Means

Key Points

Practical Example

Frequently Asked Questions

Related Rules