The Comptroller and Auditor General's latest report on Union government finances presents four findings on how the Centre keeps its books. Read together, they describe a fiscal system in which the stated position of the accounts and the real position of the money no longer align.

Anyone who has worked in or around an Indian civil society organisation knows the ritual of closing out a grant. There are the sanction letter, the line-item Budget, the sub-heads against which money was released, the vouchers matched to each sub-head, the bank reconciliation, the auditor's certificate, the narrative report, and, finally, the utilisation certificate. In the Union government's grants-in-aid system, this last document is known as Form GFR 12-A. It is a short form. It declares that the released funds were spent for the purposes for which they were released. It carries the signature of the head of the recipient institution and of its accounts officer. Without it, under Rule 238 of the General Financial Rules, 2017, the next tranche should not be released, and the grantee, strictly speaking, is in default.

Every year from about November onward, a small industry comes alive around these forms. Finance staff tally bank statements against disbursement letters. Chartered accountants are called. Project heads rewrite narrative reports that will not be read in any detail. Grantees submit. Funders receive. The forms move to the ministry. They are logged, filed, and, in principle, reconciled against the grant. This is not high governance. It is housekeeping. Its only claim on public attention is that without it, the rupees released by Parliament disappear into a category labelled disbursed, uncertified, and whatever one may believe about the use of that money, the fact that no one has attested to its use becomes a question of record.

What the Comptroller and Auditor General's Report No. 6 of 2026 on the Accounts of the Union Government for the year 2024-25, tabled in Parliament on 2 April 2026, tells us is that the Union ministries disbursing grants-in-aid to the tune of several lakh crore each year do not do the housekeeping. As of 31 March 2025, 33,973 utilisation certificates covering Rs 54,282.32 crore remained outstanding across fifteen ministries and departments. Rs 38,287.52 crore of this pendency is related to the three most recent financial years. The oldest pending certificates went back to 1985-86. The pendency violates both sub-rules of Rule 238 of the GFR, which set a twelve-month limit for submission and specify the treatment of defaults.

This essay is about what the Union government's books reveal when read carefully. It is about the distance between what Parliament appropriates and what the executive spends, between what the Centre collects as cess and what reaches the funds that cess was legislated for, between expenditure classified under the head it belongs to and expenditure parked under a head called Minor Head 800 - Other, and between money disbursed to grantees and money certified as used. These are four separate findings in Report No. 6 of 2026. They are also taken together as a single grammar. The accounts are written correctly at the level of each entry; they describe the condition of the public finances less and less well in aggregate. That gap is itself the story.

What Report No. 6 of 2026 Contains

The report is a financial audit of the Union Government Finance Accounts and the Union Government Appropriation Accounts for the year ended 31 March 2025. Its structure is standard. Chapter 2 provides an overview of Union finances. Chapter 3, titled Quality of Accounts and Financial Reporting Practices, contains observations on how the books are kept. Chapter 4, titled Budgetary Management, contains observations on how Parliament's appropriations translate into expenditure. The observations of interest to us sit in Chapters 3 and 4, with their macroeconomic context drawn from Chapter 2.

Before entering the findings, the headline fiscal numbers for FY 2024-25 as reported by the CAG deserve a note. Revenue receipts of the Central government rose by 10.82 per cent over the previous year, driven by a 21.38 per cent increase in non-tax revenue and a 7.43 per cent increase in tax revenue. The non-tax number was itself lifted by a single entry: the Reserve Bank of India transferred Rs 2,10,874 crore of its surplus profits to the Government, up from Rs 87,416 crore in FY 2023-24, an increase of Rs 1,23,458 crore. The fiscal deficit for the year was 4.62 per cent of GDP, down 8.27 per cent from the previous year. The revenue deficit stood at 1.78 per cent of GDP. Government expenditure as a share of GDP had fallen to 15.99 per cent from 19.68 per cent five years earlier. Capital expenditure came in at Rs 8,58,256 crore, a 6.33 per cent increase over the previous year, with transport and defence the two largest drivers over the last five years.

These numbers are better than they look only because the denominator on many of them was the Reserve Bank's surplus transfer and because government expenditure as a share of GDP has been falling. The first is a one-time composition and not a trend in the tax base. The second is a compression of the State's presence in the economy at a moment when welfare expenditure is already stagnant in real terms. A finance minister able to smile at the headline ratios is a finance minister who is not being asked the underlying question.

The CAG's observations on the quality of accounts and budgetary management warrant attention. There are four that matter.

The Certificates That Never Came

The Centre operates a grants-in-aid system in which the Ministry of Finance and line ministries release funds to State governments, autonomous bodies, universities, research institutions, public sector undertakings, implementing agencies under Centrally Sponsored Schemes, and civil society organisations. The legal basis for release is a sanction letter. The legal basis for subsequent release is the grantee's submission of a utilisation certificate in the prescribed form, confirming that the money released in the previous tranche was used in accordance with the sanction. Rule 238 of the GFR, 2017, requires the utilisation certificate to be submitted within twelve months of the close of the financial year in which the grant was received. Sub-rule (2) of Rule 238 provides that, in the absence of the certificate, no further grant shall be released to the defaulting entity.

As of 31 March 2025, the CAG's test check across fifteen ministries and departments found 33,973 utilisation certificates outstanding, with a face value of Rs 54,282.32 crore. The oldest pending certificates, as noted above, date back to 1985-86. Rs 38,287.52 crore of the pendency relates to grants released in the three financial years from 2021-22 to 2023-24. This is recorded at Paragraph 4.5 of Report No. 6 of 2026.

The pendency is concentrated. News reports sourced to the tabled report identify the Ministry of Housing and Urban Affairs with Rs 18,272.91 crore outstanding and the Department of Higher Education with Rs 14,359.76 crore. These two account for roughly three-fifths of the total. This is not a distribution one would expect from random paperwork lag. It is a distribution that reflects the flow of money through urban programmes whose disbursements are linked to completion milestones, and through higher education grants to institutions whose utilisation reporting cycles have been overwhelmed by successive rounds of restructuring.

The analytic content of a pending utilisation certificate is narrower than its political framing suggests. It records that the Centre has released the money, booked the release as expenditure in its own books, and that the grantee has not certified that the money was used for its sanctioned purpose. The finding does not by itself establish misappropriation. Pending UCs can arise from project delays where spending has not yet occurred, from spending that has occurred but paperwork has not yet caught up, or from the actual diversion of funds. The CAG, correctly, does not adjudicate between these. The CAG records show that Rs 54,282.32 crore of grant-in-aid money released by the Centre is held in a state where its end-use has not been attested to. To repeat: it is not missing money. It is money whose use no one has certified.

The distinction matters, and it matters more sharply because of what public finance researchers have long pointed to about the fund flow chain below the UC. Avani Kapur, who led the Accountability Initiative at the Centre for Policy Research and is now the Director of the Foundation for Responsive Governance, has spent nearly two decades tracking how money moves from the Union Consolidated Fund to the implementing agency at the last mile.

In a CPR interview in 2023, she recalled the remark of a senior official in the Elementary Education Department in Purnia, Bihar: "The flow of funds through various levels of the government is very similar to the flow of blood from the heart to various parts of the body." The metaphor stuck because it captures what PAISA, the public expenditure tracking survey run by the Accountability Initiative for over a decade, has found repeatedly: fund flow in India is choked not only by the aggregate size of the release, but by the timing, the layering, the multiplicity of intermediary accounts, and the routine absence of a reconciliation system that can trace a rupee from the Consolidated Fund to the anganwadi worker or the school development plan. A utilisation certificate is a small piece of that system. Its mass non-submission is evidence that the system itself is broken and that the end use of a substantial portion of Central grants is not traceable through the paperwork the State has set up to track it.

The scale of the ministries with pending UCs warrants attention. The Ministry of Housing and Urban Affairs is the parent ministry for the Smart Cities Mission, the Pradhan Mantri Awas Yojana-Urban, the AMRUT programme, and the Swachh Bharat Mission-Urban. These are flagship Central programmes whose funds flow through State urban development departments and into Urban Local Bodies, SPVs, and implementing agencies. That Rs 18,272.91 crore of their UCs remains pending is not a minor procedural note. It is a statement about the substance of federal transfers for the cities where about 40 per cent of Indians now live, a figure I have written about before in the context of the Census and the absence of urban data.

The Line Called Minor Head 800

The second finding concerns classification. The government's books, at the level of the Union Government Finance Accounts, are kept under a standardised List of Major and Minor Heads of Account prescribed by the Controller General of Accounts. Each major head corresponds to a function of government. Within each major head, minor heads correspond to specific programmes or sub-functions. One of these minor heads, numbered 800, is reserved for expenditure and receipts that cannot be classified under any of the named minor heads for that major head. Its title is "Other Expenditure" on the expenditure side and "Other Receipts" on the receipts side. It is intended as a residual category.

What the CAG has recorded at Paragraph 3.3.3 is that more than half of the expenditure booked under three major heads in FY 2024-25 (Rs 4,957.58 crore in absolute terms) and more than half of the receipts booked under six major heads (Rs 4,087.43 crore) were routed through Minor Head 800. When the residual category absorbs the majority of spending or earnings within a government function, the residual is no longer residual. It is the primary record, and the named minor heads become the exception.

The pattern is not new. The CAG recorded the same problem at the same paragraph reference in last year's report: more than 50 per cent of the expenditure (Rs 6,024.15 crore) and receipts (Rs 2,231.42 crore) under various major heads were booked under Minor Head 800 in FY 2023-24. The pattern goes back further. The CAG's FY 2018-19 report recorded similar concentrations and noted, in language the CAG has continued to use, that the booking of receipts in excess of 50 per cent under Minor Head 800 had "persisted for several years." The Fifteenth Finance Commission, in its February 2021 report, recommended a phased move toward standards-based accounting and clearer expenditure classification across ministries. The recurrence of the finding year on year, at the same paragraph number, is the substance of the problem.

Classified separately in the report, at Paragraph 3.5, is a total of Rs 12,754.47 crore in misclassification: Rs 4,011.91 crore on the receipts side, where non-tax revenues were booked as tax revenues by the Central Board of Direct Taxes and the Central Board of Indirect Taxes and Customs, and Rs 8,742.56 crore on the expenditure side, of which Rs 8,723.83 crore consisted of expenditure booked under wrong object heads. The largest single item within this was the Department of Atomic Energy, which booked Rs 3,089.97 crore of revenue expenditure under capital major heads, a move the CAG notes is expressly prohibited.

Classification looks like a technical matter. In Indian fiscal practice, it has always been political. The difference between revenue expenditure and capital expenditure bears directly on the revenue deficit and on the Centre's own compliance with its FRBM targets. A Rs 3,089 crore shift from revenue to capital pulls the revenue deficit down by that amount. The distinction between tax and non-tax revenue is relevant to the statutory devolution to States under Article 270 of the Constitution, as only taxes are shareable with States under the Finance Commission's formula. A Rs 4,011 crore shift from tax to non-tax effectively reduces the base on which devolution is calculated. The difference between a named minor head and Minor Head 800 bears on the ability of Parliament, the Finance Commission, and citizens to know what a given sum was actually spent on.

To call this accounting theatre is not a figure of speech. It is a description. The journal entry that moves Rs 3,089 crore from revenue to capital, or the entry that parks Rs 4,957 crore under Other Expenditure instead of the named minor head for the programme it funded, is a stage direction. The audience is Parliament, the States, the Finance Commission, and the public. The script is the Finance Accounts. When the stage directions accumulate, the stage play begins to differ from the play in the script.

Cess, Surcharge, and the Divisible Pool

The third finding in the report concerns a narrower housekeeping item: whether money collected as cess and levy under specific statutes was transferred, as required, to the reserve funds established to receive it.

At Paragraph 3.3.1 of Report No. 6 of 2026, the CAG records that Rs 9,222 crore collected as cess or levy during FY 2024-25 was short-transferred to four designated reserve funds. These include the Prarambhik Shiksha Kosh, the reserve fund that receives proceeds of the Prarambhik Shiksha Cess and is intended to finance the Centre's share of elementary education spending, and the Pradhan Mantri Swasthya Suraksha Nidhi, which receives proceeds of the Health and Education Cess (to the extent applicable to health) and is meant to finance the Centre's share of health infrastructure and schemes such as the Pradhan Mantri Jan Arogya Yojana, the Pradhan Mantri Swasthya Suraksha Yojana, and the National Health Mission.

I have written at length in my April 2026 piece on Indian health financing about how the NHM budget has stagnated in real terms, about POSHAN 2.0 being underfunded against its own targets, and about the gap between PMJAY's insurance claims and the public health system it nominally rests on. The CAG's finding here gives that stagnation a particular shape. When cess money collected specifically to fund health and education spending is retained in the Consolidated Fund of India rather than transferred to the reserve funds that are to receive it, the schemes that the cess was sold to the taxpayer as funding are denied the resources they were supposed to get. This does not mean the money has disappeared. It means the money is being held inside the Centre's general pool, available for other uses, and the ring-fencing that was the original justification for the cess is no longer operative.

The finding on short-term sits within a larger, older picture of the trajectory of cess and surcharge in the Indian tax system. In FY 2024-25, as the CAG records in Chapter 2 of its report, total cess and surcharge collections stood at Rs 5,29,357 crore, an 8.40 per cent increase over the previous year and 13.94 per cent of the Centre's Gross Tax Revenue. The CAG notes that cess and surcharge collections, as a share of GTR, have declined from 20.23 per cent in FY 2020-21 to 13.94 per cent in FY 2024-25. That decline is real, and it is partly the result of GST Compensation Cess ending its active collection cycle, but the underlying fact is the preceding decade of cess and surcharge growth.

Why this matters is the simplest arithmetic of Indian fiscal federalism. Under Article 270 of the Constitution, taxes on income and duties of Customs, Excise and other taxes in the Union List are shared between the Union and the States on the recommendation of the Finance Commission. The proviso to Article 270 (introduced through the 80th Amendment in 2000) excludes cesses levied for specific purposes from the divisible pool. Article 271 separately empowers the Union to levy a surcharge on any of the taxes in Article 270, with the surcharge accruing entirely to the Union. Neither cess nor surcharge is therefore shareable with the States. Any growth in the cess and surcharge component of Central revenue is growth in the Union's unshared revenue. The divisible pool from which States receive 41 per cent under the award of the Fifteenth Finance Commission is net of cess, surcharge, and the cost of collection.

The dilution this produces is documented. Research by Pinaki Chakraborty and Manish Gupta at the National Institute of Public Finance and Policy shows that the share of cess and surcharge in the Union government's gross tax revenue rose from about 9.4 per cent in 2011-12 to 27.6 per cent in 2020-21, settling at 22.8 per cent in 2022-23. As a result, the divisible pool of resources available for transfer to States shrank to 75.7 per cent of gross tax revenue in 2022-23, down from close to 90 per cent in 2011-12. The paper, published in the Economic and Political Weekly in 2025, notes that earlier Finance Commissions had recommended that the Union review the non-divisible pool arising from cesses and surcharges and reduce its share.

That has not happened. M. Govinda Rao, who served as a member of the Fourteenth Finance Commission, has made the case in similar terms. Speaking to The Hindu in 2025, Rao said the practice of expanding cess and surcharge has been used "to dilute the recommendations of the Finance Commission relating to the devolution of taxes." He also observed that States have asked for a constitutional cap on cess and surcharge as a share of gross tax revenue, or alternatively for any cess and surcharge collected above a specified cap to be treated as part of the divisible pool. That move would require a constitutional amendment. Pinaki Chakraborty, quoted in the same Hindu piece, said States were not wrong to demand a higher share. According to a June 2025 statement by Sixteenth Finance Commission Chairman Arvind Panagariya, twenty-two of twenty-eight States, across party lines, have asked the Sixteenth Finance Commission to raise vertical devolution from 41 per cent to 50 per cent.

The memorandum submitted to the Sixteenth Finance Commission by the Government of Odisha, a BJP-ruled State, is unusually explicit. It proposes that the overuse of cesses and surcharges should be curbed and that the Commission should consider recommending stricter tests for a cess or surcharge to qualify for exclusion from the divisible pool, with a constitutional amendment if necessary. The memorandum is not an Opposition document. It is a document from a State that shares the Union government's politics and has nevertheless found cause to lodge a fiscal complaint against the Centre. That is the signal inside the noise.

Against this larger picture, the CAG's finding on the short transfer of Rs 9,222 crore to four designated reserve funds is merely a mechanical record of what happens at the ledger level. Even when the cess is collected as ring-fenced revenue for a named public purpose, a fraction of it does not reach the fund set up to receive it. It stays in the general pool. The taxpayer who paid the Health and Education Cess, believing it would fund a hospital or a classroom, is paying an additional tax whose ring-fencing is partly fictive.

The Gap Between Appropriation and Spending

The fourth finding receives the least coverage and is, in rupee terms, by far the largest. It is the gap between what Parliament authorised the executive to spend in FY 2024-25 and what the executive actually spent.

At Paragraph 4.1.1 of Report No. 6 of 2026, the CAG records that the Union Government Appropriation Accounts for FY 2024-25 consisted of 102 Grants and Appropriations. Parliament approved appropriations of Rs 1,47,54,642.48 crore. Actual expenditure was Rs 1,42,63,339.67 crore. Overall savings, by which is meant the gap between what was approved and what was spent, were Rs 4,91,302.81 crore. That is close to 3.3 per cent of what Parliament approved. It is a sum of the same order as the Union's entire health and education spending combined.

The shape of the savings matters as much as their size. Of the total approved, Rs 1,00,47,777.09 crore was charged expenditure, that is, expenditure which does not require Parliament's vote: debt repayment, interest payments, and a few other items specified in the Constitution. Actual charged expenditure was Rs 99,78,400.13 crore. Savings on the charged side were Rs 69,376.96 crore, 14.12 per cent of total savings. The remainder, Rs 47,06,865.39 crore, was voted expenditure, requiring Parliament's assent. Actual voted expenditure was Rs 42,84,939.54 crore. Savings on the voted side were Rs 4,21,925.85 crore, 85.88 per cent of total savings (Paragraph 4.1.2).

The asymmetry is the point. Where Parliament had no choice, the executive spent close to what was approved. Where Parliament had a choice, and exercised it, the executive did not. Roughly 86 per cent of the shortfall against appropriations was in the category where Parliament had appropriated money for specific programmes and was entitled to expect that the money would be spent on them. Rs 4.22 lakh crore of programme spending, authorised by Parliament for FY 2024-25, did not happen.

The finding is not a one-year artefact. At Paragraph 4.2.2.1, the CAG records that savings of Rs 5,000 crore or more were observed in 19 Grants during FY 2024-25, of which seven Grants have shown persistent savings over the last three financial years. At Paragraph 4.2.2.2, savings of Rs 100 crore or more occurred in 97 segments across 74 Grants. At Paragraph 4.3, supplementary provisions obtained for 26 minor or sub-heads under 16 Grants were found unnecessary, because final expenditure came in below the original provision. This is the inverse pattern. The executive came back to Parliament to ask for more money, Parliament granted it, and the executive ended the year having spent less than what it had originally asked for, let alone the top-up. At Paragraph 4.4.1, the CAG finds re-appropriations exceeding Rs 10 crore each made to 18 minor or sub-heads across 10 Grants where the original provision was adequate and the re-appropriation was therefore injudicious, and re-appropriations made from 10 minor or sub-heads across seven Grants which resulted in avoidable excess expenditure.

The analytic weight of these observations accumulates. A Rs 4.22 lakh crore shortfall in voted expenditure in a single year, in a Union budget where voted expenditure was Rs 47 lakh crore, is of the order of 9 per cent of the entire voted Budget. When the same finding recurs for seven Grants across three consecutive financial years, it is no longer a matter of implementation capacity in a bad year. It is a feature of the budgetary process. Parliament is authorising spending that the executive does not intend to execute. Or the executive is submitting demands for grants without the machinery to translate them into programmes on the ground. Either reading is a finding about the integrity of the budgetary process itself.

Four Findings, One System

These four findings are not four separate observations about unrelated parts of the Centre's books. They are four observations about the same system at four different stages of the money's journey.

At the first stage, classification: money collected as tax can be booked as non-tax, revenue expenditure can be booked as capital, and expenditure under a named programme can be parked under Minor Head 800, Other Expenditure. This affects what the accounts say about where the money came from and where it went.

At the second stage, cess retention: money collected as a ring-fenced levy for a specific reserve fund can be short-transferred to that fund and held in the general pool. This affects whether a cess, in practice, does what the statute legislating it says it will do.

At the third stage, appropriation and expenditure: Parliament can authorise spending; the executive can obtain additional supplementary provisions during the year; and the executive can end the year having spent materially less than both the original appropriation and the supplementary provisions. This affects whether the Budget passed by Parliament corresponds to the Budget the executive actually runs.

At the fourth stage, grant closure: money released as grant-in-aid to implementing agencies can sit for years without a utilisation certificate attesting to its use, in violation of the Rule that was written precisely to prevent this. This affects whether the Centre can say, for any given rupee disbursed, that it was used for the declared purpose.

At each stage, the deviation is small in percentage terms and defensible on its own. The wrong object head is a clerical error. The short transfer is a timing difference. The savings against voted appropriation are prudent in a year of lower-than-expected execution capacity. The missing UC is a paperwork backlog. Each defence is internally consistent. When all four are in place simultaneously and persistently, the cumulative position is that the published accounts of the Union government and the actual movement of money through its books have, at multiple points, stopped aligning. The Finance Accounts continue to be audited, certified, and tabled. They describe less and less well what the Government of India actually did with its money in a given year.

What This Means for States and for Welfare

The immediate consequence of the cess and surcharge trajectory is a material cut in transfers to States. The Chakraborty and Gupta estimate that the share of cess and surcharge in gross tax revenue rose from about 9.4 per cent in 2011-12 to 22.8 per cent in 2022-23, which means that the States lost access to roughly 13 percentage points of the Centre's tax base over a decade, despite a headline vertical devolution share that went up from 32 per cent to 41 per cent. The Outlook India account of State finance ministers' conclaves in 2024, drawing on T.M. Thomas Isaac's analysis, cites an estimate that the States lost Rs 5,26,747 crore between 2015-16 and 2018-19 alone due to the shrinking of the divisible pool. That is a sum of the same order as the entire fiscal stimulus announced during the pandemic. It is a transfer from the States to the Centre accomplished not through constitutional amendment but through composition.

The immediate consequence of the short transfer of cess to reserve funds is that the programmes that those cesses were legislated to support are being funded from a narrower pool than they would be if the transfers were made in full. I have written elsewhere about the National Health Mission's budget stagnation and about POSHAN 2.0 being underfunded relative to its stated targets. Those stagnations sit at the level of the Budget Estimate. The short-term sits downstream of the Budget. Even such money as is provided for health in the Budget, where it rests on a cess, is partly absorbed into the general pool rather than being available to the Pradhan Mantri Swasthya Suraksha Nidhi.

The same arithmetic holds for the Prarambhik Shiksha Kosh. The welfare consequences of the appropriation-expenditure gap are the most direct. Where Rs 4.22 lakh crore of voted expenditure did not happen in FY 2024-25, the first question is where the non-spending was concentrated. The CAG's findings on persistent savings across seven Grants over three years, and on savings of Rs 5,000 crore or more in 19 Grants, point to a concentration in specific ministries. The Accountability Initiative's budget brief series has been documenting the under-execution of welfare schemes against both the Budget Estimates and the Revised Estimates for over a decade. The CAG's FY 2024-25 observation is the latest single-year cut of a pattern that has become a structural feature of the Centre's spending on social sectors.

The federal consequence runs through all three. A State finance minister preparing a budget for the coming year must make decisions about her own revenue effort, her borrowing capacity under the FRBM ceiling, her devolved share from the Centre, her share of Centrally Sponsored Schemes, and her share of cesses that may or may not reach reserve funds she draws from. Each of those numbers is less predictable than its headline statement suggests.

A State planning for an NHM allocation must plan not for the allocation in the Budget but for the allocation net of the Centre's short-transfer rate. A State planning for the Smart Cities Mission grant must plan not for the sanction letter amount but for the UC cycle in which its predecessors in other States are stuck. A State planning for its share in Union tax revenue must plan not for the 41 per cent devolution of the gross tax revenue but for the 41 per cent of the post-cess, post-surcharge, post-cost-of-collection divisible pool, which has been about three-quarters of the gross revenue and falling. Fiscal federalism, under these conditions, is not a negotiation over the formula. It is a negotiation over the numbers the formula is applied to.

I noted, in my piece on the delimitation question and the April 2026 defeat of the Constitution (131st Amendment) Bill in the Lok Sabha, that parliamentary authority in India is hollowed out not only by what is passed but by what is authorised and then not executed. The appropriation-expenditure gap in Report No. 6 of 2026 is the fiscal version of that observation. Parliament is approving a Budget. The executive is running a different Budget.

What Reform Would Require

Reform of the Union government's accounts is not a mysterious problem. The items that would have to change are specific and technical, and each has been written about in the public finance literature over at least the last two decades. The obstacle is not diagnosis. It is that each technical change cuts into a discretionary space the Centre has come to rely on.

A reduction in the share of expenditure and receipts routed through Minor Head 800 would require each ministry to propose, each year, the creation of named minor heads for activities currently booked under Other. The Controller General of Accounts has the authority to approve such revisions. The Fifteenth Finance Commission recommended phased adoption of standards-based accounting and a move toward greater transparency in expenditure classification. The CAG has recorded the Minor Head 800 problem in successive reports. What is missing is a directive to ministries that the reduction of Minor Head 800 bookings is a reporting target against which they will be evaluated.

A mandatory timeline for utilisation certificate submission, with automatic suspension of further releases to defaulting grantees, is what Rule 238 of the GFR already says. What would need to change is the consequence of non-compliance: at present, defaulting grantees continue to receive subsequent tranches, because the default is treated as a procedural issue rather than a legal one. A Public Financial Management System module that automatically flags a grantee as in default, blocks the next release, and requires a documented departmental override to unblock would close the gap. The CAG's own concluding recommendation in Report No. 6 of 2026 is for a more fully developed PFMS module for real-time tracking and reporting. The Ministry of Finance has had the capacity to build that module for several years. It has not been built in a form that enforces Rule 238.

An automatic transfer protocol for cess receipts to their designated reserve funds, with transfers occurring at the close of each quarter and any short transfers publicly reported in the next month's Controller General of Accounts monthly statement, would close the cess-retention gap. The Constitution does not require the Union to hold cess receipts in the general pool for any particular period. The decision to short-transfer is an executive one, taken month by month, and is reversible by an executive instruction.

On the vertical devolution side, the proposal from States, including Odisha, that the Sixteenth Finance Commission consider a constitutional cap on cess and surcharge as a share of gross tax revenue, or a rule that treats cess and surcharge above a specified threshold as part of the divisible pool, is the remaining available lever. It requires an amendment. An amendment that twenty-two State governments have already asked for, across political parties, has as clear a basis as any in the present Parliament.

On the appropriation-expenditure gap, the reform is parliamentary, not executive. The FRBM Review Committee's 2017 report recommended an independent Fiscal Council that would examine the fiscal position of the Union government between Finance Commissions. Rathin Roy, among others, has made the case for such a Council to have a specific mandate to audit the gap between approved and actual spending across ministries and to report to Parliament in a form accessible to Members who are not on the Standing Committees on Finance. This is not a reform that requires new constitutional authority. It requires a statute, and the statute has been drafted.

None of these is a radical proposal. Each was in the public domain before this report was tabled. The question the report forces is whether the discretionary space the Centre has been using will be contested at the level of the accounts themselves, or whether the accounts will continue to be written correctly at the level of each entry and misleadingly in aggregate.

The Uncertified Rupee

The finance person in the civil society office closing out the financial year at the end of December is working, in form, to the same rule as a Joint Secretary in a Union ministry closing out Central grants-in-aid to the tune of tens of thousands of crores. In both cases, the money has been released, it has to be certified, and the Form GFR 12-A has to travel from the spender to the one who appropriated it. In the civil society office, the form must be completed because without it, the next grant will be withheld. In the Union ministry, the form does not travel because, in practice, the next grant is not withheld. Thirty-three thousand nine hundred and seventy-three such uncertified grants currently sit on the books of fifteen ministries, covering Rs 54,282.32 crore.

Against the other three findings in Report No. 6 of 2026, the uncertified grants are the smallest of the four in fiscal weight but the most legible in their description. They are a ledger of the distance the Centre has been willing to travel from the rule it wrote for itself. The distance, the CAG says, now goes back to 1985-86. The Ministry of Housing and Urban Affairs has Rs 18,272.91 crore of it on its books. The Department of Higher Education has Rs 14,359.76 crore. The cities these grants built, the universities these grants funded, and the research the universities were to do with the funding, exist in some form. Whether they exist in the form of Rs 54,282.32 crore is the question the accounts decline to answer.

What the report describes is not a scandal. There is no missing money in the sense of a rupee being stolen. There is a fiscal system in which the accounts of the Union government, read with care, no longer correspond in aggregate to the movement of the money, and in which each of the small non-correspondences is procedurally defensible. The accounts have become a theatre. The audit, at its best, is a script doctor. Whether the play is still the one Parliament wrote is for Parliament and the States to decide.

Further Reading

Primary source: Comptroller and Auditor General of India, Report No. 6 of 2026 on Accounts of the Union Government for the year 2024-25; press release dated 2 April 2026.

On fiscal federalism and the divisible pool:

Pinaki Chakraborty and Manish Gupta, Enhanced Devolution and Fiscal Space at the State Level, NIPFP draft paper, July 2024 (subsequently published in Economic and Political Weekly, Vol. 60, No. 18, May 2025); "Doling it out in drops: are the States being squeezed out of funds by the Centre?", The Hindu, June 2025.

On fund flow and utilisation:

Accountability Initiative, Budget Briefs series, Centre for Policy Research, 2010 onwards; Avani Kapur, CPR Perspectives interview on PAISA and Responsive Governance, Centre for Policy Research, 2023.

On the FRBM framework and a Fiscal Council:

Government of India, FRBM Review Committee Report, 2017.

Related pieces from this series:

What Ails India's Health: Insurance Without a System, Policy Grounds, April 2026; The Unaccountable State on the FCRA regime and accountability, Policy Grounds.