Project Signing: Government and World Bank Sign New Agreement to Strengthen Fiscal Performance of Himachal Pradesh

May 31, 2017

NEW DELHI, MAY 31, 2017 – The Government of India, the Government of Himachal Pradesh and the World Bank today signed a $36 million loan agreement to support Himachal Pradesh in its efforts to spend money more efficiently by improving the financial planning, budgeting and accounting of public funds in key government departments.

The agreements for the Himachal Pradesh Public Financial Management Capacity Building Program were signed by Raj Kumar, Joint Secretary, Department of Economic Affairs, Ministry of Finance, on behalf of the Government of India; Deepak Bhardwaj, Additional Director, Department of Treasuries, Accounts and Lotteries, on behalf of the Government of Himachal Pradesh; and Junaid Ahmad, Country Director, World Bank, India on behalf of the World Bank.

World Bank

“The Government of Himachal Pradesh would like to undertake large-scale institutional reforms to modernize its revenue administration and expenditure management. This program will help the state government put in place systems for better economic planning and budget management,” said Raj Kumar, Joint Secretary, Department of Economic Affairs, Ministry of Finance.

The four key departments that will directly benefit from the program include Finance, Excise and Taxation, Irrigation and Public Health, and the Department of Information Technology.

The program will help the departments put in place an architecture that will support them to execute their budget more efficiently; modernize their entire payment systems in order to reduce the turnaround time in delivering services to other departments/citizens; improve the contract management processes; scale up the IT infrastructure to provide online services to the citizens; and enable more efficient tax assessment procedures such that the revenue expenditure of the state is monitored and managed more effectively.    

“For cooperative federalism to be effective, robust financial management systems are needed at the subnational level,” said Junaid Ahmad, World Bank Country Director in India. “This program will build the capacity of the state both for efficient utilization of its resources as well as for collection of revenue. We expect the entire state budget to leverage its benefits over the next five years,” he added.

The Government of Himachal Pradesh has already initiated several reform initiatives to improve its budget and expenditure management. This program will help the state implement second generation financial management reforms, by focusing on three key areas. First, it will strengthen the finance department by bringing in transparency, and accuracy in budget classification, establish IT-enabled budget preparation systems, and create an automated interface between the treasuries and some 4,700 departmental officials for a “paperless” and “cashless” payment system. Second, the program will focus on efficiency and performance through better contract management which will be supported through e-Procurement solutions across the state. Third, the state will also strengthen and modernize the excise and taxation department. It plans to discontinue the manual system and instead roll out a software solution to improve the government’s revenue collection capacity. 

“With 60 percent of the public expenditure now taking place at the state level, and states now getting ready to introduce the Goods and Services Tax (GST), embarking on the next generation of public financial management reforms has become a necessity. This strengthening of key institutions and thus bringing about improvements in service delivery in Himachal Pradesh will be keenly watched and emulated by other state governments,” said Tanuj Mathur, Senior Financial Management Specialist and World Bank’s Task Team Leader for the program.

The $36 million loan from the International Bank for Reconstruction and Development (IBRD), has a 5-year grace period, and a maturity of 19 years.

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