Financial Committees

— “The Watchdogs of Public Money”

Dr. Ambedkar once said, “Parliament’s control over finance is the essence of democracy.”
But the real question is — does Parliament itself examine every rupee of government spending?

No — that’s humanly impossible. Hence, this responsibility is delegated to three specialized committees which together ensure that “the government spends wisely, efficiently, and accountably.”

These three are:

1. Public Accounts Committee (PAC)
2. Estimates Committee (EC)
3. Committee on Public Undertakings (COPU)

Let’s understand each one:

1️⃣ Public Accounts Committee (PAC)

🏛️ Origin

The PAC is the oldest of all.
It was first set up in 1921 under the Government of India Act, 1919 (during British rule).
After independence, it continued as an essential financial watchdog.

👥 Composition

• Total members: 22
  • 15 from Lok Sabha
  • 7 from Rajya Sabha
• Elected every year by Parliament through proportional representation by means of the single transferable vote (STV) — this ensures fair representation of all political parties.
• Tenure: 1 year
• Ministers are barred from being members — because the committee must scrutinize the government, not be a part of it.
• Chairperson: Appointed by the Speaker of Lok Sabha.

Convention:

• Till 1966–67 → Chairperson was from the ruling party.
• Since 1967 → By convention, the Chairperson comes from the Opposition.

Why? Because this maintains non-partisan scrutiny over government expenditure.

So, the PAC is headed by the Opposition, but assisted by the government’s own audit body — the CAG. This is a brilliant example of checks and balances in action.

⚙️ Functions — What Does the PAC Actually Do?

The PAC examines the audit reports submitted by the Comptroller and Auditor General of India (CAG) to the President, which are then laid before Parliament.

The CAG submits three reports:

1. Audit Report on Appropriation Accounts
2. Audit Report on Finance Accounts
3. Audit Report on Public Undertakings

PAC’s job is to examine public expenditure from multiple angles:

🔹 Legal & Formal Check

Is the expenditure authorized by Parliament?
Was the money spent on the purpose for which it was granted?

🔹 Financial & Prudential Check

Was the expenditure wise, economical, and justified?
PAC looks for cases of:

Waste, loss, extravagance, corruption, or inefficiency.

So, in simple words, CAG audits, and PAC questions.

🧩 Detailed Functions (As per Rules)

1. Examines the Appropriation and Finance Accounts
   • Appropriation Accounts → Compare actual expenditure vs sanctioned expenditure.
   • Finance Accounts → Show overall receipts and disbursements.
2. Ensures:
   • The money was legally available for that purpose.
   • Expenditure conforms to the authority that governs it.
   • Any re-appropriation (shifting of funds) was as per rules.
3. Examines Accounts of:
   • State corporations, trading concerns, manufacturing projects, and autonomous bodies audited by the CAG.
4. Examines Audit of Receipts, Stores, and Stocks
   • Not just spending — even the collection and management of money and materials.
5. Checks for Excess Expenditure
   • If any department overspends beyond what Parliament granted, PAC scrutinizes it.

📚 Relationship with CAG

The CAG is often described as the “Guide, Friend, and Philosopher” of the PAC.
CAG audits → PAC examines those audits → Ministries respond → Parliament acts.

This chain ensures financial accountability in the world’s largest democracy.

🧠 Observation (by Ashok Chanda, former CAG)

“Over a period of years, the PAC has developed into a powerful force in controlling public expenditure… upholding the highest traditions of parliamentary democracy.”

⚠️ Limitations of PAC

Despite its importance, PAC’s powers are limited:

1. It does not examine questions of policy (only implementation).
2. It is a post-mortem committee — looks at expenditure after it has already happened.
3. No power over day-to-day administration.
4. Its recommendations are advisory, not binding.
5. It cannot disallow expenditure — only Parliament can.
6. It cannot issue orders — only recommend actions.

👉 In essence, PAC exposes the problem; Parliament and public opinion must ensure correction.

2️⃣ Estimates Committee

If the PAC looks at how money was spent, the Estimates Committee looks at how money should be spent.
One does post-audit, the other does pre-budget planning (ideally).

🏛️ Origin

Its roots go back to the Standing Financial Committee of 1921.
In Independent India, it was established in 1950, on the recommendation of then Finance Minister John Mathai.

👥 Composition

• 30 members, all from Lok Sabha (Rajya Sabha has no representation).
• Elected every year through proportional representation by STV.
• Term: 1 year.
• Ministers cannot be members.
• Chairperson: Appointed by the Speaker of Lok Sabha, and usually from the ruling party.

⚙️ Functions

The Estimates Committee examines budget estimates and suggests how to reduce waste and improve efficiency.

That’s why it’s also called a “Continuous Economy Committee.”

In detail:

1. Suggests economies and improvements in organization and administration.
2. Suggests alternative policies for better efficiency.
3. Examines whether the money is well laid out (i.e. giving value for money).
4. Suggests better forms of presenting estimates to Parliament for clarity.

However, it does not deal with Public Undertakings, because that’s COPU’s area.

🕰️ Procedure

The Committee examines the estimates throughout the year and submits reports from time to time.

But:

• It’s not compulsory to examine the entire budget of a year.
• Even if it hasn’t reported, the House can still vote on the Demands for Grants.

⚠️ Limitations of the Estimates Committee

1. Examines estimates after Parliament has voted on them (so its work is partly post-mortem).
2. Cannot question policy decisions.
3. Advisory only, not binding.
4. Covers only some ministries each year — takes many years to cover all.
5. Lacks technical expertise and CAG support.
6. Its work can be slow and dependent on bureaucratic data.

👉 So while PAC scrutinizes the past, the Estimates Committee suggests for the future.

3️⃣ Committee on Public Undertakings (COPU)

🏛️ Origin

Formed in 1964, based on the Krishna Menon Committee’s recommendation.
It was created because public sector undertakings (PSUs) had grown rapidly, and needed separate scrutiny.

👥 Composition

• 22 members
  • 15 from Lok Sabha,
  • 7 from Rajya Sabha.
• Elected annually through proportional representation by STV.
• Term: 1 year.
• Ministers cannot be members.
• Chairperson: Appointed by the Speaker from among members (usually from the ruling party).

⚙️ Functions

1. Examines reports and accounts of public undertakings (PSUs).
2. Examines CAG reports on these undertakings.
3. Evaluates whether PSUs are managed with sound business principles and commercial prudence.
4. Exercises functions of PAC and Estimates Committee as allotted by the Speaker.

🚫 Exclusions

The COPU does not examine:

1. Major government policy matters (like nationalization, privatization).
2. Day-to-day administration of PSUs.
3. Matters covered under special statutory mechanisms (like LIC or RBI Act).

⚠️ Limitations

1. Can only examine 10–12 PSUs a year.
2. Post-mortem nature — reviews after action is taken.
3. Lacks technical expertise for evaluating complex industries.
4. Recommendations are advisory, not binding.

🧩 Comparative Summary

Aspect	PAC	Estimates Committee	Committee on Public Undertakings (COPU)
Established	1921	1950	1964
Members	22 (15 LS + 7 RS)	30 (LS only)	22 (15 LS + 7 RS)
Chairperson	From Opposition	From Ruling Party	From Ruling Party
Nature of Work	Post-audit of expenditure	Examines estimates & suggests savings	Evaluates functioning of PSUs
Assistance by CAG	Yes	No	Yes (for PSUs)
Focus	Expenditure control	Expenditure planning	Efficiency & business management
Tenure	1 year	1 year	1 year

🧠 Conceptual Understanding for UPSC

All three together ensure financial accountability of the executive.
They act as a triple lock on government spending:

• PAC → Examines how money was spent (past).
• Estimates Committee → Suggests how money should be spent (future).
• COPU → Ensures public undertakings are managed well (present & ongoing).

So, we may say:

“PAC is like a doctor doing a post-mortem,
Estimates Committee is like a dietician advising how to stay fit,
and COPU is like a business consultant ensuring the company runs efficiently.”