Hide and Seek: CAG’s Uniform Object Heads Test FRBM Honesty
CAG Office India (Image official website)
CAG’s November 2025 push to standardise “Object Heads” exposes how India’s fiscal deficits are shaped less by spending—and more by accounting games
By P. SESH KUMAR
New Delhi, January 10, 2026 — In November 2025, the Comptroller and Auditor General of India (CAG) issued a common, disaggregated list of “Object Heads” for expenditure-‘asking’ the Union and all States to converge on one classification, with adoption targeted by FY 2027–28. The stated aim is simple: stop apples-to-oranges bookkeeping that makes inter-state comparisons shaky, audits noisier than necessary, and fiscal indicators under the FRBM framework easier to “manage” through classification games.
Yet the immediate question is constitutional and federal: if it is an “advisory”, why did it take so long for CAG to proffer its ‘advice’ and more important, can it be enforced-and if it is not legally binding, why should States follow it? The answer lies in the constitutional architecture of public accounts (especially Article 150), the practical dominance of standardised accounting in a shared fiscal market, and the reputational and market costs of opaque numbers.
The deeper point is that uniform object heads are not cosmetic: they are the first line of defence against fiscal illusion. But they will only work if the cacophonic democracy that India is- pairs harmonisation with harder reforms-credible disclosures of off-budget liabilities, clean separation of revenue and capital, tighter treatment of grants-in-aid and “in-transit” balances, and audit-ready, machine-readable transparency that makes FRBM compliance verifiable rather than performative.
India’s fiscal story is often told in big, headline numbers-fiscal deficit, revenue deficit, debt-to-GSDP. But the truth is that these grand totals are built from millions of tiny accounting choices. That is why the CAG’s November 2025 move to harmonise “Object Heads” matters more than it sounds.
Object heads sit at the most granular end of the government’s expenditure classification ladder; they decide whether a payment is booked as “grants”, “wages”, “office expenses”, “maintenance”, “capital outlay”, or something else. When States use different object-head structures-or operate the same head differently-the national ledger becomes a patchwork quilt. One can still stitch it together for a press release, but one cannot reliably compare, audit, or even interpret it.
The CAG’s rationale was explicit: wide variation in how States operate disaggregated expenditure heads was impairing inter-temporal and inter-state comparison and comparability with the Union’s accounts, and it had become a decades-old problem affecting budgeting and accounting quality.
The CAG therefore notified a common list of object heads to the Union and all States in November 2025, to be adopted by States by FY 2027–28. That two-year glide path is not accidental; it acknowledges that States will need to re-map legacy codes, update treasuries/IFMIS, retrain staff, revise budget manuals, and clean up the “last mile” where misclassification usually happens.
But is this enforceable, or merely persuasive? Here federal India needs a constitutional lens, not a rhetorical one. Article 150 places the “form of accounts” for the Union and the States within a national architecture: the President prescribes the form of accounts on the ‘advice’ of the CAG. That does not mean the CAG single-handedly legislates accounting codes.
It means the Constitution deliberately gives the CAG a privileged, quasi-standard-setting role in the design of governmental accounting-precisely because accounting is not just a clerical matter; it is the grammar of public accountability.
In practice, what looks like an “advisory” can become operationally binding once the executive machinery (at Union and State levels) issues the necessary directions, and once common platforms, audit requirements, and inter-governmental reporting increasingly assume standard codes.
One has to only look at the rather tortoiseque pace in the last two decades of notification of IGAS and IGFRS through an apparently much more organized and ‘statutorily’ sounder arrangement of GASAB led by CAG to guess how much effect would the November 2025 advisory of CAG may have on the creakingly slow government accounting machinery.
So why should States follow the CAG’s November 2025 advisory if they can argue it is not “statutorily binding”? Because a State’s accounts no longer live in a State-only universe. They live in a national fiscal marketplace in which the RBI, Finance Commissions, rating agencies, investors in State Development Loans, the IMF-style comparability expectations that increasingly shape fiscal credibility, and even peer States benchmarking one another all demand comparable, credible data.
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When classification differs, States can appear artificially “better” or “worse” on paper, and the temptation grows to treat the chart of accounts as a cosmetics kit. That is exactly the kind of fiscal storytelling that makes FRBM targets look met even when underlying liabilities and spending pressures have merely been relocated or relabelled.
The Business Standard analysis that surfaced in early January 2026 captures the symptom in plain terms: misclassification and inconsistent accounting can distort revenue surplus, fiscal deficit, and debt ratios, and it undercuts governance because the numbers stop being comparable, reliable signals.
When a State books items under the “wrong” nature of expenditure, the policy debate is derailed at source. Legislatures discuss outcomes while the accounts quietly scramble inputs. Auditors chase classification errors instead of performance risks. Citizens are shown neat deficit ratios while the real fiscal posture is obscured by the way transactions are parked, routed, or described.
This is also where the comparative position in the Government of India matters. The Union system has long operated with a standardised classification discipline and an ecosystem of centrally issued rules and manuals that insist on full accounting classification down to object heads for budget preparation and control.
It is not that the Union is magically immune to misclassification-it is not. But the Union’s framework demonstrates a crucial fact: uniformity is administratively achievable at scale, and it becomes the default language that subordinate systems must speak if they want frictionless consolidation, audit, and reporting.
The CAG’s November 2025 harmonisation push is, in that sense, an attempt to drag State accounting out of a “local dialect” era into a “national language” era.
Yet, if CAG thinks uniform object heads alone will cleanse FRBM compliance, it will be disappointed. Uniformity is a necessary condition for fiscal honesty, not a sufficient one. FRBM “accounting trickery” thrives in the shadows between what is counted and what is disclosed.
Even with perfect object heads, one can still shift stress off the budget through public sector undertakings, special purpose vehicles, or “back-to-back” arrangements where repayment ultimately falls on the budget but the borrowing sits elsewhere.
The FRBM Review Committee flagged the classic pathology years ago: off-budget borrowings can finance spending while remaining outside reported deficit and debt measures, weakening transparency and making targets look cleaner than the underlying reality.
So the practical way forward has to be bolder than “please adopt the list by FY28”. The country needs a two-track reform: harmonise classification so the accounts are comparable, and harden transparency so the fiscal stance is honestly measured.
First, the object-head harmonisation must be implemented as a true migration, not a superficial mapping exercise. If States merely “crosswalk” old heads into new ones without cleaning up the underlying booking practices, the same misclassification will reappear under shinier codes.
The transition period should therefore be used to run parallel reporting-old and new-so that discontinuities are visible, not buried. Once parallel runs begin, the CAG’s audit reports and the State Finance Accounts should explicitly flag where shifts in deficit, revenue balance, or capital outlay are driven by classification changes rather than real fiscal improvement. Otherwise, the reform itself becomes a new camouflage.
More important, CAG’s role does not end with issuing the November 2025 advisory. It has to take up the yet another onerous responsibility of steering the path towards smooth and effective transition to the uniform object head regime by March 2028. Sadly without executive or constitutional powers but persuasive skills.
Second, the reform must be married to IGAS discipline where misclassification is most damaging-grants-in-aid, loans and advances, guarantees, and “in transit/reconciliation” balances. These are the usual hiding places because they can inflate revenue receipts, defer recognition of expenditure, or park liabilities in ways that blur the true fiscal position.
Where States do not adhere to such standards and guidance, harmonised object heads will merely standardise confusion. A uniform chart of accounts should therefore be accompanied by an audit-enforced “minimum disclosure package” that makes these areas non-negotiable in the annual accounts narrative.
Third, FRBM transparency must be rebuilt around a simple test: can a reasonable reader reconcile the fiscal deficit to the change in liabilities without detective work? The Union has publicly emphasised improved disclosure of off-budget borrowings in fiscal policy statements; that logic should be standardised and extended to States so that the same reconciliation discipline applies across the federation.
If a State meets its FRBM deficit number but its liabilities grow faster through entities it controls, the accounts should make that divergence impossible to miss. A credible reconciliation statement should not be an optional annexure; it should be a central exhibit in budget and accounts documentation.
Fourth, the Union as well as State governments should institutionalise a clean “no-surprises” rule for fiscal risk: guarantees, committed repayments of State PSUs/SPVs that are effectively budget-backed, and deferred subsidy or payment arrears should be disclosed in a standard format, with time-series comparatives. Article 150 gives India the constitutional backbone for uniform accounting form; the FRBM ecosystem supplies the policy reason for uniform fiscal risk disclosure. Together, they can squeeze the oxygen out of fiscal illusion.
Finally, enforcement in a federal setting should be designed as a ladder, not a hammer. Start with standardisation through IFMIS/treasury system upgrades, training, and parallel-run reconciliations; move next to audit reporting that publicly distinguishes real fiscal improvement from classification effects; and culminate in inter-governmental norms where Finance Commission-style assessments, borrowing permissions, and market credibility increasingly reward transparent numbers and penalise opaque ones.
States should be made to follow not because the word “advisory” becomes magically binding, but because the cost of non-comparable, non-transparent accounts will rise-in audit friction, policy distrust, and fiscal reputation.
In other words, the CAG’s November 2025 move is not a technical footnote. It is an attempt to shut down one of the oldest escape routes in public finance: “If you can’t change the reality, change the head of account.” Harmonised object heads can make India’s fiscal debate cleaner, faster, and fairer.
But the real victory for FRBM will come only when classification reform is paired with ruthless disclosure reform-so that deficit and debt are not just compliant, but credible. Hope CAG does not end up biting more than what it could chew and this November 2025 advisory does not end up as one more ‘paragraph’ in its pending audit reports in Public Accounts Committees that may defeat the entire purpose of the rather already delayed initiative.
(This is an opinion piece. Views expressed are author’s own)
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