One Nation, One Ledger: Weighing CAG’s Uniformity Push
Finance Minister Nirmala Sitharaman briefs media on GST Council decisions! (Image PIB India)
The shift to uniform Object Heads promises cleaner public accounts—but behind the reform lies a massive technical rebuild, political resistance, and a race against time for states to retrain staff and rewire systems.
By P. Sesh Kumar
New Delhi, November 21, 2025 —When the Comptroller and Auditor General of India (CAG) ‘tells’ every state to fall in line on how they classify expenditure by FY 2027–28, it sounds technical, almost dull. In reality, it is a quiet but far-reaching attempt to re-wire India’s fiscal plumbing.
The notification issued on 11 November 2025 standardises “Object Heads” of expenditure-the most granular level at which every rupee of government spending is tagged-and asks both the Union and all states to adopt a common list by FY28.
Done right, this could end decades of incomparable, opaque data, where similar schemes are booked under different labels, large sums vanish into “other expenditure,” and cross-state comparisons are an analyst’s nightmare. But it also raises uncomfortable questions.
Why did it take fifty years after the 1974 classification to act? What gives CAG the authority to “direct” elected governments on how to keep their accounts? Should the Controller General of Accounts (CGA) at the Union level not have led this exercise? And in a world where almost every state runs its own IFMIS or Treasury FMS, what transition pains lie ahead?
Background: The forgotten bottom layer of India’s accounting scaffolding
To understand the move, one has to descend to the basement of government accounts. Below the familiar Major Heads and Minor Heads sits an unglamorous but powerful layer: Object Heads. Together, Major, Minor, Sub-heads, Detailed Heads and Object Heads form a six-tier classification structure in government accounts.
Object Heads answer the simple but decisive question: what exactly was the money spent on-salaries, pensions, subsidies, maintenance, grants-in-aid, professional services, advertising, IT hardware, rent, and so on. Over the decades, while the broad major heads remained broadly harmonised across India, states were allowed significant flexibility at the Object Head level.
One state might split “Pay” into salaries, allowances, dearness relief and honoraria, another might lump them together. Some governments proliferated dozens of bespoke heads; others shoved a wide variety of items into generic buckets such as “Other Charges” or the notorious Minor Head 800 – “Other Expenditure/Other Receipts.”
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CAG’s own State Finance Reports have repeatedly flagged the excessive use of Minor Head 800 as a serious transparency risk, with entire streams of receipts and expenditure parked there, blurring the true nature of fiscal flows. GASAB, the Government Accounting Standards Advisory Board housed in CAG, has been warning for years- mutedly, though, that without standardised Object Heads, India cannot achieve meaningful comparability or move towards robust “whole-of-government” accounts.
GASAB’s roadmap for accrual accounting explicitly identified the need to rationalise and standardise Object Heads across the Union and states, noting the absence of a common list and the distortions this created. The CGA, for its part, circulated a revised classification structure in 2016, bluntly stating that the 1974 regime had lost relevance, that there was no standardisation across programmes and schemes, and that extensive deviations had crept in.
In short, the problem is not new; only the political will to bite the bullet has been missing.
Why this reform was needed: data that talks to itself
The notification issued on 11 November 2025 prescribes a common list of Object Heads for all states and the Union, to be implemented preferably from FY 2027–28, with the explicit purpose of ending decades of inconsistency and enabling transparent, comparable and timely expenditure data.
In practice, there are several overlapping justifications. First, comparability. Finance Commissions, the RBI, NITI Aayog, credit rating agencies and fiscal researchers constantly try to compare how states spend on health, education, subsidies, pensions, capital works, maintenance and so on.
But if salaries, grants, subsidies and capital repairs are classified under different Object Heads across states-or worse, mixed up under “other expenditure”-any aggregate comparison is a half-truth at best. A uniform Object Head dictionary turns a patchwork of dialects into a common language. Second, consolidation.
As India inches towards “general government” analysis-looking at Union plus state finances together-standardised classifications are essential to build consolidated accounts and assess fiscal risks and off-budget activities in a credible way.
GASAB has repeatedly underlined that uniform bases and policies are a precondition for meaningful consolidation.
Third, performance and outcome budgeting. When every line of expenditure is tagged consistently, it becomes easier to ask hard questions: how much of the education budget is locked in salaries and pensions versus school infrastructure or teacher training?
How much of “agriculture” is actually farm subsidies, and how much is extension services or irrigation O&M? Without uniform Object Heads, outcome budgets become glossy brochures rather than analytical tools.
Fourth, transparency and auditability. From an audit perspective, uniform Object Heads reduce the scope for creative camouflage. Misclassification of ongoing schemes as capital works, inflation of capital expenditure by mis-tagging repairs, or hiding subsidies in vague “other charges” becomes easier to detect if everyone is forced to use the same, precise boxes.
CAG’s own criticism of the continued misuse of Minor Head 800 in recent State Finance Reports is a direct indictment of the current opacity. Against this backdrop, the November 2025 notification is less a bolt from the blue and more the culmination of a long-pending clean-up.
Why now – and why not earlier?
If the case for uniform classification is so compelling, the obvious question is why it took half a century to move from exhortation to an actual “direction”. Part of the answer lies in institutional inertia.
The 1974 classification was installed at a time when manual ledgers, treasury offices and physical vouchers ruled the day. Once every state customised Object Heads to suit their administrative quirks, the classification system became a deeply embedded legacy. Any attempt to standardise across states threatened to disturb thousands of budget heads, local codes, and the comfort zones of finance and line departments.
Another part is political economy. States zealously guard their budget autonomy. A hard mandate from Delhi-whether routed through CGA, CAG or the Finance Ministry-would inevitably have been read through a federalism lens.
It was far easier to tolerate messy but politically convenient divergence than to force states through a painful transition without strong central buy-in.
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A third factor is technological timing. Until the advent of IFMIS/treasury FMS platforms in almost every state, classification changes meant physically re-writing codes, retraining legions of drawing and disbursing officers and tweaking manual processes.
Today, with most flows channelled through core financial systems, once a mapping is designed, it can be rolled out across thousands of DDOs via configuration changes and automated validations. The pain is still real, but much more manageable.
Ironically, CGA itself had flagged the obsolescence of the existing classification in 2016, calling out the lack of standardised definitions and the drift caused by innumerable amendments. GASAB’s accrual roadmap had already recommended standardisation of Object Heads across the Union and states.
But neither the political class nor the administrative machinery saw this as urgent compared to other reforms. It has taken a combination of fiscal stress, demands for better data from markets and Finance Commissions, and CAG’s own strategic plan to finally push this from wish-list to directive.
Under what authority can CAG “direct” states?
The word “directs” in media headlines suggests a command. The legal position is more nuanced but still strong. Article 150 of the Constitution states that “the accounts of the Union and of the States shall be kept in such form as the President may, on the advice of the Comptroller and Auditor-General of India, prescribe.”
This gives CAG a constitutionally recognised advisory role on the form of accounts, including classification structures. The President (and, by necessary extension, Governors acting on presidential orders) prescribe the form, but do so on CAG’s advice.
The Comptroller and Auditor General’s (Duties, Powers and Conditions of Service) Act, 1971 reinforces this by making CAG responsible for compiling the accounts of the Union and states (where not already shifted) and by empowering him under Sections 10, 22 and 23 to frame rules and regulations necessary to discharge these functions.
Government Accounting Rules, 1990, in turn, explicitly recognise that CAG’s powers and duties under the DPC Act shape how accounts are kept. In practice, this means that CAG cannot, by himself, issue a legally binding order on states that overrides their budget manuals and financial rules.
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But he can prescribe a standard form and structure of accounts, which the President and state governments are then expected to adopt through their own executive and legislative instruments. The 11 November 2025 notification is therefore best read as CAG exercising his Article 150 advisory role and standard-setting mandate through GASAB, backed by a strong expectation that the Union and states will align their classification to the notified common list of Object Heads. “Direction” here is more than a polite suggestion, but less than a unilateral fiat.
States will have to amend their budget and financial rules; the Union will need to hard-code the new list into its own classification and CGA-managed systems. But the initiative clearly rests with CAG.
Is CAG not required to consult Union and states?
The press release from CAG on 20 November 2025 refers to the harmonisation of Object Heads as part of “recent initiatives to strengthen Public Financial Management,” and notes that the notification was sent to the Union and all state governments on 11 November.
Media reports quoting the Deputy CAG, who also chairs GASAB, emphasise that the matter had been engaging the attention of multiple stakeholders and had been a longstanding irritant in the budgeting and accounting framework of states. GASAB itself is structured as a multi-stakeholder body, with representation from the Union Finance Ministry, state governments and accounting experts.
That means the standardsetting process for the new Object Head list would almost certainly have involved discussion with both Union and state representatives over time, even if there was no single grand conference to “approve” it. Could consultation have been broader and more formal? Probably yes.
States may still argue that a reform of this magnitude should have gone through the GST Council-style consensus route or the Inter-State Council or a dedicated Finance Ministers’ conclave.
But constitutionally, CAG’s advice under Article 150 does not require prior consent of governments; it requires the President’s decision. Politically, however, CAG ignores state sentiment at his peril.
The fact that the notification is tied to a future date (FY28) and couched in “may be adopted … preferably from FY 2027–28” language suggests an attempt to combine firmness with flexibility.
Are the directions applicable to the Union as well?
The revised list of common Object Heads is to be implemented by the Union government and all state governments, preferably from FY 2027–28. In other words, this is not a one-way diktat to the states while the Union enjoys an exception.
The CGA-run accounts of the Government of India will also have to align to the harmonised list, although the Union already moved in 2022 to operationalise revised Object Heads such as separate “Salaries” and “Allowances” in some ministries.
The new CAG-notified list is meant to unify and extend such reforms across all levels of government. The political optics will matter. If the Union drags its feet while lecturing states, the credibility of the reform will suffer.
If New Delhi moves first and publishes cleaner, more granular expenditure data on its own portals and in budget documents, it will be easier to push states to follow.
Where does the CGA fit in – was this not their job?
The Principal Chief Controller General of Accounts (CGA) is the apex accounting authority for the Union government, responsible for Government Accounting Rules, consolidated Union accounts, and the operation of central civil accounts.
Its natural domain is the Centre’s books. CAG, by contrast, is the constitutional auditor of both Union and state finances and historically compiled accounts for them until that function was gradually shifted to CGA for the Centre and to state treasuries/accountant generals for states. GASAB, based in CAG, carries the mandate to establish and improve standards of governmental accounting and financial reporting in India as a whole.
Seen in that light, it makes sense that CGA led the 2016 internal review of the Union’s classification structure, while CAG, through GASAB, now anchors a nationwide standard for Object Heads across the entire federation. CGA will still be the workhorse implementing the change in Union systems and rules; states will mirror this in their own treasuries and IFMIS. CAG’s role is to provide the standard, assure conformity through audit, and use the improved data to produce sharper, more comparable fiscal analysis.
Critically, the November 2025 notification is not a turf grab so much as a belated alignment of roles: CGA operational at the Centre; states managing their own systems; CAG providing the unifying grammar of government accounts, under the umbrella of Article 150.
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The expected pay-off: what could actually change from FY28?
Assuming the reform is implemented faithfully, some tangible gains can be expected from FY28 onwards. Budget documents and finance accounts will begin to speak a common language at the level of “what money bought”.
Researchers will find it far easier to answer questions like: which state spends the highest share of its health budget on salaries? Who invests more in school infrastructure rather than teacher wages?
How much of “agriculture” is subsidy versus irrigation or R&D?
Finance Commissions will get consistent series across states instead of spending months cleaning and re-classifying data. CAG’s State Finance Reports, which often contain long caveats about non-comparable heads, misuse of Minor Head 800, suspense balances and poor disclosure, should gradually show fewer such red flags. That, in turn, will make their audit conclusions sharper and harder for governments to shrug off as mere accounting quibbles.
Within governments, Finance Departments will be able to run more sophisticated analytics on their IFMIS platforms. Because every DDO will be picking from the same Object Head list, central dashboards can show, almost in real time, where expenditure is bunching up, where subsidies are overshooting, or where maintenance is being chronically underfunded compared to new capital works.
Over time, citizens too could see cleaner open-data portals, where line-item spending is understandable to laypersons and civil society watchdogs. Uniform Object Heads make it possible to build citizen-friendly visualisations that compare apples to apples across states and years, instead of relying on aggregated and often misleading labels.
None of this will happen automatically in April 2027 or April 2028. But the reform creates the pre-condition for these gains; the rest depends on political will, administrative discipline and the energy of analysts outside government who will put the new data to use.
Transitional pain in an IFMIS world
The user-friendly narrative hides a hard truth: migrating to a uniform Object Head structure is a painstaking engineering exercise. Every state today runs some variant of an Integrated Financial Management Information System (IFMIS) or Treasury FMS, with its own chart of accounts, internal codes and workflows.
To adopt the CAG-notified list, each state will need to build a detailed crosswalk between existing Object Heads and the new common list, decide which old heads will be mapped, merged or split, and code these changes into the core system.
Parallel runs are likely for at least a year, where budgets are presented under both old and new heads, or where legacy data is maintained for historical comparability.
Training will be critical: thousands of drawing and disbursing officers, treasury staff, and line-department accountants must internalise the new codes and the classification logic behind them. Without this, misclassification risks will spike during the transition, undermining the very clarity the reform seeks.
There will also be political and bureaucratic resistance. Some departments may have grown comfortable hiding sensitive heads-such as certain subsidies, contingency expenditures, or politically awkward grants-under vague categories.
Standardised Object Heads will smoke these out. It is naïve to assume everyone will be enthusiastic. IFMIS vendors and in-house IT teams will need clarity and time.
The FY28 target is reasonably realistic for system changes, but only if states start early, avoid endless debates about exceptions, and resist the temptation to create local deviations from the common list “just this once.”
Finally, the Union must walk the talk. If central ministries themselves continue to misuse Minor Head 800, cling to outdated heads, or seek exemptions, state buy-in will evaporate.
From classification reform to accountability reform
Uniform Object Heads are not a magic wand. They will not, by themselves, stop fiscal profligacy, plug every leakage, or force legislatures to take audit reports seriously. But they are a necessary plumbing reform without which more ambitious changes-outcome budgeting, whole-of-government accounts, serious performance audits-remain fragile.
For CAG, the next step must be to embed this reform firmly in its audit methodology. State Finance Reports and Appropriation Accounts should, from FY28 onwards, carry comparative tables using the new Object Heads, highlight states that deviate, and spotlight best and worst practices.
The credibility of the change will be measured not in press releases but in how sharply audit commentary improves. For the CGA and Union Finance Ministry, the reform is an opportunity to clean up their own house-fully roll out the harmonised list, reduce dependence on residual heads, and publish machine-readable, line-item data in public portals.
If the Centre leads by example, it will strengthen CAG’s hand with the states. For states, the reform is a chance to turn accounting from a compliance nuisance into a decision-support tool.
Finance departments can set up small analytic units that exploit the improved data: mapping subsidies, tracking maintenance backlogs, measuring quality of spending across districts. Without such internal champions, the new Object Heads will become just another layer of codes that nobody uses intelligently.
Finally, for legislatures and PACs, uniform classification should make it harder for the executive to hide behind complexity. When every rupee is tagged in the same way across India, it becomes easier for legislators-and indeed for citizens-to ask: why does my state spend less on preventive health than its neighbour?
Why are our maintenance outlays per kilometre of road so low? Why are subsidies rising while capital formation stagnates? CAG’s FY28 classification directive is thus best seen as a foundation stone. It seeks to repair the language in which our public accounts speak.
Whether that language is then used to ask sharper questions and demand real accountability will depend less on the accountant and more on the political class, the legislature and an informed public willing to interrogate the numbers with new-found clarity.
(This is an opinion piece, and views expressed are those of the author only)
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