PEFA Isn’t a Donation Badge: Why India’s Claim Falls Short
FM Nirmala Sitharaman with Indian Cost Accounts probationers Image credit X.com
India’s fiscal system is strong, constitutional, and self-confident—but resisting PEFA entirely risks avoiding the hardest question of all: does the budget actually deliver what it promises?
By P. SESH KUMAR
New Delhi, December 31, 2025 — A familiar Indian rebuttal to PEFA goes like this: “PEFA is for aid-dependent countries; India is not a donee economy. We have a constitutional auditor, a mature budget system, a powerful Finance Ministry, FRBM architecture, digital platforms like PFMS, and decades of fiscal practice. Why import a framework designed to police weaker states?”
This argument is not frivolous. India is structurally different from many lower-middle-income countries (LMIC), and its fiscal machine-cash-based though it may be-has delivered scale, continuity, and predictable control over public money. Yet the “why the hullabaloo?” question becomes sharper, not softer, once we accept India’s stature: if the system is strong, then a diagnostic lens like PEFA should not feel like an insult; it should feel like a stress test-selectively adopted, domesticated, and used to tighten the link between intent, execution, and outcomes.
The way forward is not a noisy “transition to PEFA” as if it were a foreign religion, but a calm, Indianised “PEFA-by-parts”-a credibility and performance check that strengthens what works, flags what silently leaks, and respects India’s accounting reality without worshipping it.
India’s fiscal self-confidence is not without foundation. The Indian state is not a first-time budget beginner being handheld by donors. It is a century-old administrative machine that can raise massive revenues, borrow at scale, deliver national programmes across 28 states and 8 union territories, and still get a vote-on-account passed on time even when politics is on fire.
The Union and States operate within a dense lattice of appropriation laws, treasury controls, and audit scrutiny. The Comptroller and Auditor General (CAG) is not a consultant; it is a constitutional sentinel. Legislatures are not decorative; they vote grants, debate demands, and interrogate accounts through committees.
Add to this the steady thickening of digital plumbing—PFMS, e-procurement, DBT rails, GST data exhaust—and the claim that India already has “well organised budgetary and fiscal policies and practices” begins to look less like propaganda and more like lived institutional reality.
And yes, India is not an IPSAS poster-child. It is largely cash-based, and it has survived—often thrived—without full-blown accrual accounting. The core functions of government—collecting money, authorising spending, paying bills, and producing accounts-do happen.
The system is “working,” at least in the narrow but critical sense that the state doesn’t lose track of its cash in the way failing governments do. For many administrators, that is the only benchmark that matters: money in, money out, vouchers in order, rules complied with, audit paragraphs answered.
If that is the definition of success, then PEFA can look like a foreign yardstick searching for a problem.
But here is the twist: India’s “working system” is precisely why the PEFA question refuses to die. Because once a system crosses a certain threshold of order, the accountability debate stops being about whether the train is running-and starts being about whether it is running on the announced timetable, with the promised passengers, to the stated destination, at the declared cost.
That is where the donee-country stereotype about PEFA becomes a convenient shield. PEFA is caricatured as a donor’s checklist-an audit of weakness, a tool to discipline aid flows, a framework for governments that need external validation to be taken seriously. India, the argument goes, needs no such certification. It has its own institutions, its own constitutional morality, its own standards. Comparing India to LMICs is like comparing a software giant to a small startup.
Fair enough-up to a point.
Because PEFA, properly understood, is not a charity inspector. It is not a medal ceremony for countries seeking foreign applause. At its core, PEFA is a mirror that asks an uncomfortable but very Indian question: Does the budget mean what it says?
Do revenues and expenditures behave as planned, or do they drift into a parallel universe between the Budget Speech and the Finance Accounts? Is execution predictable, or is it a festival of surrenders, supplementary grants, re-appropriations, and end-year spending sprints?
Are liabilities, guarantees, and fiscal risks seen early enough to prevent shocks, or are they discovered late and explained elegantly? Is procurement competitive and timely, or is it procedural compliance sitting on top of a quiet cartel of delays and cost escalations? Does audit scrutiny land like a thunderbolt once a year, or does it feed back into executive learning while decisions can still be corrected?
Now comes the uncomfortable part: India’s resistance to PEFA is often less about India’s strength and more about India’s fear of being judged on what it prefers not to measure. A cash system can be impeccably controlled and still hide the slow accumulation of liabilities.
A rule-bound system can be compliant and still be unreliable in outcomes. A mature budget process can be punctual and still be routinely inaccurate in its estimates. A strong audit institution can produce heavyweight reports and still struggle to ensure timely systemic correction because the compliance chain is clogged.
This is why the “we can’t be compared to LMICs” claim, while emotionally satisfying, does not settle the matter. PEFA is not fundamentally a comparison game; it is a diagnostics game.
The value is not in whether we score higher than a peer country but in whether we can identify where the machine leaks credibility—especially in the most politically sensitive area of all: budget reliability.
If our budget ecosystem is truly robust, then selective PEFA-style diagnostics should feel like routine health checks, not foreign interference. In fact, a confident system welcomes hard measurement because it expects to do well-and because it wants early warning signals where it doesn’t.
So why the hullabaloo about “transitioning to PEFA”? Because people are fighting the wrong war. We do not need a dramatic, chest-thumping conversion to PEFA as if it were a civilisational upgrade. We do not need to throw away cash accounting overnight or pretend that accrual is a magic wand. We have been trying for over two decades to move or transition to accrual accounting without much success through CAG led GASAB. We do not need to import jargon and distribute scorecards like school report cards—an argument against PEFA goes. One cannot overlook the fact that this sort of theatrical reform is precisely what triggers bureaucratic resistance-and rightly so.
What we perhaps need is quieter and smarter: an Indianised middle path. Use PEFA logic where it adds value, and leave the rest to our own institutional frameworks. Apply it as a diagnostic lens to the places where our own system is weakest: the credibility gap between budget promises and actuals; the predictability of execution; the handling of arrears and commitments; the transparency of fiscal risks and off-budget exposures; the quality and timeliness of financial information for course correction; and the effectiveness of external scrutiny in forcing learning rather than merely producing audit paragraphs.
In other words, can we resist the temptation to treat PEFA as an imported constitution. Treat it as an audit of the audit ecosystem itself-a tool to see whether the state’s own accountability machinery is delivering what it claims.
And here is the strategic advantage for India: by shaping PEFA in its own image, we stop being a passive subject of global frameworks and becomes a contributor to global fiscal governance. India can say: “We will not be lectured; we will benchmark ourselves intelligently, in our context, and show what a large, complex democracy can do with diagnostic accountability.” That is not donor compliance. That is leadership.
Domesticate and Dedramatise PEFA
The practical way forward is to de-dramatise PEFA and domesticate it. We should pilot PEFA-style assessments selectively—Union ministries, willing states, large urban local bodies (some experiments have indeed taken place but not followed up)—focusing first on budget credibility and execution predictability rather than grand accounting conversion. The CAG and finance authorities should position PEFA not as a grading exercise but as a structured diagnostic that strengthens existing systems and shortens the loop between audit observation and executive correction.
India should explicitly adopt a “cash-compatible PEFA” approach: improve transparency, controls, and fiscal risk reporting within the current accounting base while building a measured path toward better financial reporting where it is genuinely useful. The real reform prize is not an accrual label; it is a budget that reliably translates democratic intent into verifiable outcomes-with fewer surprises, fewer excuses, and far fewer end-year fireworks. Or, is it too much of avoidable adventurous experimentation which our public fiscal and budgetary space can ill afford?
(This is an opinion piece. Views expressed are personal)
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