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Thursday, September 22, 2022

Preparing for financially self-reliant and accountable regulators

by Rishika Rangarajan.


Indian regulators are tasked with important functions in key sectors such as standard setting, supervising, and monitoring entities, enforcing standards, etc. Crucially, some regulators, namely the Real Estate Regulatory Authority, need to work towards developing and promoting their respective sectors. Achieving these goals involves employing technical and scientific capacity, engaging with relevant stakeholders, collating, and analysing sectoral data, etc. A regulator's ability to conduct these activities, independently and efficiently, requires adequate financial resources and flexibility.

In June 2022, the Insolvency and Bankruptcy Board of India (IBBI) published a Discussion Paper proposing a methodology for the regulator to become financially self-reliant. Currently, IBBI largely meets its budgetary requirements from government grants, with only 20% of its financial resources coming from regulatory fees. The paper observed that IBBI’s mandate being a resource-intensive one, requires “financial independence which allows the Board to have the required flexibility and human resources”. In the past, regulators such as the Securities and Exchange Board of India (SEBI) and the Competition Commission of India (CCI) have also asserted their financial independence, claiming that fees are a means to achieve self-reliance. While it may seem intuitive to allow regulators to charge fees to secure independence, there may be important consequences of such a fee-based model on the accountability of regulators as well (Rangarajan, 2021).

In this article, I discuss the implications of a fee-based model and the potential concerns that may arise lacking such a framework - for example, an unchecked ability to raise fees by regulators may allow the misuse of funds. This article: first, discusses the key sources of funding and the importance of financial capacity; second, provides a summary of the incomes of SEBI, Pension Fund Regulatory and Development Authority (PFRDA) and Food Safety and Standards Authority of India (FSSAI) between 2015 and 2020; third, discusses important case laws on fee-based models; and finally, concludes the need for a formal and codified process for raising fees by Indian regulators, in line with accepted international practices.

Designing financially self-reliant, independent, and efficient regulators requires careful deliberation, which has not yet been done. It is critical that a fee-based model be designed to factor in principles of independence, accountability, and transparency.

Key Sources of Funding

Each parent Act creates separate accounts for regulators which will hold the grants of the government, fees and subscription charges and any other income such as interest, penalties, or disgorged amounts. Currently, the key sources of income for regulators are (i) grants-in-aid, (ii) fees and charges, and (iii) other funds. The process of raising money for each source is briefly summarised below:

  1. Grants-in-Aid: To receive funds from the Appropriate government, parent statutes of regulators require regulators to prepare a budget with estimated receipts and expenditures each Financial Year. This budget is forwarded to the respective central ministry each Financial Year which will grant money from their annual budget, after due appropriation. This money is then taken from the CFI and is approved during the annual Union Budget presentation.

    For example, each Financial Year, IBBI submits their estimated revenue, capital and expenditure to the Ministry of Corporate Affairs. The Ministry, after considering the Actual Revenue and Expenditure for the previous year, determines the budget for grants-in-aid during the annual Union Budget discussions. The funds, after approval, are credited to the IBBI Fund established under Section 222 of the IBBI Act 2016. All regulators follow a similar procedure to receive grants from the Appropriate government.

  2. Fees and charges: Regulators raise money through fees from regulated entities to conduct services such as registration, licensing, granting approvals, and other such activities. Commonly, regulators impose three types of fees: flat fees, fees based on the value of the transaction, and fees based on the nature of the transaction.

    The Act does not prescribe any process to calculate the quantum of fees and regulators have the flexibility to determine the required fees. Regulators issue regulations that prescribe the quantum procedure for collecting fees from regulated entities. These are laid before the Parliament. Currently, there is also no requirement for regulators to publicly disclose the rationale for imposing prescribed fees on regulated entities.

  3. Other funds: Regulators can also invest their funds and receive interest on such investments. Other sources of money include penalties, donations, income from publications, interest from deposits, income from the sale/disposal of assets, etc. In addition, some regulators have a separate fund that holds other incomes.

    PFRDA can establish a separate Subscriber Education and Protection Fund which holds grants and donations received, interest on investments made and penalties imposed by the authority. Similarly, SEBI credits all amounts disgorged to an Investor Protection and Education Fund. Regulators can also own capital assets and hold separate capital/corpus funds and earmarked/ endowment funds which are reflected in their Balance Sheet.

The importance of financial capacity

The mandate of regulators is resource intensive. Some of the key expenses regulators incur include: (i) establishment expenses for salaries, wages, allowances, and other such expenses for employees; (ii) administrative expenses consisting of expenses on rent, electricity and water, vehicles, stationary, etc; (iii) grants and subsidies given to institutions or individuals (for ex., FSSAI offers grants to strengthen Food Testing Labs in states); and (iv) expenses for developmental activities including monitoring and supervising their sector

OECD’s Best Practice Principles for Regulatory Policy highlights that funding is one of the important pillars of regulatory authorities. Financial capacity is not only linked to efficiency, but also independence. It ensures that regulators have sufficient funds to conduct their activities and remain independent from any external factors, including the government or private sector.

Despite the early optimism around regulators, they often face similar capacity issues as the State. In 2018, the FSSAI cited that financial constraints have led to failure in upgrading their food safety mechanism. FSSAI sought a ‘quantum jump in budgetary allocation’ pointing out that counterpart organisations in other countries have a much higher proportionate budget.

On the other hand, SEBI is an entirely self-reliant regulator raising over Rs 800 crores through investments and fees in the Financial Year 2021 with a surplus of close to Rs 200 crores. Although there have been calls for transferring SEBI’s surplus funds to the CFI, there is nothing in the mechanism preventing regulators from raising fees that go above their budgetary requirements. This goes against notions of accountability and transparency - principles that form the bedrock of any public institution. Although a fee-based model allows regulators greater flexibility by avoiding delays and complications arising from the CFI disbursement process, it lacks processes that ensure accountability that come with a grant or tax-based regime.

Comparing incomes of regulatory authorities

To understand the role of fees and grants in the financial capacity of regulators, I have considered the income sources of three regulatory authorities SEBI, PFRDA and FSSAI, between 2015 and 2020. Income accounts of regulatory authorities provide us with a summary of the two key sources of funds: grants and fees/charges.

Evidently, the three regulators largely rely on either of the two sources (i.e., grants and fees) while the proportion differs for each regulator. For example, while SEBI does not rely on any grants from the central government, PFRDA and FSSAI, through the five-year period, largely rely on grants. Both FSSAI and PFRDA’s reliance on fees and subscriptions fluctuates through the period.

SEBI was also able to raise a sizable amount of money through income and interest earned which includes deposits in banks and other institutions; interest through loans provided to employees and interest from brokers.

SEBI makes available their board meeting minutes on their website, which includes the meetings where they decide the quantum of fees. These meetings reveal some of the contexts for why and how SEBI charges fees and the methodology they follow to decide the quantum. For example, in 2017, SEBI reduced the fees payable by brokers by 25% taking into account the projected income and expenditure for the subsequent three financial years and reducing the overall cost of transactions in the market. Similarly, in April 2020 they reduced the broker turnover fees and filing fees on offer documents to counter the challenges faced due to COVID-19.

PFRDA also makes available some of their board meetings - but, of the available minutes, none of them discussed any determination of fee matters. FSSAI does not make any board meetings publicly available and therefore there is no information on their fee determination.

Moving towards fee-based models

Fees have emerged as an important source of income for regulatory authorities, being seen as their way to function independently of the government.

The Report on Financial Sector Legislative Reforms Committee (FSLRC Report) submitted to the Ministry of Finance in 2013 reviewed the legal and institutional framework of the Indian financial sector. While discussing recommendations to reform the regulatory ecosystem, the report raised the importance of maintaining regulators’ independence. Amongst the reasons put forth, the FSLRC Report stated that regulators funding itself through fees would create “operational efficiencies” and ensures that the stakeholders who are the beneficiaries of the relevant market will bear the cost of regulation rather than the public as a whole. Regulators can also achieve freedom from the government on pay, potentially facilitating the hiring of experts. Fees can empower regulators to maintain independence from regulators and enable them to take timely decisions.

Fees are also easier to raise as compared to taxes, the latter being an important source of revenue for the central and state governments. The process of raising taxes is codified in the Constitution of India under Article 265 - “No tax shall be levied or collected except by authority of law”.

The process to raise taxes follows a multi-step process which begins almost six months prior to the date of presentation. Each ministry is required to submit estimated receipts and expenditures to the Government of India for their financial year which is examined by the Ministry of Finance in consultation with the Union Cabinet or the Prime Minister. After a series of consultations and discussions, the budget is presented in the Lok Sabha, usually on February 1st every year (commonly known as the Union Budget most recently presented by the Finance Minister, Nirmala Sitharaman).

Fees, on the other hand, are used by government departments, local authorities, and regulators to raise money to cover the costs of any services rendered. Over the years, courts have differentiated fees from taxes, empowering regulators to use fees to fund their activities and services. Courts have recognised fees as a legal means to fund regulators' activities but highlighted the need for a fair correlation between the fee charged and the cost of services rendered.

Differing standards of fees

In 2001, the Supreme Court of India considered the petition filed by stockbrokers challenging SEBI’s high registration fee charges. SEBI required stockbrokers to pay an annual registration fee based on their annual turnover over a period of five years. This is one of the earliest cases that dealt with regulators’ right to impose fees on regulated entities to fund their activities. The petitioners argued that the high fees were “excessive”, “unreasonable and arbitrary”. Second, they claimed that the fee is without the authority of law and is a tax guised as a regulatory charge. Finally, the levy has no nexus to the purpose for which the fee is collected and the demand for collection based on annual turnover extended over five years is arbitrary.

The Court rejected their arguments and found that SEBI does have the right to impose fees under the parent statute and therefore is authorised by law. The court did not consider the arguments on the quantum of the fees but held that regulators are not required to show a co-relatable quid pro quo. The court, however, refers to the Justice Mody Committee report which recommended preferable methods to calculate reasonable fees with SEBI in principle agreeing to implement them.

More recently, in 2020, insolvency professionals filed a writ petition, seeking the striking down of IBBI’s regulation charging ad valorem professional fees on them. They contended that there was excessive delegation, and the Act does not empower them to charge fees based on annual turnover or remuneration. They also raised that IBBI has not provided a quid pro quo to justify the charges. The Madras High Court ruled that regulators do not have to present a direct correlation between the fee earned and service rendered. In recent years, other regulators including PFRDA, CCI and PNGRB have also started to charge fees on an ad valorem basis.

As evidenced by the instances above, fees are specifically differentiated from taxes. Currently, taxes are the largest source of revenue for central and state governments with the process to determine and raise taxes set forth in the Constitution. Fees are becoming similarly significant to regulators. However, the same institutional safeguards are not put in place for regulators.

Designing financially self-reliant regulators

To raise taxes, governments must go through a rigorous and intricate process which accounts for principles of independence, transparency, and accountability. This has been coded into the Constitution of India. A similar framework is lacking for regulators funded through fees and charges, raising some concerns. While flexibility is necessary for regulators, equally, checks and balances need to be formalised to prevent misuse of their powers.

An unfettered right to raise fees can have far-reaching consequences on the relevant sector. High fees can impact the market since they are often translated into costs to the public directly or indirectly. To avoid this, it is important to ensure that there is a reasonable nexus between the cost of the services rendered and the fees charged. The FSLRC report highlighted that regulators should “clearly explain the fees it is charging and demonstrate that the fee is not disproportionate to the cost for the regulator”. The OECD report on The Governance of Regulators stated that the funding processes of regulators should be transparent and efficient while protecting their independence and objectivity.

An international example of good practice in raising fees is the Financial Conduct Authority (FCA) in the United Kingdom which is funded entirely by the fees and levies from the firms they regulate. On their website, they explain how they calculate their annual fees and in addition publish an annual consultation paper which sets out its proposal on fees for the upcoming year and the model for calculating the various levies. The paper is open to comments from all FCA fee payers and businesses considering applying for FCA authorisation or registration. Similarly, the parliament of New Zealand also published a document on guiding principles for the levy of fees and charges.

Similar processes are lacking in the Indian context. Currently, regulators are not required to conduct consultations to determine fees nor required to disclose their justification of the fees to the public or the regulated entities. This makes it challenging for the government, regulated entities and the public at large, who indirectly bear the indirect burden of high regulatory fees to question and examine regulatory budgets.

Conclusion: formalising transparency and accountability

It is argued that budgetary independence is related to the larger autonomy of regulators - regulators can determine their staffing, they can incur sudden or additional expenditures without immediate justification to the State, and it may also improve the quality of their operations by allowing investment in new technologies or requirements to upgrade internal processes.

Regulators that raise money need to be accountable to regulated entities and the public. When governments raise taxes, they must comply with certain constitutional and legal principles before deciding on the quantum. Principles that are enshrined in the Constitution. The same processes are not sufficiently imposed on regulators - their parent Acts do not provide any limitation to their right to raise funds through levies nor does it prescribe any requirements for transparency.

With an increasing number of regulators and increasing responsibilities imposed on them, their role in Indian governance is critical. In this context, the need for financial capacity cannot be denied but does the current process to raise funds by regulators ensure the necessary accountability? We need to consider creating a codified framework that sets out the above principles for self-reliant regulators.


Rangarajan, R. (2021) Financial Autonomy of Independent Regulatory Authorities: Analysis of Legal Framework.

Kapur, D and Khosla, M (eds.). (2019). Regulation in India: Design, Capacity, Performance.

Burman, A., & Krishnan, K. (2019).Statutory regulatory authorities: Evolution and impact.

Burman, A., & Zaveri, B. (2018). Regulatory responsiveness in India: A normative and empirical framework for assessment. William & Mary Policy Review, 9 (2).

Sundaresan, S. (2018). Capacity building is imperative. Column titled Without Contempt in the editions of Business Standard dated August 2, 2018.

Report of the Comptroller and Auditor General of India. Union Government Accounts of the Union Government, No 44 of 2017.

Ministry of Finance, Department of Expenditure. General Financial Rules 2017.

Rishika Rangarajan is a Researcher at the National Law School of India University, Bengaluru

How are securities laws enforced in India: some facts from a new data-set of SEBI orders

by Devendra Damle and Bhargavi Zaveri Shah.


The Securities and Exchange of Board of India (SEBI) is one of the most powerful regulators in India. As the regulator of one of the world's largest stock markets by market capitalization, SEBI has a variety of enforcement tools at its disposal. These include the imposition of monetary penalties, license cancellation and pursuing criminal proceedings against violators. The law empowers SEBI to issue directions to intermediaries, and more broadly, to persons associated with the securities market. Such directions may be of a prohibitory nature, such as restricting companies from raising capital in the public markets, disqualifying persons from acting on the board of publicly traded issuers and restricting access to the capital market altogether. They may also be of a remedial nature such as disgorging illegal gains made by violators or directing restitution to wronged investors. The grounds for issuing such directions are wide.

How has SEBI used these enforcement powers over time? Has it prioritized enforcement against some kinds of misconduct over others? If yes, have the priorities stayed static or changed over time? Do certain types of violations consistently entail certain types of sanctions? How efficient are the enforcement proceedings in terms of the time taken, and what is the success rate for enforcing such sanctions? Unlike some Indian financial sector regulators, SEBI follows a due process before issuing such orders, involving the issuance of a show cause notice and a hearing and publishes each enforcement order passed by its officials systematically on its website. This transparency in enforcement allows us to establish some basic facts on securities laws enforcement in India over a long observation period. In a new paper, we analyse over 8,000 enforcement orders passed by SEBI over a span of ten years to answer some of the questions we mentioned above. In this article, we summarize the key findings of our work.

Data description

In our study period beginning 1st January, 2011 and ending on 31st December, 2020, SEBI passed 9048 enforcement orders, of which we were able to sucessfully download and parse 8032 orders. We then analysed these orders, using text-mining software we designed ourselves, to arrive at some summary statistics on the frequency and type of enforcement undertaken by SEBI during the study period. To answer more detailed questions on the nature of enforcement, we manually analysed a stratified random sample of about 10% of these orders. The sample was drawn from the set of orders involving four regulations, which are most frequently enforced by SEBI (as per our data), namely, orders pertaining to fraudulent and unfair trade practices in the Indian securities market (FUTP), violations of the Insider Trading regulations, the Takeover Code and Broker regulations.

As mentioned above, the SEBI Act empowers SEBI to pass two types of orders, namely, orders imposing monetary penalties and orders issuing directions. Such orders can be issued against intermediaries, market participants, issuers of capital or persons generally associated with the securities market. Until 2019, monetary penalty orders could be passed only by adjudication officers and directions would be issued by whole time members of the SEBI board. With effect from 2019, the members of the SEBI board have also been empowered to pass orders imposing monetary penalties. In addition to these, the law also empowers SEBI to settle violations upon the payment of a settlement fee, without passing a guilty verdict against the violator. Basis this scheme of the SEBI Act, we categorize the enforcement orders in our data set into three categories shown in the Table. On an average, SEBI issues 250 enforcement orders with directions and double the number of orders imposing monetary penalties each year. The SEBI Act also empowers SEBI to initiate criminal prosecution against persons accused of having violated the SEBI Act or the regulations made by it, but we do not take account of this typology of enforcement proceedings in our study.

Table: Enforcement orders (2011-20)
Type of order Type of sanction Total^
Orders by Adjudicating officers Monetary penalties 4911 (61)
Orders by Chairperson/member Non-monetary sanctions 2484 (31)*
Settlement orders Settlement fee 637 (8)
Total 8032 (100)
^Numbers in brackets are a percentage of the total. *We estimate that not more than 30 orders may involve a monetary penalty.

As is evident from the Table, securities law enforcement is largely undertaken in India through monetary penalties, but the proportion of enforcement undertaken through non-monetary sanctions is not trivial. Settlements account for less than 10% of the total enforcement orders in our data. The annual distribution of these types of orders is shown in the Figure. The Figure shows that from 2018 onwards, there has been a sharp increase in the intensity of enforcement, with the number of monetary penalty orders nearly doubling from the previous years. The proportion of settlements has also increased over time, particularly after 2016. While the growth in the size of the market, an increase in the intensity of regulation and enforcement capacity are intuitive explanations for this jump, more precise, causal explanations require further research.

Figure: Year-wise types of enforcement orders (2011-2020)


SEBI draws its substantive powers from a set of three laws, over and above the SEBI Act, namely, the Companies Act, 2013 (and its preceding legislation), the Securities Contracts (Regulation) Act,1956 (SCRA) and the Depositories Act, 1996. While the Companies Act largely deals with the incorporation of Indian companies and the governance of their affairs, it also governs primary issuances, the requirements to be met by public offer documents and some aspects of the governance of listed companies. These matters under the Companies Act are administered by SEBI. The SCRA governs the conceptual definition of securities and securities contracts, regulates some types of securities contracts and governs the licensing and affairs of stock exchanges. The Depositories Act, 1996 deals with the regulation of depositories and depository participants. Under each of these laws, and in particular under the SEBI Act, SEBI has issued regulations defining the registration and reporting requirements for intermediaries, the kinds of misconduct that will elicit penalties, and so on.

We find that orders against fraudulent and unfair trade practices (FUTP) are the single largest group (15%), followed by orders dealing with violations of the provisions of the Companies Act (11%), insider trading regulations (10%) and the takeover code (9%). The enforcement actions (i.e. the number of orders) under the remaining regulations are few, with some of them having witnessed enforcement not more than once during the study period. Some of these seemingly rarely-enforced regulations, such as the regulations governing alternative investment advisors, are relatively new, which may explain why they do not appear more often in our data. However, others, such as the regulations governing venture capital funds, stock exchanges and clearing corporations, are older, but we see fewer orders issued under these regulations as compared to other regulations. Whether this is because the regulations themselves are not violated as frequently by market participants, or because SEBI chooses not to enforce them, requires further study.

To answer more specific questions of these enforcement orders, we manually analysed a random sample of 818 orders (approximately 10% of the total sample) from amongst the orders against the following types of violations: (1) FUTP, (2) insider trading, (3) violations of the takeover code and (4) violations of brokers' regulations. Some findings from this micro-study are summarised below:

  1. Duration of the enforcement proceedings: The formal enforcement process at SEBI begins with the appointment of an investigating authority who investigates the facts and reports her findings to the SEBI board. If the findings are adverse, a show cause notice is issued to the accused by the adjudication officer (where the proposed sanction is a monetary penalty) or a whole time member of the SEBI board (where the proposed intervention is a direction). We find that the median time for the issuance of a show cause notice is a little more than three years from the date on which the violation was committed. Further, the median time from the date of issuance of a show cause notice to the date of an order imposing monetary penalties is a year and a half. It is a little more than two years for orders issuing directions. A regulation-wise analysis of the duration suggests no relationship between the complexity of the violation involved and the duration of the enforcement proceeding.
  2. Subject and outcome of enforcement: A bulk of the enforcement actions are in respect of unregulated entities, that is, entities that are not SEBI-licensed intermediaries. This phenomenon could be attributed to the type of violations that are most often enforced against, namely FUTP and insider trading. Both these practices would likely involve traders and market participants that are not SEBI-licensed intermediaries. Further, in nearly 80% of the cases, SEBI found the person(s) guilty of all the violations that they were charged with, with a marginally higher conviction rate for unregulated entities compared to regulated entities. The conviction rate for violations of the Takeover Code is also marginally higher, compared to violations under the three sets of regulations. It is hard to comment on the optimality of this high conviction rate as these enforcement proceedings are undertaken and decided by SEBI officers themselves. All orders of SEBI, except those rejecting an application for settlement, are appealable to the Securities Appellate Tribunal (SAT). The rate of appeals and the outcome of appeals before the SAT could be a rough proxy to evaluate the optimality of this conviction rate and would be a good direction for further research.
  3. Proportionality of sanction: We find a lot of variation in the amount of penalty levied across cases. While the median (i.e. typical) size of the penalty is in the range of Rs 5,00,000, the average is in the range of Rs. 57,00,000. This difference indicates that while there are few cases where large penalties are issued, the size of these penalties is very large compared to the typically-imposed penalties. One explanation that could account for this variation is the amount involved in the violation. The SEBI Act requires an Adjudicating Officer to take into account, among other factors, the amount of disproportionate gain or unfair advantage made as a result of the default or the amount of loss caused to investors as a result of such default. However, we find that in a vast majority of the cases in our sample (90%), the size of the violation was not calculated.

    We similarly find a lot of variation in the orders that impose sanctions other than monetary penalties. Out of 118 such orders, 82 orders restricted the market access of the accused. The duration of such restrictions varied from 15 days to 4 years, and we could not discern any relationship between the duration of the restriction on the one hand and the violation or the purpose of the restriction on the other. Further, courts have repeatedly held that SEBI's direction making powers are remedial and preventive in nature, and not punitive. However, it is unclear at what point an order that operates to restrict market access starts to become punitive in nature, since none of the orders in our data clearly draw the line between remedial and punitive measures.


In India, the field of securities laws is often studied from the perspective of a specific case, individual legislative amendments or specific judgements of courts. While such analysis is useful, a slightly different, more quantitative approach is necessary to gain a systematic understanding of the manner in which the regulator uses the wide variety of enforcement tools available to it, the manner in which it seeks to enforce against different kinds of misconduct and the efficiency of its enforcement functions. The consistent publication of easily accessible enforcement orders by SEBI on its website makes it possible to undertake such systematic research on securities laws enforcement in India. This paper is one such effort to begin developing more systematic knowledge on enforcement of private law in India.

The data used for this analysis can be found here. The data-set can be cited as Zaveri Shah, Bhargavi; Damle, Devendra (2022), "Securities law enforcement in India", Mendeley Data, V1, doi: 10.17632/ppdk9pzfdp.1.

Devendra Damle is an independent researcher. Bhargavi Zaveri Shah is a doctoral candidate at the National University of Singapore.

Sunday, September 18, 2022

The make vs. buy decision of the union government

by Aneesha Chitgupi and Susan Thomas.


Like every organisation, the government faces the question of make vs. buy in carrying out its functions. Should it recruit people, and take on management responsibilities of directly making goods/services? Should it enter into contracts with private persons who already specialise in this production? Each choice has a different cost when using public funds. Managers in government face a Markup in State Production, which is the inefficiency of the state in direct production, and the state has to deal with a Markup in State Contracting, which is its inefficiency when contracting for procurement (Kelkar and Shah, 2022).

This question needs to be set in some basic facts. How large are the magnitudes of make vs. buy in the Indian state? Over the years, is there a bias towards producing goods/services in-house? Is there a process of growing maturation where the buy ratio is going up, or have the spate of difficulties in government contracting of the recent decade led to a certain retreat from buy in favour of make? In this article, we collect evidence for the union government, to offer some answers to these questions.

Methodology and data constraints

We use the methodology in Sharma and Thomas (2021) to estimate what the Union Government spends on procurement in a year. This uses the annual statement of accounts (Accounts at a glance) published by Controller General of Accounts (CGA). The books of accounts of government follows cash based system, recording only cash transactions (as opposed to accrual based system where transactions are recorded upon becoming payable).

The calculation of what was spent on procurement uses the expenditure under various ``object heads''. This is only feasible from 2015-16 onwards, when the CGA started disclosing expenditure under object heads in their annual reports. In the work presented here, we undertake this measurement from 2015-16 upto 2019-20. We ensure comparability by converting nominal values to real using the CPI.

Our calculations differ from the methodology employed by Sharma and Thomas (2021) on three counts:

  1. We only report the procurement expenditure of the Union Government, which includes only the expenditure under its ministries. We do not include expenditure in Central Public Sector Enterprises (CPSEs), which accounted for 3.5x the procurement of the entire Union Government.
  2. We calculate procurement expenditure for the Railways Ministry using a combination of its annual reports and the capital expenditure reported in the CGA annual reports for the Ministry.
  3. We include only those items that can be unambiguously classified as procurement for the Union Government.


Figure 1 shows the real actual spending of the Union Government for 2015-16 to 2019-20. The fraction of procurement spending has been quite stable at around 17-18 percent of the total expenditure. The remaining 82-83 percent of budget each year is spent on salaries and pensions and payments in the form of Grants-in-Aid, which are about 20-25 percent of the budget each year.


Figure 1: Union Government spending, with fraction of total procurement, inflation adjusted, 2015-2019

Figure 2: Union Government procurement expenditure, with fractions of capital and revenue, inflation adjusted, 2015-2019   

Source for both figures: Annual statement of accounts by CGA, Annual report of the Indian Railways, and authors' calculation.

While the share of procurement within total expenditure has been stable, there is a small shift in the composition of Union Government procurement. In Figure 2, we see that share of capital in total procurement increased from 53.7 percent to 57.5 percent between 2015-16 to 2019-20.

Table 1: Changes in share of total and procurement expenditure of Union Government as GDP (in %), 2015-2019

Total expenditure Procurement expenditure Capital procurement

2015-16 14.36 2.42 1.30
2016-17 14.37 2.50 1.38
2017-18 13.92 2.37 1.31
2018-19 13.55 2.40 1.39
2019-20 14.23 2.39 1.37

Source: Annual statement of accounts by CGA, annual reports of Indian Railways and authors' calculation.

How have these changed as a share of overall GDP? Table 1 shows that these fractions tend to be stable, whether it is the total spending by govt, or the spending on procurement or on capital procurement spending. There are some changes during 2017-18. This is likely a result of lack of maneuverability to reduce revenue expenditure, and an emphasis on items such as subsidies (RBI, 2020).


Government contracting is a critical part of state capacity that influences how the government chooses between make or buy in providing public goods. Given the more intractable problems faced by the Indian state in its attempts at recruiting people and producing internally, the possibility of contracting out to private firms is appealing. In the best examples, capabilities in public procurement have fostered innovation. But, this requires state capacity in government contracting. The evidence in India points to weak capacity in government contracting. Whether it is high levels of public litigation at courts (Mehta and Thomas, 2022; Damle et al, 2021), increasing levels of delayed payments at PSEs to vendors (Manivannan and Zaveri-Shah, 2019) and delays in project completion (Burman and Manivannan, 2022). Private parties are increasingly withdrawing from contracting with state (Mehta and Uday, 2021). This hampers purchase by the state as there is an inferior landscape of potential sellers.

A strategy of procurement reform could potentially put the Indian state on a path to higher capacity. The foundations of the field, of procurement reforms, lies in establishing basic facts:

  1. How large are the magnitudes of make vs. buy in the Indian state? About 17% of the expenses of the union government work through buy, the remainder work through make.

  2. Is the buy ratio something that is stable or does it fluctuate from year to year? The buy ratio is remarkably stable; it changes very little from year to year.

  3. Is there a process of growing maturation where the buy ratio is going up? Or alternatively, have the spate of difficulties in government contracting of the recent decade led to a certain retreat from buy in favour of make? The buy ratio is highly stable; it shows no time trend. What has changed is a small shift towards a increasing spending for capital procurement.

This shows that, in real terms, the allocation between the make vs. buy choice of the union government has remained the same. But there has been a rise in the share of capital procurement spending. This tends to involve spending in projects with longer maturity, with greater risks to the project during the contract implementation and management phase being the underlying driver for procurement failure. Bottlenecks to resolving problems in this stage of procurement will become an important area to focus on as the government reforms public procurement rules and processes.


Vijay Kelkar and Ajay Shah. In service of the republic: The art and science of public policy. Second edition, 2022, forthcoming.

Pavithra Manivannan and Bhargavi Zaveri. How large is the payment delays problem in Indian public procurement?. The Leap Blog. 22 March 2021.

Charmi Mehta and Susan Thomas. Identifying roadblocks in highway contracting: lessons from NHAI litigation. The Leap Blog. 13 July 2022.

Devendra Damle, Karan Gulati, Anjali Sharma and Bhargavi Zaveri. Litigation in public contract: some estimates from court data. The Leap Blog. 26 May 2021.

Pavithra Manivannan and Bhargavi Zaveri. How large is the payment delays problem in Indian public procurement?. The Leap Blog. 29 March 2022.

Perun. Defence economics, and the U.S. production advantage, YouTube, 31 July 2022.

Charmi Mehta and Diya Uday. How competitive is bidding in infrastructure public procurement? A study of road and water projects in five Indian states. The Leap Blog. 22 March 2021.

Anirudh Burman and Pavithra Manivannan. Timeliness in government contracting: Evidence from the country's largest metro-rail network. The Leap Blog. 12 August 2022.

Anjali Sharma and Susan Thomas. The footprint of union government procurement in India. XKDR Working Paper 10, November 2021.

Aneesha Chitgupi is a Research Fellow at XKDR Forum, and Susan Thomas is a Researcher at XKDR Forum. We thank Abhishek Gorsi for excellent research assistance, Josh Felman, Sudha Krishnan, Anjali Sharma and Ajay Shah for their inputs and comments.

Thursday, September 08, 2022


Position for researcher in the field of The Land Market

XKDR Forum is looking for a researcher to work on a project, on the land rights and land ownership by women. The project involves studying women's land rights, holding patterns and control over land resources through field and desk research.

XKDR Forum is a Mumbai-based inter-disciplinary group of researchers working in the fields of land, household and firm finance, financial markets, public finance management and public procurement. In these fields, the group engage in academic and policy oriented research, and advocacy. The new recruits will come into an active research program in the field. Our published work in the field of land include the following:

XKDR Forum is looking for one researcher with the profile described below.

Research Associate

As a research associate, you will work on project deliverables under the supervision of the Research Lead. The requirements for the role of research associate are: a background in law/economics and public policy, quantitative skills are desirable, two years of work experience. You must be comfortable in working in an inter disciplinary research environment with people from varying backgrounds such as economics, law, public policy and data science. You must be curious and passionate about research and must be willing to work on independent outputs as well as in teams.

The remuneration offered will be commensurate with your skill and experience and will be comparable with what is found in other research institutions.

Interested candidates must email their resume with the subject line: Application for "Research Associate" at XKDR Forum, to Ms. Jyoti Manke at by 15th September, 2022.