Part - I
Main Report
CONTROLLER GENERAL OF ACCOUNTS
MINISTRY OF FINANCE, GOVERNMENT OF INDIA
Report of the Committee
Constituted to Review
The List of Major and Minor Heads of Accounts (LMMHA)
of Union and States


Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
CONTENTS
PART I
SUBJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PAGE NUMBER
PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1-2
ACKNOWLEDGMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ACRONYMS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
EXECUTIVE SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 - 14
CHAPTER 1
INTRODUCTION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15-17
CHAPTER 2
THE EXISTING CLASSIFICATION SYSTEM . . . . . . . . . . . . . . . . . . 18-30
CHAPTER 3
THE CONCEPTUAL FRAMEWORK OF THE PROPOSED STRUCTURE . . 31-37
CHAPTER 4
NEW CLASSIFICATION STRUCTURE. . . . . . . . . . . . . . . . . . . . . . . 38-59
CHAPTER 5
IMPLEMENTATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60-64
CHAPTER 6
RECOMMENDATIONS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65-70
ANNEXURES
ANNEXURE A : ORDER CONSTITUTING THE COMMITTEE
ANNEXURE B : SPECIMEN AFS
ANNEXURE C : SPECIMEN DDG
ANNEXURE D : LIST OF SCHEMES

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
PART II
SUBJECT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . PAGE NUMBER
ACRONYMS ........................................... 1-2
SECTION 1
GENERAL DIRECTIONS FOR THE PROPOSED STRUCTURE. . . . . 3 - 31
SECTION II
THE LIST OF MAJOR HEADS, SUB-MAJOR & SCHEME HEADS. . . . 33 - 461
SECTION III
LIST OF PROGRAMME CODES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 463
SECTION IV
LIST OF SCHEME CODES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 464
SECTION V
ADMINISTRATIVE CODES FOR CENTRAL CIVIL MINISTRIES . . 465 - 484
SECTION VI
RECIPIENTS CODES FOR CENTRAL CIVIL MINISTRIES. . . . . 485 - 506
SECTION VII
OBJECT (ECONOMIC) CLASSIFICATION. . . . . . . . . . . . . . . . . 507 - 519
SECTION VIII
TARGET CODES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 520
SECTION IX
GEOGRAPHIC CLASSIFICATION. . . . . . . . . . . . . . . . . . . . . . . . . . . . 521

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
PREFACE
Government of India constituted a committee under the
chairmanship of Sh. C.R.Sundaramurti, Controller General of Accounts to
review the present accounting classification system and to develop a system
better suited to display the nature and objective of Government
expenditure. The primary purpose of the Committee was to develop a
revised Accounting Classification Structure which could address various
issues raised by many stake holders for better planning of resources,
budgeting, accounting and availability of more useful Government financial
information. The proposed revised classification structure has been
presented in a document named as 'Compendium of Accounting
Classification Codes for Union and States'.
The Committee gained useful insight from meetings with all Divisions
of the Planning Commission and also from close interaction with Finance
Departments of a few State Governments, Office of C&AG, Budget Division,
Ministry of Finance, and Ministry of Defence. The Committee also studied
the operation of budgeting and accounting system during visits to the
States of Tamilnadu and Karnataka. The Committee extensively obtained
views of all civil Ministries while developing the proposed classification
structure.
The Committee gave a presentation of the proposed classification
structure to C&AG and Budget Division, to representatives of all the
State/UT Governments, to Pr. Finance Secretaries/Finance Secretaries of
all States/UT Governments and to the officials of Finance Wings of all
Forces and Departments under Ministry of Defence. The proposed
structure was extensively discussed in all these forums and the views
emerging out of such deliberations were suitably incorporated in the
proposed classification structure.
1

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
The Committee worked in synergy with the High Level Expert Committee on
'Efficient Management of Public Expenditure' under the Chairmanship of
Dr. C. Rangarajan, Chairman, Economic Advisory Council to the Prime-
Minister, as one of the terms of reference of this Committee is “to suggest
measures to address the inconsistencies in our current system of
classification so as to ensure rational and efficient public Expenditure
Management”.
It is hoped that the proposed 'Compendium of Accounting
Classification and Codes for Union and States' complied by the Committee
would effectively meet the new emerging challenges in the area of Public
Financial Management.
C R Sundaramurti
Controller General of Accounts
2

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
ACKNOWLEDGMENTS
The Committee gratefully acknowledges the co-operation and efforts
of all its Members for immensely effective and fruitful deliberation in all the
meetings. The Committee expresses sincere gratitude to Smt. Sudha Pillai,
Member Secretary, Planning Commission and Smt. Sushama Nath, former
Secretary (Expenditure) for their continuous high level guidance in our
endeavour. Special thanks are due to Shri Shakti Kanta Das, Additional
Secretary, Budget Division, Ministry of Finance and other officers of Budget
Division especially Shri Naresh Mohan Jha, Shri Ritwik Pandey and Sh.
Brajendra Navneet for their valuable suggestions during the deliberation of
the meetings. The Committee is highly grateful to Shri T.K.Pandey, Advisor
(FR), Planning Commission for his valuable guidance in this endeavor and
also places special thanks to other officials of Planning Commission,
namely, Smt. Kusum Mishra and Shri H.K. Hajong for their valuable inputs.
The Committee expresses gratitude to Shri Shankar Narayan, DG
(Accounts) and Shri Saurav Shukla, Dy. Director (Accounts) the Office of
C&AG for their valuable suggestions at every stage of this endeavour. The
Committee would like to thank Prof. Pinaki Chakraborty, the representative
of NIPFP, for his enlightening technical inputs. The committee would like to
place on record a very special thanks to Shri Sandeep Saxena, ICAS who, as
a co-opted Member put extra-ordinary efforts in development of the basic
framework of the proposed classification structure. The Committee is
grateful to the Finance Secretaries of Tamilnadu and Karnataka for their
valuable inputs. The Committee would like to thank Shri H.K.Srivastav,
Deputy Controller General of Account and all the Officers and Staff of TA
and Code Sections of the Office of CGA, namely, Smt. T.R. Padmavathy,
Asstt. Controller of Accounts, Sh. R.P.Singh, Sh.Brajesh Kumar, Sh.
C.A.Baby, Sh. Tapan Das, Accounts Officers for their immense hard work in
compiling the proposed Compendium of Accounting Classification Codes.
3

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
The Committee expresses special thanks to Sh. Alok Ranjan, Deputy
Controller General of Accounts and other staff of Administration Section of
the Office of CGA for their support in providing all logistical support in
organizing meetings, workshops and effective secretarial services.
The committee is indebted to the High Level Expert Committee on
“Efficient Management of Public Expenditure” Chaired by Dr. C.
Rangarajan, for their continuous guidance and encouragement.
While expressing gratitude to all who have contributed to this
endeavour any error of omission is regretted.
4

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
ACRONYMS
ACA
Additional Central Assistance
AG
Accountant General
BPL
Below Poverty Line
COFOG
Classification of the Functions of
Government
CSS
Centrally Sponsored Schemes
DDG
Detailed Demand for Grants
EAP
Externally Aided Projects
FR
Financial Resources
GFS
Government Finance Statistics
IMF
International Monitory Fund
NCA
Normal Central Assistance
NER
North Eastern Region
NIPFP
National Institute of Public
Finance and Policy
PSUs
Public Sector Undertakings
SC
Scheduled Caste
SCA
Special Central Assistance
ST
Scheduled Tribe
UTs
Union Territories
WC
Women Centric Expenditure
5


Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
EXECUTIVE SUMMARY
l
l
In the wake of emerging requirements for more effective Management
Information System to be used for better planning and resource allocation
process, more effective monitoring of application of resources in
Government Schemes and a more robust Public Financial Management by
Government, a need has been felt for quite some time to review the present
classification of government transactions which is the basic tool for
capturing the Budgeting and accounting data. It was felt that the existing
Classification structure has some inadequacies which pose limitations on
its effectiveness in capturing relevant budgeting and accounting data
required to cope up with the new challenges in the area of Public Financial
Management and a system better suited to display the nature and objective
of Government expenditure needs to be developed.
With these objectives in mind, the Government of India has constituted
a committee under the chairmanship of Controller General of Accounts to:
Conduct a comprehensive review of the existing system of
expenditure and receipt classification as contained in the List of
Major and Minor Heads and to evolve a system which could cater to
the requirements for policy formulation, allocation of resources
among sectors, compliance with legislative authorizations,
accountability, policy review and performance analysis, and
Suggest a new list of accounting heads in replacement of the existing
List of Major and Minor Heads keeping in view the needs for
simplification, rationalization, and standardization across national
and sub-national governments, and improved reporting of transfer
payments from one level of governance to another.
The Committee had representation from the Budget Division,
Ministry of Finance, Planning Commission, the Comptroller and Auditor
General of India, State Governments of Assam, Tamilnadu, and
Maharashtra, and National Institute for Public Finance and Policy
(NIPFM).
7

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
The Office order constituting the Committee, its membership and
terms of reference is placed at Annexure 'A'.
The Office of the Controller General of Accounts provided the
technical and secretarial assistance to the Committee.
A brief account of the existing structure, the underlying reasons for
need of its amendment, the major deviations from the existing structure in
the proposed classification structure and the benefits to be accrued from it
8
Box-1
The existing system of classification in the Government of India follows a six-tier
hierarchical structure which is:
1.
Major Head (4 digits)-representing a major function of the government.
2.
Sub-Major Head (2 digits) - representing a sub-function of the government.
3.
Minor Head (3 digits)- representing a programme of the government.
4.
Sub Head (2 digits)- representing a scheme.
5.
Detailed Head(2 digits) - representing a sub-scheme and;
6.
Object head (2 digits)- representing economic nature of expenditure.
Expenditures are classified according to the function, programme, and their
economic nature using a fifteen digit numerical code. Receipts are classified
according to their nature and source. The classification system also applies to the
State Governments, with the exception that they are given the flexibility to open their
own heads below the third tier in the six tier hierarchy as per their respective needs.
The present classification system poses a few limitations. The main weaknesses/
issues pointed out by the various agencies can be summarized as follows:
l
There is opaqueness in data on transfers to states. The State-wise details of
transfers, information on releases to states under the various functional heads
are not captured.
l
There is lack of standardization of scheme classification. Plan schemes are not
captured uniformly at one level.
l
Major Heads, which are supposed to represent government functions do not
reflect true functional character of expenditures and do not correspond to
Heads of development used in the planning and resource allocation process.

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
l
Breakup of central transfers into constituent flows such as Finance
Commission grants, Normal Central Assistance, Additional Central Assistance,
Special Central Assistance etc. are not captured.
l
There are emerging special requirements such as gender budgeting, budgeting
for SC/ST, North Eastern Region (NER), that are not very well catered to by the
existing system.
The proposed classification structure is a multi-segment structure developed
mainly by rationalizing and reorganizing the information content of the existing
six tier hierarchical structure into separate logical dimensions. It has following
seven mutually exclusive segments with their own individual hierarchical
structures.
1.
Administrative Segment
2.
Function Segment
3.
Programme cum Scheme Segment
4.
Recipient Segment
5.
Target segment
6.
Economic Segment
7.
Geographic Segment
The mutually exclusive nature of the segments means that the various constituents
of the system are standardized. Each item is classified only once in the system and is
identifiable with a unique code.
In brief, the main benefits perceived from the new Classification structure proposed
by the Committee are as under:
l
It would allow capturing of almost the entire spectrum of data attributes on
public financial operations
l
It would facilitate financial reporting in a variety of ways for meeting
information requirements of different stakeholders.
l
It would greatly simplify classification and presentation of budget.
l
It would be computer friendly and open the accounting database to complete
slicing and dicing. The retrieval of information from the system will be easier
and reporting will be more flexible.
l
Maintenance of the Code directory would be far more easier.
9

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
is given in the Box below.
The report of the Committee is organized in two parts.
Part I contains the main report of the Committee.
Part II contains the document named as "The Compendium of
Accounting Classification Codes". It has nine sections; Section I contains
General Directions for the proposed structure, Section II contains the list of
Major, sub-Major and Scheme Heads, Section III to IX contains the
Programme Codes, list of Schemes, Administrative, Recipients, Object
(Economic), Target and Geographical Codes.
The recommendations contained in the report are the outcome of
several rounds of discussion among the Committee members,
consultations with various stakeholders and in-depth study of specific
issues related to budgeting, accounting and views of earlier Committees on
various aspects of classification.
The proposed classification structure is a multi-segment structure
developed mainly by rationalizing and reorganizing the information content
of the existing six tier hierarchical structure into separate logical
dimensions. It has the following seven mutually exclusive segments with
their own individual hierarchical structures.
1.
Administrative Segment
2.
Function Segment
3.
Programme cum Scheme Segment
4.
Recipient Segment
5.
Target segment
6.
Economic Segment
7.
Geographic Segment
The mutually exclusive nature of the segments means that the
10

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
various constituents of the system are standardized. Each item is classified
only once in the system and is identifiable with a unique code.
The structure is in line with the recommendation of the Expert group
constituted to review the classification system for Government
Transactions also known as 'Lahiri Committee' which recommended
adoption of a multidimensional classification structure with linkages
between the accounting classification and standard classification systems
such as Government Finance Statistics(GFS) and system of National
Accounts.
The proposed independent segments of the proposed structure and
the intended benefits are summarized as follows:
Administrative Segment: This segment is intended to identify the
administrative responsibility for expenditures. It would strengthen
the accountability arrangements for public spending by attributing
each budget line to an administrative authority.
Function segment: This segment is meant to classify functions
of Government. The existing functional classification structure
has been realigned to Heads of Development being used by
Planning Commission. This will enable the Functional heads to
be used as a very effective tool for macro level planning and
sectoral analysis.
Programme cum Scheme Segment: This Segment is meant for
classifying all Programmes and Plan and Non-plan Schemes/ Sub-
schemes of Government with standard codes for each of them. A
programme could be defined as a set of activities that are required to
achieve a defined objective. They are important tools for policy and
political intervention and are, therefore, of great importance to the
legislature, the executive and the beneficiaries. Classification of
l
l
l
11

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
expenditure by programs is also necessary for development of an
Outcome oriented budget. This standardization would facilitate
linking expenditure under a programme and scheme across different
levels of administration and establishing trails from the Union
Government to the lowest level, which would be particularly useful in
case of multi-layered transfers. The Schemes and Sub-schemes are
grouped into suitable category of programmes. It is important to
clarify that the term 'Scheme Category' not only connotes the
development schemes of the Government but also covers the Receipts
and Public Account transactions which are represented by the 'Minor
Head' of the existing List of Major and Minor Heads of Accounts
(LMMHA).
Recipient Segment: This segment is proposed to recognize the
external agencies and entities that are recipients of public funds as
instruments and channels of public policy delivery. Such entities
would include sub-national governments and other public and
private agencies. The main benefit of using this segment is that it
would make it possible to assign unique codes to each such entity.
With the standardization of coding, it should be possible to extract
and compile information on allocations/transfer of resources to each
such agency under different government schemes and heads. It
would also facilitate tracking of flow of funds under a scheme from
one level to another.
Target segment: This segment would be used to identify
expenditures targeted at special policy objectives. At present at least
five such requirements are identified, viz. Women Centric (WC)
expenditures, expenditures targeted at development of hill areas,
expenditures targeted at development of Schedule Castes (SC),
expenditures targeted at development of Schedule Tribes (ST), and
expenditure targeted at Below Poverty Line (BPL) population. This
l
l
12

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
would enable the capturing of Budget and accounting data pertaining
to emerging special requirements such as gender budgeting,
budgeting for SC/ST, that are not very well catered to by the existing
system.
Economic Segment: This segment covers the list of object heads
being used in the existing system of Budget and accounts to
capture the economic nature of expenditure. The object
classification is currently applied only to expenditure transactions.
Receipt and Public Account heads do not use object codes. It is
proposed to develop the current Object list into a full-fledged
financial classification indicated by the proposed 'Economic
Segment', which could be applied to all transactions. The Economic
Segment has been largely developed on the lines of classification
prescribed in the IMF GFS Manual 2001, with the exception that it
would be tailored to the present cash based accounting and
budgeting system.
Geographical segment: The Geographic segment would identify the
physical location of the transaction and allow for inter-regional
comparisons of public spending. This classification identifies such
politico-geographical divisions as states, districts and
towns/villages.
Budget presentation:
In the proposed structure, it is envisaged that the budget
provisions would now be attributed directly to the schemes and
administrative units responsible for implementing/executing those
schemes. All budget lines would necessarily have three attributes -
administrative units, programmes and schemes [Plan or Non-Plan], and
economic object. If the budget provision is meant for transfer payment,
l
l
13

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
[such as grants, subsidies, contributions, loans etc.] the entity receiving
the transfer would also be recognized to the extent possible at the budget
stage. Similarly, expenditure provisions targeted at certain identifiable
groups, such as women, SC, ST etc. would be suitably flagged to identify
the target group. If the expenditure is meant for any special area or a
region, [such as North East Region, Bundelkhand, Bodoland, etc.] the
area/region would also be recognized at the Budget stage. Besides, the
Geographical segment could also be used to capture the geographical
location of an expenditure item.
To sum up, the new Classification structure aims to address all the issues
related to critical information requirement of the Government and would
be a very effective tool for establishing a very robust Public Financial
Management. The structure can be applied to State Governments as well.
The mutually exclusive structure would provide enough flexibility to the
State Governments to add or drop a segment or two should it be
considered necessary for their local information requirements. States
would also have the flexibility to add more levels in any of the segment
below those provided for in this structure. More importantly, the top
three layers of the existing system have not been dislocated fully. They
have been realigned with some additions and new set of standard codes.
This would make the transition to this new system from the exiting one a
less arduous task.
**************
14

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
CHAPTER-1
INTRODUCTION
1.1
Article 150 of the Constitution provides for maintenance of the
Government accounts "in such form as the President may, on the advice of
the Comptroller & Auditor General, prescribe". The executive powers to
prescribe the form and content of accounts are delegated to the Controller
General of Accounts, Ministry of Finance under the Allocation of Business
Rules. In exercise of these powers, the List of Major & Minor Heads (LMMH),
containing the accounting classification of receipts and disbursements, is
maintained by the Controller General of Accounts on the advice of the
Comptroller & Auditor General of India.
1.2
The existing system of classification in the Government of India
follows a six-tier hierarchical structure. Expenditures are classified
according to the function, programme, and their economic nature using a
fifteen digit numerical code. Receipts are classified according to their nature
and source. The classification system also applies to the State
Governments, with the exception that they are given the flexibility to open
their own heads below the third tier in the six tier hierarchy as per their
respective needs.
1.3
The present classification structure was introduced in the year 1974
on the recommendations of a committee headed by Sh. Mukherji, the then
Deputy Comptroller and Auditor General. It was reviewed in 1987 by
another committee under the chairmanship of Sh. R C Ghai, Joint
Controller General of Accounts. The classification system has remained
unchanged since then.
1.4
There have been concerns expressed from time to time that this
classification system is no longer adequately serving the changing
15

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
information needs of the various stakeholders. Several inadequacies have
been pointed out by different section of users of government financial
information. There has also been a view that this classification structure is
unable to harness the full potential offered by the modern computer
technology.
1.5
An expert group set up in 2003 by the Government of India under the
chairmanship of Sh. Ashok Lahiri suggested adoption of a
multidimensional classification structure with linkages between the
accounting classification and standard international classification systems
such as Government Finance Statistics (GFS) and System of National
Accounts (SNA). According to them, a multidimensional classification
system would be more computer-friendly and facilitate easy retrieval of
information and flexible reporting.
1.6
Recognizing the importance of this matter, Government of India
constituted a committee under the chairmanship of Sh. C.R.
Sundaramurti, Controller General of Accounts to review the present
accounting classification system and to develop a system better suited to
display the nature and objectives of Government expenditure [Annex A].
1.7
The Committee recognized that its proposals would have far reaching
implications for the central ministries and the State and Union Territory
Governments. It adopted a consultative approach to this task. State and UT
Governments and Central Ministries were consulted at every significant
stage in this exercise beginning with the circulation of the ToRs for inviting
their comments. Minutes of the Committee meetings were also circulated to
all ministries and state governments with the purpose of keeping them
updated on the progress and the views emerging out of Committee's
deliberations. The draft framework was presented to the representatives of
16

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
state finance departments in a day long workshop and each state was
provided an opportunity to provide their feedback. All outputs, including
the draft lists of the proposed accounting heads, were circulated to all
ministries and state/UT governments. Consultations were also held with
the departments of Defence, Railways, and Posts and Telecommunication.
The Committee has carefully considered the inputs received from the
various sources in its final proposals and tried to resolve in the best possible
manner the issues brought out before it.
1.8
This report (Part I) describes the Committee's proposals for changes
in the classification structure. The main content of the report is organized in
three chapters. Chapter-2 briefly describes the existing system of
classification and highlights some of the main concerns. Chapter-3 sets the
conceptual framework for a budget and accounting classification system.
Chapter IV carries a segment by segment description of the proposed
classification framework. Chapter-5 delineates the detailed action plan for
implementation of the proposed structure. A summary of Committee's main
recommendations is given in Chapter-6 at the end of the report.
1.9
Part II of the report contains a document named as "The
Compendium of Accounting Classification Codes" which will replace the
existing List of Major and Minor Heads of Accounts of Union and State. It
has nine sections; Section I contains General Directions for the proposed
structure, Section II contains the list of Major, Sub-major and Programme
cum Scheme Heads, Section III to IX contains the Programme Codes, list of
Schemes, Administrative, Recipients, Object (Economic), Target and
Geographical Codes.
********************
17

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
CHAPTER-2
THE EXISTING CLASSIFICATION SYSTEM
2.1 The existing classification system is based on the recommendations
given in 1972 by a team of officers headed by Sh. A. K. Mukherji, the then
Deputy Comptroller & Auditor General of India, which were adopted and
implemented by the Government in 1974. This Committee was constituted
as a follow up of a recommendation made by the first Administrative
Reforms Commission in their report on 'Finance, Accounts & Audit' that
"the structure of major heads of accounts may be reviewed and recast in
terms of broad functions and major programmes of the Government". This
was the first major attempt after independence to review and rationalize the
system of classification of transactions.
2.2 The classification system followed prior to 1974 was mainly based on
the organisational structure of the Government. Transactions were
attributed to the Ministries, Departments or the subordinate organizations,
within which the input type such as establishment charges, travel
expenses, etc. were recorded.
2.3
The Mukherji Committee noted in its report that, "In the changed
circumstances, the budget and accounts have to fulfill a new purpose and
acquire a new dimension. Classification is the structural key to planned and
rational Government budgeting. The manner in which operations of
Government are grouped will be determined by and will also determine the
character of the decisions that can be made in the budgetary processes. A
meaningful classification and presentation of Government operations in
terms of functions, programmes and activities, therefore, assume great
importance".
18

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
2.4 The Committee suggested a rationalized list of major and minor heads
of accounts based on the classification recommended in the Manual of
Functional and Economic Classification of Government Transactions
brought out by the Department of Economic and Social Affairs of the United
Nations. This classification aggregated government operations into broad
sectors into which functions or services were grouped. The outlays were
provided to major heads, which represented functions. In the case of larger
functions, such as education, sub divisions in the form of Sub Major Heads
were provided. The objectives of a function were achieved by undertaking a
number of programmes, which formed the next tier of the classification
structure. Schemes drawn up under each programme and the object on
which expenditure was incurred formed the next two levels. The report
submitted by this team also contained a list of 26 standard objects of
expenditure.
2.5 The Committee also noted that, "The functions of Government or
programmes are not static. It is quite possible that after some years many of
the functions or programmes may be varied and governmental activities
may embrace certain new functions and programmes. Hence a pragmatic
approach to accounting structure should not be considered immutable. The
scheme of classification should embody a certain amount of flexibility so
that accounting could be dynamic and grow with times. This flexibility is all
the more necessary at the level of Minor Heads as the programmes are liable
to change from plan to plan."
2.6 Subsequently, an interdepartmental group of officers headed by Sh.
R. C. Ghei, the then Joint Controller General of Accounts, attempted a
harmonisation of plan heads with the heads of accounts in 1987. This group
19

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
noted that, "Unless there is complete one-to-one correspondence and,
where this is not feasible, proper correlation between Plan heads of
allocation and Accounts heads of classification, it will not be possible to link
the Plan allocations with the Budgetary figures or actual expenditure". This
group further rationalized the list of major and minor heads and added
another tier in between schemes and objects for classifying Sub-Schemes
called as detailed heads of accounts.
2.7 While a common list of Major & Minor Heads, maintained by the
Controller General of Accounts, is used by both the Union Government as
well as the States, the latter are given the flexibility to operate their own
heads below the Minor head level as per their respective needs. These differ
from state to state.
2.8 Modifications to the List of Major & Minor Heads are carried out by
the Controller General of Accounts on the advice of the Comptroller &
Auditor General of India. Changes below the Minor head level are carried
out by the respective State Governments in consultation with the concerned
Accountant General. In the case of the Union Government, such changes
are made by the Ministries themselves in consultation with the Budget
Division and the Controller General of Accounts.
2.9
The Existing Structure
2.9.1
Under the existing arrangement, the accounts are divided into
three funds at the highest level - the Consolidated Fund, the Contingency
Fund, and the Public Account. All government transactions are classified
into one of these funds.
20

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
2.9.2
The Consolidated Fund is divided into Revenue and Capital
Sections, which are further broken down into Sectors and Sub-Sectors on
functional lines. These sub-sectors are, in turn divided into a six-tier
hierarchical structure, which is:
1.
Major Head - representing a major function of the government,
2.
Sub-Major Head - representing a sub-function of the government,
3.
Minor Head - representing a programme of the government,
4.
Sub Head - representing a scheme,
5.
Detailed Head - representing a sub-scheme and;
6.
Object head - representing the type and object of expenditure.
2.9.3
The first five tiers of this hierarchy are used to capture functional
attributes of a transaction and collectively represented by a unique thirteen
Chart 1
Tax Revenue
Non Tax Revenue
Grants in Aid & Contributions
Receipts
General Services
Social Services
Economic services
Grants in Aid & Contributions
General Services
Social Services
Economic Services
Grants in Aid & Contributions
Public Debt
Loans & Advances
Contingency Fund of India
Small Savings
Deposits & Advances
Reserve Funds
Suspense & Misc.
Remittances
Cash Balance
Public Account
Consolidated Fund of India
Revenue section
Capital section
Expenditure
Receipts
Expenditure
Government Accounts
21

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
digit code. Object Heads, which are standardized, can combine with any
thirteen digit code and together each fifteen digit code represents a unique
combination of three different attributes - functions, programme/scheme,
and economic nature.
2.9.4
As primary units of appropriation, the object Heads serve the
purpose of micro level budget control, besides providing information on the
economic nature of expenditure for analytical purposes. The existing object
classification has 46 standard objects as laid down in Delegation of
Financial Power Rules (DFPR), 1978, which are grouped into seven Object
Classes. This list of Object heads is used by the central civil ministries. The
Ministries of Defence, Railways, Post and Telecommunication use separate
object classifications, which are designed to cater to their department
specific control and information requirements. Similarly, state
governments follow their own object classification, which considerably vary
from state to state.
2.9.5
In addition, the budget proposals of the Government of India are
organized into Demands for Grant, which loosely correspond to
Ministries/Departments and can be seen as another dimension of the
classification structure.
2.10
One of the main features of the existing classification structure is
that it divides Consolidated Fund into three broad groups - Revenue,
Capital, and Loans & Advances [Chart 1]. As explained in the Mukherji
Committee report, this was necessitated to fulfill Constitutional
requirements. To quote the report, "Further, under the provisions of Article
22

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
112 and 202 of Constitution the expenditures of Government are required
to be shown separately under 'revenue' and 'capital'. Besides, Article 266 of
the Constitution makes a distinct mention of loans raised by Governments
and amounts received in repayment of loans advanced by Governments
amongst the categories of receipts that would form the Consolidated Fund
of the Union and State Governments. Accordingly, we have proposed
separate divisions for revenue, capital and loan transactions. While the
"capital" division will have the same sectoral classification, as in the
"revenue" division, the "loans" division will have two sectors, one for the
borrowings of Government and the other for loans given by Government.
The major heads in the latter sector have, however, been arranged in such a
way as to correspond to the major head classification adopted for the capital
division. Under the scheme, attempt has also been made to distinguish in
accounts loans given to various parties such as State Governments, Port
Trusts and Municipalities.
2.11
The Planning Commission uses a different classification for
sectoral analysis and resource allocation. Plan Outlay are categorized into
11 sectors, each sector is divided into several [ranges from 4 to 20] Heads of
Development. The Heads of Development are organized on functional lines
and have broad correspondence with the Major Heads of Accounts. As in the
accounting classification, each Head of Development contains several
programmes. Unlike accounting heads, plan head of development are not
divided for revenue, capital and loan transactions. In the words of Mukherji
Committee, "We, however, recognize that the classification in the plan
cannot have separate divisions for revenues, capital and loan transactions.
23

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
These will, therefore, continue to be aggregated under the various plan
sectors of development as at present."
2.12 Need for Review
The various agencies have pointed out several weaknesses/issues in
the present classification system. A brief summary of these is presented
here:
2.12.1 The original coherent structure has been diluted due to
innumerable amendments. Since it came into being, the List of Major
and Minor Heads has seen innumerable amendments in response to
changing accounting and information requirements, although the basic
structure of the classification system has remained more or less
unaltered. Concerns have been expressed from time to time about the
adequacy and usefulness of the existing accounting and budgeting
classification system.
2.12.2 The functional content of budget heads is not adequately
represented. The existing classification is largely a function cum
programme classification. However, as a result of innumerable
amendments to the LMMH, its functional character has been diluted. Not all
major heads represent government functions. For instance, special area
programmes such as North Eastern Areas [Major Head 2552], Hill Areas
[Major Head 2551], etc. are essentially cross-cutting programmes but
classified as Major Heads. As a result of these changes, the accounting
24
1 Para 3.2.13, Second Report of the Team on Reforms in the Structure of Budget and Accounts,
Classification of Government Transactions in Accounts and Plan, Volume I

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
heads, now, do not correspond one to one with the plan heads of
development used in the planning and resource allocation process.
2.12.3 The Committee on Financial Sector Assessment in its report
submitted to Government in March, 2009 has observed that "The budgetary
structure in India does not, at present, adequately convey the functional
content of each budget head category. Consideration may be given to
appoint a Working Group to restructure and rationalize the budget head
structure for reporting expenditures".
2.12.4 Heads of Accounts do not correspond one to one with Plan
Heads. A major problem is faced in generating scheme wise information
from the accounting classification due to absence of a one to one
correspondence with schemes and heads of accounts. As a result, the
Demands for Grant and the accounts do not explicitly present budgetary
allocations and outlays on plan schemes and sometimes culling out this
information may require extensive manual intervention.
2.12.5 There is no standardization in classification of schemes under
different Major Heads. The Plan schemes are not captured uniformly at
one level. Although the present framework suggests that schemes be classified
at sub head level and sub-schemes at detailed head level, in practice it
differs from scheme to scheme. Some schemes are classified at sub-head
level, some at detailed head level, and some other at Minor head level. Some
schemes, despite having significant outlays, are not reflected at Minor Head
level and, therefore, do not get explicitly reported in the Finance Accounts.
2.12.6 Moreover, the classification structure requires that provisions for
revenue and capital expenditures under a scheme are assigned different
25

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
codes. Most scheme, therefore, appear at more than one place in the
classification system and there is no way to uniquely identify schemes. If a
plan scheme has components of revenue & capital expenditure incurred
directly by the Centre and also has transfers (including loans) to States/
UTs, the data in the accounting books will be scattered under a number of
different major heads and will have to be aggregated to generate scheme-
wise information. This impedes expenditure tracking of plan schemes.
2.12.7 This problem gets compounded due to lack of uniform coding for
plan schemes across the States. Different states usually identify central
schemes through different codes. This lack of standardization leads to data
collation and aggregation problems both at the centre and between centre
and states.
2.12.8 There have been suggestions to introduce uniform accounting
codes for all plan schemes across the Union and the States so that each
scheme is identified uniquely throughout the system. This is seen to help
consolidate information on plan expenditures incurred at the grass-root
level and correlate actual expenditures with the Central releases.
2.12.9 Several gaps exist in disclosure of information on transfers to
States. A significant proportion of Union Government expenditure takes place
in the form of transfers to States. These transactions are recorded under the
Major Heads 3601 and 3602. These transactions are not attributed to the
functional heads. Mukherji Committee report explains this as follows:
"We considered the question whether the grants and loans paid by the
Central Government to State and Union Territory Governments should be
26

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
classified under the various functional heads to which individual grants or
loans related. For one thing there is quite a large amount of grants-in-aid
and loans given to State and Union Territory Governments in 'block' form for
State and Union Territory Plan Schemes are not related to any particular
scheme. A functional distribution of these block grants and loans is not
possible. Secondly, the exhibition of grant or loans paid to the State and
Union Territory Governments under the functional heads in the Central
Government accounts and the actual expenditure of the State and Union
Territory Governments on the schemes/projects again under the same
functional heads in their accounts would inflate the expenditure on a
particular function when the expenditures of the Central and State and
Union Territory Governments on that function are aggregated. We,
therefore, recommend the retention of separate major heads for grants-in-
aid to State Government, grants-in-aid to Union Territory Governments,
loans and advances to State Governments and loans and advances to union
Territory Governments so that while aggregating the total expenditure of
Central, State and Union Territory Governments on a function, these
2
transfers could be excluded."
2.12.10 A fall out of this approach is that even where it is possible to
attribute transfers to functions or programmes, the classification structure
does not permit it. Thus, the functional character of these transfers is lost.
On one hand, there is loss of information on the purpose of these transfers.
On the other hand, the information available for functional analysis of
government expenditure is incomplete. Further, there is no mechanism to
record and produce the State/UT wise break-up of transfers under the
2 Para 3.14.5, Second Report of the Team on Reforms in the Structure of Budget and Accounts,
Classification of Government Transactions in Accounts and Plan, Volume I
27

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
Major Heads 3601 and 3602. Also, the sub-classification under these
heads has not kept pace with the changing pattern of plan assistance.
2.12.11 Resources devolved on States through direct Central
assistance outside the State Consolidated Funds do not get reported in
the State Finance Accounts. In the recent years the proportion of central
assistance going to states through the society/SPV route has become
significant. This central assistance does not feature in the state accounts,
as it bypasses their consolidated funds. To that extent, the information
contained in the state finance accounts remains incomplete. Questions
have also been raised on the accountability aspect of this mode of fund
devolution. Concerns have been raised that flow of funds directly to
societies is leading to dilution of accountability and responsibility for
utilization of public funds.
2.12.12 The present system fails to cater to the emerging special
requirements such as gender budgeting, budgeting for SC/ST, North
Eastern Region (NER), etc. There have also been suggestions that breakup
of central transfers into constituent flows such as Finance Commission
grants, Normal Central Assistance, Additional Central Assistance, Special
Central Assistance, etc. should be available.
2.12.13 There have been suggestions that accounting classification
should distinctly recognize the various categories of transfers, namely,
(a) untied transfers, (b) grants for specific purposes against which states are
not required to submit utilization certificates, and (c) advances for incurring
expenditure that require submission of utilization certificates. Suggestion
have also been made that the grants under Centrally Sponsored Schemes to
28

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
States and other sub-national implementing agencies be shown in the
books of Union Government as 'Transfers' and not as 'Expenditure'.
2.12.14 Object Heads are not standardized. Presently, Central civil
accounts use a set of 44 standard object heads. The non-civil departments
of Defence, Railways, Post and Telecommunication have different object
heads, which are designed to cater to their operational and budgetary
control requirements. Similarly, each state follows its own list of object
heads and wide variations can be observed from state to state. Many states
use more than one level of object classification. For example, some states
have sub-divided 'Salary' into 'Pay', 'Medical', 'HRA', 'LTC', 'Honorarium',
etc. for greater detail of information and tighter expenditure control.
2.12.15 For long there has been a need for convergence between the object
heads used by the central ministries and some degree of standardization
across the states. Lack of standardization of object heads has been seen as
an impediment in good analysis of public expenditure. Concerns have also
been expressed that the existing classification system does not facilitate
generation of economic cum functional view of expenditures required for
analytical purposes.
2.12.16 The need for standardization of object heads has also been
reflected in the reports of the 12th and 13th Finance Commissions. The
12th Finance Commission while commenting on the lack of uniformity over
the definition of revenue deficit, capital expenditures etc. by the states had
recommended that instructions be issued for a uniform classification code
for all states down to the object head. The 13th Finance commission further
29

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
re-enforced this thought stating that such uniform application would
facilitate comparison across states while ensuring consistency.
2.12.17 Assets classification is obscure. Concerns have also been raised
about the lack of detailed information on assets owned and held by the
government. The GFRs require maintenance of asset registers by the
administrative units but there is no mechanism to validate this information
from the accounts.
2.12.18 The receipt classification needs review to accommodate
changing pattern of non-tax revenues. While the classification of tax
revenues is quite comprehensive, it has been felt that the non-tax revenues
are not classified in sufficient detail. Some sources of revenues that have
become significant in recent times remain uncaptured.
************
30

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
CHAPTER-3
THE CONCEPTUAL FRAMEWORK OF THE PROPOSED STRUCTURE
3.1
Classification of government expenditure is important for policy
formulation and decision-making on sectoral allocation of funds,
performance monitoring of various government programs and activities,
establishment of accountability for budgetary compliance, and in the
analysis of overall economic impact of government policies. It provides a
normative framework for both policy decision-making and accountability.
3.2
Government budgetary transactions, both expenses and revenues,
can be classified in a variety of ways. The choice of a budget classification
system depends on the needs of the users, who generally want different
pieces of information to help them make economic, social and political
decisions. It is universally recognized that no single scheme of
classification can possibly satisfy the divergent information
requirements for different classes of stakeholders. Most governments,
therefore, classify their expenses on a set of different and mutually
exclusive schemes of classification.
3.3
Governments usually adopt multi-dimensional classification
systems to cater to such diverse information requirements. Internationally,
four dimensions have been essentially considered as well developed
classification system. These are:
1.
Classification by functions;
2.
Classification by administrative units;
3.
Economic Classification; and
4.
Programme Classification.
31

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
3.4
Classification by functions (such as health, education, police,
defence, communication etc.) categorizes transactions on the basis of
broad purpose or objectives of expenditure. Functional view of
expenditure is required for macro level policy formulation. Normally, it is
the basis for resource allocation at the higher level. It also provides a base
for historical analysis and cross-country comparisons of public
spending.
3.5.1 Classification by administrative units is required to identify
responsibilities for the main blocks of public expenditure and for day-to-day
administration of the budget. This is achieved by relating expenditure to the
Ministry, Department or the agency incurring the expenditure.
Administrative classification helps in establishing accountability for
utilization of financial resources and achievement of spending outcomes.
Classification by organizations is also required for day-to-day
administration of budget.
3.5.2
The administrative classification should facilitate distinction
between the policy, strategic, and executive levels in the administrative
hierarchy and the associated accountability structures. Usually,
ministries are responsible for policy formulation and accountable to the
legislature for the outcomes. Departments and other executive agencies
are responsible for policy execution and service delivery. Being
responsible for budget utilization and incurring of expenditure, these
become important control points for budget execution and performance
monitoring.
32

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
3.5.3
The classification structure should clearly identify the level in
the administrative hierarchy, such as the Ministries and Departments
that are accountable to the legislature for the appropriations provided to
them and the functional levels, such as the Divisions and agencies that
are responsible for incurring the expenditure. The latter being
responsible for execution of government policies and programs become
important control points for budget execution and performance
monitoring.
3.5.4
Very often, a close correspondence is seen between the
government functions and its organizational structure, particularly at the
top most level. Nevertheless, it is important to assign expenditures to the
administrative formation responsible for incurring it.
Box 2 : Principles of Classification
The task of any classification system is to identify basic similarities in government
operations and organize individual transactions into relatively homogeneous
categories. These categories can provide some meaningful information on the nature,
composition and impact of these transactions. This categorization, thus, facilitates
analysis of government operations. A sound budget classification system follows three
fundamental principles of classification:
l
Homogeneity: Each of the classification schemes should have a unique set of
defining characteristics to which every transaction must comply;
l
Independence: Each classification has defining characteristics that are
different from, and independent of, the others; and
l
Comprehensiveness: The definitions of each of the classification dimension
are complete and comprehensive.
On the basis of these principles it is possible to classify transactions in a variety of ways
clearly and unambiguously, without duplication, overlap or repetition.
33

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
3.6
Economic Classification identifies the various inputs going into
government programs and activities. This is required for the purpose of
costing. Inputs or objects of expenditure represent the nature, type and
quantum of resources utilized (such as employee salaries, utilities,
operating goods and services etc.) for achieving the program objectives and
resources acquired (such as physical assets) by the government in the
process. Classification of expenditure by inputs also provides the basic
control framework for micro-level management of resources and budgetary
control.
Box 3 : Expenditure Classification
Classification
What it records
Why is it needed
Functions
Why money is
spent?
Purpose
of
spending
Policy-making and inter -
sectoral allocation of
funds
Administrative Who spends
the money?
Accountability
for spending
Accountability for use of
public
funds;
performance evaluation
of
Government/
executive
Economic
What is it
spent on?
Nature
of
resources
(goods, services
etc.)
acquired;
what
caused
changes
to
public
assets
and liabilities
Economic
impact
of
public spending; budget
management
Program
What are the
objectives of
the spending.
Activities
and
objectives
for
spending
Performance evaluation;
Policy analysis
Geographic
Where is it
spent?
Location of the
Administrative
unit
Inter-regional
comparison of spending
34

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
3.7
Classification by Programmes provides a base for translating
government's policy objectives into physical targets and allocation of
resources for the achievement of these targets. Programs are important
means of achieving a government's social and economic objectives and
often underline the political philosophy of the administration. A program
could be defined as a set of activities that are required to achieve a defined
objective. They are the most important tools for policy and political
intervention and are, therefore, of equal concern to the legislature, the
executive and the beneficiaries. Classification of expenditure by
programs is also necessary for development of a outcome oriented
budget.
3.8
Geographic classification classifies budget according to the
politico-geographical subdivisions of the country, such as special
areas/regions, the province, the municipality/city, and the village etc.
Geographic classification provides useful analytical information for inter-
regional comparison of government spending. It may be important to
analyze how different parts of the country benefit from public spending -
which areas receive more resources than others and how resources are
applied in different geographic areas.
Sources
of
Financing
Who financed
the
spending?
Own
revenues;
external
financing
sources
Budget/fiscal analysis
Beneficiaries
Who benefits
from
public
spending?
Recipient
of
government
transfers
and
subsidies
Policy
planning
and
analysis;
Greater
transparency
in
operations
35

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
3.8.1
The geographic classification links budgetary allocations with
the location of the people who would benefit from it or the
province/district where the service would be provided. In other words, it
records the location of the expenditure. However, it may not be practically
possible to always ascertain and record the location of expenditure. A
more practicable and often used option is to use the location of the
administrative unit as a proxy. In cases involving transfer payments,
such as subsidies, grants etc. the location of the recipient can be
recorded.
3.8.2
It is important to standardize geographic classification, so that
statistics relating to geographic areas can be collected on a variety of
subjects and analyzed together. For example, financial statistics, such as
budgetary allocations, could be compared with the developmental
indicators, such as literacy level, life expectancy, etc. This would be
difficult if different statistical systems use different geographic
classification codes. A geographical-political sub-division, such as a
district or a commune, should ideally be recognized by all statistical
systems in the country by the same code, if comparability of cross-
sectional data is to be achieved.
3.9
Classification by beneficiaries records the recipients of government
transfer payments and subsidies. This segment provides useful information
for policy analysis and if disclosed in public domain can also enhance
transparency in government operations.
3.10 Classification by the sources of financing of government
expenditures is used for making distinction between the regular budget
36

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
expenditure drawn from the government's own resources and expenditure
met from the extra-budgetary funds. This distinction reflects two different
aspects of governments' responsibilities, especially when extra-budgetary
funds, created for specific purposes, have different governance structure
than that of the central government's budget. In the present context,
classification by sources of funding could be important for the State
Governments for distinguishing between expenditures financed through
different forms of Central Assistance, schemes financed by financial
institutions etc.
*************
37

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
CHAPTER-4
DEVELOPMENT OF A NEW CLASSIFICATION STRUCTURE
4.1
At the outset, the Committee discussed whether its objectives could
be achieved with modifications to the existing classification system or the
existing system would need replacement. The Committee considered it
important to set out the fundamental principles and higher level
philosophical approach to classification before undertaking the detailed
work.
4.2
The Committee took note of the international practices in budget and
accounting classification and recognized that proper use of IT tools should
make it possible to present a cross section of views of budget and
expenditures to a variety of stakeholders, including researchers, citizens,
departments and organizations etc. It is, therefore, imperative that the
classification system is capable of harnessing the potential offered by the
modern information technology (IT). The Committee also recognized the
need to provide some flexibility to the states for accommodating their
requirements.
4.3
The Committee recognized that the need for distinction between
macro and micro level information requirements. The classification system
should be comprehensive enough to capture the entire range of elements.
The fact that different elements of classification would have different utility
and application should be kept in view designing the micro and macro level
presentations of budget. The budget presentation would be simplified if the
Detailed Demands for Grant include only those elements that are necessary
for budget management in the ministries. Elements serving the purpose of
38

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
higher level budget analysis may be excluded from the main budget line.
However, the Committee recognised the importance of these elements in the
overall system and it is envisaged that, if required, these elements could be
derived from the elements proposed to be used in the budget line.
4.4
An analysis of the existing account code directory maintained by the
Controller General of Accounts was undertaken to identify similarities and
anomalies in the codes. Several deviations from the norms were noticed.
Notably, sub-heads and detailed heads do not always represent schemes
and sub-schemes. At times, administrative units, such as departments,
sub-ordinate office, and other public and non-public bodies such as PSUs,
Autonomous Bodies etc. have been classified at these levels. While the
former are part of the administrative structure of the Government, the latter
are external agencies that directly receive public funds. Budget provisions
targeted to meet special requirements such as development of NER,
expenditures benefit a particular community or sections of the society etc.
are also often explicitly recognized using separate functional heads.
4.5
This analysis also showed that it should be possible to ascribe each of
the existing entries in the account code directory to one or more of the
following fundamental elements of classification:
Administrative Unit
Function
Programme and Scheme
Recipient or External Entity receiving public funds
Target or Special policy thrust area of expenditure
Economic nature
Geography
The Committee, therefore, looked to rationalize and reorganize the
existing account code classification into a new multi-segment structure,
l
l
l
l
l
l
l
39

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
each segment representing a separate logical dimension. This approach is
expected to help systematize organization and presentation of information
into comprehensive, homogeneous, independent attributes.
4.6
The proposed classification framework has seven mutually exclusive
segments with their own individual hierarchical structures [Table 1].
Table-1
4.6.1 The proposed seven segment structure would allow capturing of
almost the entire spectrum of data attributes on public financial operations
and would facilitate financial reporting in a variety of ways for meeting
information requirements of different stakeholders. The mutually exclusive
nature of the segments means that the various constituents of the system
are standardized. Each item is classified only once in the system and is
identifiable with a unique code.
40
Admini-
strative
Segment
Function
segment
Programme
cum Scheme
segment
Recipient
segment
Targets
segment
Economic
segment
Geographic
segment
Ministry
2 Major
Heads
4 Program
me
3 Type 2 Target
Code
3 Category 1 States 2
Department 1 Sub-
Major
Heads
2 Scheme
Type
1 Name 6
Sub-
Category
1 Special
Areas/
Region
2
Offices
2
Receipts/
Schemes
4
Object
1 Districts 2
Sub-
Scheme
2
Urban
/Rural
Local
Bodies
8

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.6.2
The seven segment structure proposed in this report is intended
for application in both Union and State Governments. While some parts of
the framework would be specific to the Centre or State government, others
would be commonly applicable to both centre and the states.
Standardization of codes for such elements would be important for
exchange of information between the centre and the states [and between
States and local governments].
4.7
The multi-dimensional structure of the framework and the mutually
exclusive nature of its constituent segments give the flexibility to the states
to expand it horizontally as well as vertically. States would be free to add
more levels below any of the proposed seven segments to capture finer
details and/or add more segments to record any other attribute considered
important for local requirements. They will not be constrained by the
boundaries of the proposed seven segment structure. However, the
Committee considers the proposed framework comprehensive enough to
meet majority of their requirements.
A brief description of each of the proposed segments follows.
4.8 Administrative Segment
4.8.1
At present, there is no system of uniformly attributing
expenditures to administrative units responsible for budget execution
and achievement of intended results. Budgets are allocated to functions
and programmes. The administrative accountability is only for the
aggregate provisions in the Demands for Grants. Budget entities within
the Ministries are not uniformly recognized. The proposed administrative
segment would strengthen the accountability arrangements for public
41

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
spending by clearly identifying the administrative responsibility for
expenditures.
4.8.2
This segment has been designed to capture the organizational
structures at the national level. The structure provides for capturing
three tiers of the administrative hierarchy. The first tier would capture
the Ministry; Departments within the Ministry would be captured at the
second tier; and the third tier would capture the subordinate and
attached offices within the Ministry/Department. These lower level units
to be classified as 'Offices' are typically organic budget entities
responsible for execution of their allocated budget. These are distinctly
identifiable independent budget holders in the ministries. Many such
entities are presently recognized at the sub-head and detailed head
levels. A standard entry in this list would be 'Secretariat'. A five digit code
is proposed for administrative classification - two digits to classify
ministries, one digit for the departments, and two more digits for the
budget holders.
42
Table 2 : Illustrative Administrative Classification
Ministry
Department
Office
31
Ministry of
311 Department Of
31101
Secretariat
Personnel, Public
Personnel &
Grievances And
Training
31102
Central Administrative
Pensions
Tribunal
31103
Staff Selection
Commission
31104
Central Bureau Of
Investigation

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.8.3
Administrative segment is entity specific, as administrative
arrangements may vary from state to state. States should, therefore, have
the flexibility to code and recognize their respective administrative
structures. Although, the proposed three-tier structure of this segment is
likely to serve state governments equally well, they could be given the
freedom to add or drop a level to tailor this segment to their specific
organizational structures and information requirements. For the sake of
43
Table 2 : Illustrative Administrative Classification
Ministry
Department
Office
31105
Interpol And Coordination
Wing
31106
Lal Bahadur Shastry
National Academy Of
Administration
31107
Institute Of Secretariat
Training And Management
31108
Central Vigilance
Commission
31109
Public Enterprises Selection
Board
31110
Central Information
Commission
312 Department of
31201
Secretariat
Pension &
Pensioners
Welfare
313 Administrative
31301
Secretariat
Reforms Wing

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
uniformity it would, however, be useful if all states adopt a uniform
structure for this segment.
4.9 Function Segment
4.9.1 As in the existing system, the proposed Function segment has two
levels to represent Head of Development and sub-Head of Development. Two
levels of functional classification is considered sufficient for catering to the
information requirements for analysis of the budget with reasonable degree
of detail. Six digits have been provided for the Function segment - first four
(Major Head) to classify Head of Development and the next two (Sub-major)
to classify sub-head of Development. Now that the Function is an
independent segment, the existing system of replicating the block of
functions under receipts, revenue, capital, and loans sections would no
longer be required.
4.9.2
Several expert bodies have commented on the dilution of the
functional character of the account heads and its diminishing utility as a
tool for macro level planning and sectoral analysis. The Committee has
undertaken a complete review of the existing account heads with a view to
align it with the Head of Development classification used by the Planning
Commission and standard international functional classification systems
such as Classification of the Functions of Government (COFOG).
4.9.3
The list of Major Head and sub- major Head being proposed here
would commonly apply to both Centre and the States just as the present
list of Major and Sub-Major Heads does. This list would set the basic
framework for higher level budgeting and reporting of accounting
information.
44

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.10 Programme cum Scheme Segment
4.10.1 The Programme cum Scheme segment has four levels to classify
programmes, Schemes and sub-schemes of Government with standard
codes for each of them. A programme has a three digit code and could be
defined as a set of activities/schemes that are required to achieve a defined
objective. Accordingly, a standard list of programmes along with the
suitable schemes and sub-schemes fitted under them would be developed
by the Budget Division, Ministry of Finance and the Planning Commission.
The list of progrmmes along with their codes indicated shall be
superimposed on the scheme/sub-schemes. If a scheme/sub-scheme does
not fall under the category of any programme, it will be placed under the
programme code `000'.
Below the programmes, the category of scheme has three levels - first
tier to classify scheme type [1 digit code] to group schemes into
homogeneous categories, such as Central Plan, Centrally Sponsored
Schemes (CSS), State Plan, ACA, NCA, SCA, EAP, Finance Commission,
Non-Plan etc [Table 3], and two tiers to classify schemes [4 digit code] and
sub-schemes [2 digit code]. The scheme segment would also be used to
classify Receipt Items, Non-Plan expenditures [identifiable with the scheme
type code] and Public Account Transactions.
Table 3 : Scheme Types
Code
Description
0
Receipts
1
Central Sector Schemes
2
Centrally Sponsored Scheme
3
Central Assistance to State Plan Schemes
[State Plan Schemes implemented with
Central Assistance]
4
State Plan Scheme
45

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
5
Other State Plan Scheme
6
*
7
*
8
Non Plan
9
Public Account Transactions
* These two Codes can be used to identify any other type of Schemes
implemented by Central or State Government.
4.10.2 The main feature of the proposed Programme cum Scheme
classification is that it standardizes Programme and Scheme codes. This is
in recognition of the significance attached to Programmes/Schemes as the
primary unit of resource allocation and monitoring by the Planning
Commission. Plan budgets are usually allocated and monitored by
schemes.
4.10.3 One of the major shortcomings of the existing system of
classification has been that the plan schemes do not have one-to-one
correspondence with the accounting heads. Provisions under a plan
scheme are usually broken into different Major heads depending on the
nature of expenditure. Also, there is no uniformity in classification and
coding of plan schemes across Major Heads. The proposed structure is
expected to overcome these deficiencies.
4.10.4 The proposed coding structure provides for a unique four digit
code to be assigned to schemes. This would be sufficient to classify
10,000 schemes under each category. It may be possible that some
schemes fall under more than one category. In that case, they would
preserve their uniqueness by retaining the same code under all
categories. The codes for the central schemes would be standardized, i.e.
the state budgets would also recognize these schemes with the same
46

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
codes. States would be free to codify and recognize state specific schemes
within the given framework.
4.10.5 This standardization would facilitate linking expenditure under a
Programme and schemes across different levels of administration and
establishing trails from the Union Government to the lowest level, which
would be particularly useful in case of multi-layered transfers. The block for
the state plan would be left to the state governments to codify their own
schemes. The mutually exclusive nature of this segment would ensure that
allocations under a scheme are no longer scattered under different sections
of the budget. It would be possible to show the entire allocation under a
Programme and scheme at one place in the Detailed Demands for Grant
(DDG).
Table 4 : Illustrative Scheme Classification
Type
Scheme
Sub-Scheme
8 Non-Plan
81001
Direction & Administration
01 General
Administration
80002
Repairs and Maintenance
81003
Transfer to Reserve Funds
1 Central
Plan
11163
Propagation of Right To
Information Act
01 Strengthening,
Capacity Building &
Awareness
Generation
02 Assistance
for
Construction
of
Office Buildings to
SICs
11159
Scheme For Administrative
Reforms
CSS
20061
Consultancy, Training and
Research
01 Technical
Studies
Consultancies
47

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.10.6 The scheme category is also used for codification of receipt and
public account heads. These heads will be commonly recognized by both
Centre and the States.
Table 4 : Illustrative Scheme Classification
Type
Scheme
Sub-Scheme
02 Training
and
Awareness
of
Negotiable
Warehouse Receipts
20063
Food Subsidy
01 Subsidy payable to
Food Corporation of
India and others on
food
grains
transactions
02 Subsidies
Payable
for settlement of
claims on Account
of Refixation of Ex -
factory Price Levy
Sugar for 1974 -75
03 Sugar
subsidy
payable to FCI and
others on account of
levy sugar, import
of sugar etc .
20064
Contribution to International
Sugar Council
20067
Grants-in-aid for
Development of Sugar
Industry
48

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.11 Recipient Segment
4.11.1 This segment is proposed to recognize the external agencies and
entities that receive public funds as instruments and channels of public
policy delivery. At the national level, such entities would include sub-
national governments and other public and private agencies. This segment
will be used only in the case of transfer payments such as subsidies, grants,
contributions, investments, loans etc. Other expenditures would carry
zeros for this segment.
4.11.2 It must be clarified that this segment is not intended to capture
final beneficiaries. It has been proposed with the objective of bringing in
standardization in the codification of major recipients of public funds. Many
of these recipients are recognized even in the present budget classification
but are not uniformly coded. Recipients such as PSUs, autonomous bodies
etc. are usually recognized at the Detailed Head level in the DDGs and
assigned different codes under different schemes and departments.
4.11.3 A six digit code is proposed for classification of such entities. It
would enable recognition and listing of ten lakh such bodies. Recipients are
grouped into homogenous categories such as PSUs, Autonomous Bodies,
Financial Institutions, Municipalities, Cooperatives, etc. using a two digit
Recipient Type code. For the present, the Committee has identified a list of
23 standard recipient types [Table 4]. These recipient types would be
common to both Centre and the States. Each States and UT would be given
standard code. Further, State and UT Governments are free to use their own
codes of recipients under various categories.
49

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.11.4 The recipient units for the types '10' to '24' have been indentified
and suitable codes have been given to each of them. The units under the
type '25'- Private Institution '26'- Individual cannot be standardized due to
their nature. Regarding the codification of recipient units falling under the
recipient type '01' to '09', the committee proposes that codes for these
categories must be standardized across Central & State/UT Governments
and uniformly adopted by all Ministries/Departments /State and UT
Governments under their schemes and IT softwares. This is intended to
capture the transfer payments to these entities uniquely across national
and sub national governments.
Table 5 : Recipient Types
Code
Description
01
State Governments
02
UT Governments
03
District Councils
04
Municipal Corporations
05
Municipal Councils
06
Nagar Panchayats
07
Zila Parishads
08
Block Panchayats
09
Gram Panchayats
10
Autonomous Bodies
11
Regulatory Bodies
12
Universities
50

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
13
Schools
14
Other Educational Institutions
15
Sports Bodies
16
Hospitals
17
Other Parastatal Bodies
18
PSUs
19
Banks
20
Other Financial Institutions
21
Co-operatives
22
NGOs
23
Foreign Governments
24
International Bodies
25
Private Institutions
26
Individuals
4.11.5 The main benefit of using this segment is that it would make it
possible to assign unique codes to each such entity and bring in uniformity
in their identification by the system. With the standardization of coding, it
should be possible to extract and compile information on allocations/
transfer of resources to each such agency under different government
schemes and heads. It would also facilitate tracking of flow of funds under a
scheme from one level to another.
51
Table 5 : Recipient Types
Code
Description

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.11.6
The Committee recognizes that in certain cases, particularly in
the case of transfers to state governments, budget provisions are unlikely to
be made recipient wise, as such detailed information may not be available at
the budgeting stage. Such a situation can be handled by using a generic
recipient code in the budget. The list of recipients will have entries for each
of the state and UT governments. In addition to this, it is suggested to
include a separate entry 'State Governments'. This head may be used for
classification of lump sum provisions for state governments in the budget.
The code for the specific state(s) may be assigned at the time of release of
funds and captured in accounts. This method should be used only in cases
where the state-wise provisions cannot be made in the budget. Other cases
of subsidies and transfers in which information on the likely recipients is
not available at the budgeting stage can also be handled in a similar
manner.
4.12 Segment for Targeted Expenditure
4.12.1 This segment would be used to identify expenditures targeted at
special policy objectives. At present at least four such requirements are
identified:
1.
Women Centric (WC) expenditures,
2.
Expenditures targeted at development of Schedule Castes (SC),
3.
Expenditures targeted at development of Schedule Tribes (ST), and
4.
Expenditure targeted at Below Poverty Line (BPL) population.
It is possible to attribute an item of expenditure to one or more of the
targets, e.g. women centric expenditure in hill areas or expenditure on
Tribal Women. The coding system for this segment has to provide for such
instances. Many combinations of these five targets are possible to be used to
52

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
identify an item of expenditure. Some of these combinations may not be
existent. A three digit code has been provided for this segment to provide
for some scope for future expansion. This code will be attached only to
targeted expenditures. Other expenditures would carry zeros for this
segment.
4.12.2 There were suggestions to include a few more such as 'Physically
Challenged', 'Disabled', 'Freedom Fighters', etc. A major constraint in
expanding this segment will be availability of precise and consistent
information at the budget formulation or accounting stages. It is felt that
all accounting information should have explicit link with the budgetary
allocation. Typically, a segment like this is used to flag expenditure
incurred on poverty reduction. The Committee is of the view that this list
should contain only select larger policy thrust areas. Further expansion
of this list might make it cumbersome to maintain. Besides, these
categories [viz. Physically challenged, Disabled etc.] are likely to be the
subject of specific Schemes themselves and could be captured at that
level.
4.12.3 These targets have been given standard codes, which would be
used by both centre and all the states in the same form.
4.13 Economic Segment
4.13.1
The object classification is currently applied only to expenditure
transactions. Receipt and Public Account heads do not use object codes.
The Committee recommends developing object classification into a proper
financial classification. A three tier structure has been proposed for this
segment. At the top, transactions are classified into the following five
categories:
53

Table 6 : Illustrative Economic Classification
Category
Sub-Category
Object
3 Recurrent
Expenditure
31 Employee Compensation 311 Salaries
312 Wages
313 Overtime
Allowance
314 Rewards
315 Medical
Treatment
Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
1.
Revenue Receipts
2.
Capital Receipts
3.
Recurrent Expenditures
4.
Capital Expenditures
5.
Liabilities
4.13.2
Categories have been divided into Sub-Categories and Objects
representing lower level economic classification. Three digits have been
suggested for codification of this segment.
4.13.3 The list of objects has been expanded. Changes are suggested
mainly in the portion dealing with the capital expenditure. Presently, the
classification of assets is limited in its scope. There are only three heads,
namely 'Motor Vehicles', 'Machinery & Equipment', and 'Major Works', to
classify all expenditures leading to creation of non-financial assets. 'Major
Works' is a generic head used to record expenditures on all types of
buildings and structures, including the infrastructure such as roads,
bridges, irrigation projects, etc. This classification is considered
inadequate, as it fails to capture important information on the type of assets
created.
54

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
4.13.4
The expanded list of objects would be expected to provide better
recording and control of government assets. It would facilitate development
of an integrated asset tracking system. The revised list of objects would also
enable presentation of better quality information on assets in fulfillment of
the requirements under the Fiscal Responsibility and Budget Management
(FRBM) Act, 2003.
4.13.5 The proposed object classification is consistent with IMF GFS
Manual 2001. It is tailored to the present cash based accounting and
budgeting system and it would facilitate better reporting of GFS data within
this system. The classification has the potential to accommodate additional
heads required for migration to the accrual system. The transition to
accrual system of accounting, as and when decided by the Union and
individual State Governments, would not require any structural change in
the classification system.
4.13.6 The Committee recommends shifting Parliamentary/ Legislative
budgetary control from Objects to Sub-categories. It is suggested that the
budgetary allocation in the Detailed Demand for Grants, monitoring, and
control may be done at the Sub-category level, while the accounting may
continue to capture the details at the object level. This change would
provide greater flexibility to the ministries in budget management and
result in overall efficiency gains in budget execution. The ministries will
continue to have the detailed object level information available to them for
55
32 Pension & Other
Retirement Benefits
321 Pension
Contribution
322 Pensionary
Charges
33 Travel Expenses
331 Domestic Travel
Expenses
332 Foreign Travel
Expenses

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
micro management and control. This approach essentially distinguishes
the macro and micro level control requirements. As the control framework
evolves towards greater managerial accountability, centralized control will be
expected to be relaxed and gradually shifted to broad input categories [before
eventual migration to an output based framework]. An analysis of the object-
wise expenditure of the Union civil Ministries would validate this approach.
4.13.7
The need to have convergence between the different sets of object
classification has been well recognized. Successive Finance Commissions
have recommended standardization of object heads between centre and the
states. The Committee is of the view that the list of objects suggested here
could be commonly applied to the Central Civil Ministries and all State/UT
governments. Ministries of Defence, Railways, and P&T may adopt at least
the top two tiers. Enough room has been provided to the states and
Ministries of Defence, Railways, Post & Telecommunication to add more
objects within the proposed third tier and / or add another tier below it for
their specific control requirements.
4.14 Geographic Segment
4.14.1 The Geographic segment has five tiers to capture the geographic
location of expenditure. It would classify expenditure by the politico-
geographical divisions of the country. The Committee suggests adopting the
classification of land regions used by the Registrar General for the purpose
of census. This classification identifies the categories such as special areas/
regions, states, districts and towns/villages. Special areas/regions, States
and districts are recognized by 2 digit codes each. Towns and villages have
been given 8 digit unique code.
4.14.2 Ideally, this segment should record the location of expenditure.
This information may not be available on a consistent basis. As a proxy,
therefore, location of the administrative unit responsible for incurring the
56

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
expenditure may be recorded in the geographic classification. In case of
transfer payments, location of the recipients may be recorded.
4.15 Budget Presentation
4.15.1 The multi-dimensional nature of the proposed classification
framework allows some flexibility in budget presentation. Budget can be
presented in a variety of ways using appropriate combinations of the seven
segments. However, the Committee is of the view that the higher level
budget presentation in the AFS, Demands for Grants, and Expenditure
Budget Vol. II could continue in the existing format. There is no need to
disturb the formats of these documents that are well established and
serving their respective intended objectives. The content of these
documents would, however, have to follow the revised list of accounting
heads being proposed with this report. The AFS and the Demands for
Grants, which are presented Major Head wise, would follow the new list of
functions. Specimens for these documents using the revised list of
accounting heads are indicated at Annex 'B' and 'C'. Expenditure Budget
Vol. II would be presented by the new set of schemes.
4.15.2 Application of the proposed framework would require changes in
the way Detailed Demand for Grants are presented. For this purpose, the
Committee recommends using seven attributes attributes - Administrative
Unit, Functions and Sub-functions, Programme/Scheme, Object,
Recipient, Targets and Geography. A typical budget line could be a
combination of the codes for office, Functions and Sub-functions,
Programme, Scheme & Sub-scheme, and sub-category [Table 7]. Recipient,
target, and geographical codes could be added in relevant cases - recipient
code for transfer payments and target code for targeted expenditure.
Geographical codes, in the budget line, shall be used for making allocations
for specific politico-geographical areas such as such as North East Region,
57

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
58
Bundelkhand, Bodoland, Gorkhaland etc.. It is important to mention that
the State/UT Governments receiving grants/transfer payments are
captured through the recipient codes
Table 7 : Schematic Representation of the Budget Line
Adminis-
trative
Segment
Function/
Sub-
Function
Programme cum
Scheme
Segment
Recip-
ient
Segment
Target
Segment
Geographical
Segment
Econ-
omic
Segment
Attributes
Office
Scheme
Sub-
Scheme
Recip-
ient
Target
Special
area/Region
Sub-
Category
Code
Length
(Digits)
5
4/ 2
5
2
5
3
2
2
Illustration
Ministry of
ABC
71
Department
of XYZ
711
Secretariat
71100
Establish-
ment
00001
00
Employee
Compensati
on
00000
000
30
Pension &
Other
Retirement
Benefits
00000
000
32
Travel
00000
000
33
Scheme A
10016
00

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
because these geographical entities receive these money by virtue of their
acting as channels of public policy delivery and not as a geographical region.
Besides, the Geographical segment could also be used to capture the
location of an item of expenditure.
4.15.3 In effect, the DDG would present allocations for each
administrative unit showing breakdown into establishment related
provisions and allocations for the schemes. The entire provision under a
scheme could be presented together at one place. Segregation into revenue
and capital could be achieved on the basis of the Object classification. In
this manner, the total code length of the budget line would add up to 24
digits. The Plan-Non Plan and Voted-Charged distribution could continue to
be shown as at present.
4.16
The Committee has developed a document named as "The
Compendium of Accounting Classification Codes" will replace the existing
List of Major and Minor Heads of Accounts of Union and State. It has nine
sections; Section I contains General Directions for the proposed structure,
Section II contains the list of Major, sub-Major and Scheme Heads, Section
III to IX contains the Programme Codes, list of Schemes, Administrative,
Recipients, Object (Economic), Target and Geographical Codes.
******************
59
Subsidies
00026
000
40
Loans &
Advances
00026
000
54
Scheme B
10017
01
Grants-in-
Aid
00001
001
42
Infrastruct-
ure Assets
00000
001
51

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
CHAPTER 5
IMPLEMENTATION
5.1
Timing
5.1.1
The recommendations made in the preceding chapter involve
changes in the existing structure of budgeting and accounting
classifications at all levels. Advantages of the proposed structure as a tool
to management shall be visible if the same is implemented in its entirety by
the Central, State and UT Governments. Considering the potential
advantages of a multi dimensional accounting classification for Public
Financial Management, the Committee recommends that all efforts be
made for the implementation of revised structure w.e.f. the year 2013-14.
This will not be a very arduous task as the Planning Commission has
already vetted all the Major/ Sub-major Heads used in the proposed
structure. Besides, all the Plan and non-Plan Schemes featuring in the
detailed demands for grants of all Civil Ministries have been analysed and
coded with standard codes and nomenclature. Detailed consultation with
Central Plan Scheme Monitoring System (CPSMS) and various
Administrative Ministries were done to define the nomenclature of all Plan
and non-Plan Schemes. Efforts were made to ensure that the nomenclature
clearly indicates the nature/purpose and character of the schemes. As a
result there is no divergence between the existing plan classification and the
accounts classification proposed by the Committee.
5.1.2
Planning Commission, in the has indicated that the list of
functions and sub-functions (Major Heads and Sub-major Heads) is being
revised internally. Taking into account the views of Planning Commission,
the Committee proposes that the final list of functions and sub-functions
60

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
(Major Heads and Sub-major Heads) indicated by Planning Commission
could be incorporated in the Compendium of Accounting Classification
Codes before notification.
5.1.3
The Accounting Heads of Ministry of Defence were especially
studied in depth by the Committee considering the divergence between their
codes below Minor Heads and that used by other Civil Ministries. Detail
discussions were held with Secretary, Defence Finance and Officers of
Finance Wing of all Forces and Departments under Ministry of Defence.
Ministry of Defence has suggested a broad framework but has indicated
that it may be referred by the committee as a tentative plan. They have
stated that the broad framework would be discussed internally and refined
further. The committee proposes that the final views of Ministry of Defence
could be incorporated before notification as sufficient scope has been left
open in the proposed structure to incorporate the outcome of the said
exercise.
5.1.4
In respect of Ministry of Railways, the existing Major, Sub-major
and Minor Heads as indicated in the LMMHA have been retained. Ministry
of Railways did not send their feedback/comments on the proposed
structure to the committee at any stage of its working.
5.1.5
Extensive consultation has been done with Department of Posts
and Department of Telecommunications. Both the departments have given
their suggestions which have been examined in detail and necessary
amendments carried out in the proposed structure.
5.2
Suggestions for Action
5.2.1 If the proposed structure is to be implemented from 2013-14 huge
efforts on war footing are required on the part of Central and State
61

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
Government. To begin with, Ministry of Finance may examine the report
formulate their views early so that the Controller General of Accounts can
seek advice of the Comptroller & Auditor General in accordance with Article
150 of the Constitution for consideration and issue of necessary orders in
time.
5.2.2 Customization of IT Systems : Use of the proposed multi dimensional
structure could be possible only due to data processing ability available in
the wake of recent Information Technology advancement. Accordingly, the
Committee recommends customisation of existing business transaction
system of budgeting and accounting in all State and Central Governments
in consultation with NIC and other such agencies for smooth transitions to
revised classification structure.
5.2.3
Recasting of Detailed Demand for Grants (DDG), Demand for
Grants and Annual accounts: As the proposed structure involve changes in
the existing structure of accounting classification as well as of the budget
line, it is essential that the DDGs and the Demand for Grants of all Central
Ministries, State/UTs Governments are recast under the revised Heads of
Accounts. Besides, it is also necessary that O/o CGA and O/o C&AG recast
the accounts of Union governments and State Governments for the year
2011-12 and 2012-13 under the revised Heads of Accounts so that the
figures of actual expenditure under the revised Heads of Accounts are ready
to be incorporated in the budget for 2013-14. It would be worthwhile if the
O/o CGA and O/o C&AG prepare a dummy set of amounts under the
revised classification for the year 2012-13 and circulate the same to the
budget division, Ministry of Finance and State budget estimating
authorities respectively.
62

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
5.2.4
The Committee recommends shifting Parliamentary/Legislative
budgetary control from Objects to Sub-categories. It is suggested that the
budgetary allocation in the Detailed Demand for Grants, monitoring, and
control may be done at the Sub-category level, while the accounting may
continue to capture the details at the object level. This change would
provide greater flexibility to the ministries in budget management and
result in overall efficiency gains in budget execution. The ministries will
continue to have the detailed object level information available to them for
micro management and control. This approach essentially distinguishes
the macro and micro level control requirements. As the control framework
evolves towards greater managerial accountability, centralized control will be
expected to be relaxed and gradually shifted to broad input categories [before
eventual migration to an output based framework]. An analysis of the object-
wise expenditure of the Union civil Ministries would validate this approach.
5.2.5
The benefit of such arrangement is that the different set of object
Heads used by some Ministries such as Ministry of Defence and Ministry of
Railways can be covered in the higher level reporting if they are suitably
mapped under relevant higher level Economic categories of the proposed
economic classification.
5.2.6
Creation of a special cell in the O/o Controller General of
Accounts: It is necessary to have a cell headed by an officer of the level of
Deputy CGA in the O/o CGA to function as a nodal office to co-ordinate with
all Central Ministries and State/UT Governments to facilitate smooth
transition to the proposed classifications structure after the orders
prescribing the revised classification structure and Heads of Accounts are
issued. This cell may have suitable numbers of officers and staff required for
dealing with all questions/queries that may arise in regard to the
implementation of the proposed classification framework.
63

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
5.2.7 Transfer of Balances: Since, the Heads of Accounts pertaining to Public
Debt Loans, Inter State settlement and Public Account Division have also
undergone changes; the existing balances under each of these heads need to
be transferred under the revised heads of accounts in order to carry them
forward. The Committee recommends that this action is taken immediately
after the orders prescribing the proposed Classification structure are issued.
5.2.8 Updation of the List of Schemes (Receipts, Expenditure & Public
Account), Administrative Unit and Recipients: The list of Schemes reflected
in the Compendium of the Accounting Classification Codes has been
prepared based on the Scheme list of Central Plan Scheme Monitoring System
(CPSMS) and inputs from Detailed Demand for Grants (DDGs) of all civil
Ministries. Due care has been taken to make the list correct and updated as far
as possible. However, it is envisaged that a fresh exercise of consulting all Civil
and non-civil Ministries shall be undertaken, before the new proposed
structure is notified, to ensure that the final list is updated and polished. While
doing so, the final views of Planning Commission, Ministry of Defence etc. may
also be taken into consideration as indicated in para 5.1.2 to 5.1.5.
5.2.9
Training : The Proposed Accounts and Budget classification
structure shall be handled by various levels of Governance namely the
administrative departments, the accounting organisation of Ministries,
Budget Division, Ministry of Finance, O/o CGA and the O/o Accountant
General, State Finance/Budget Departments etc. Accordingly, it is
essential to chalk out a comprehensive training programme for Officers and
Staff in all Department and Offices under the Central and State
Governments. As it is not feasible to cover all the officers and staff through
a centralized approach, the Committee recommends that O/o CGA in
coordination with O/o C&AG and O/o Accountant Generals may arrange
training workshops at Delhi and in various State/UTs.
**************
64

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
CHAPTER 6
RECOMMENDATIONS
l
l
l
l
l
l
l
l
6.1
It is universally recognized that no single scheme of classification can
possibly satisfy the divergent information requirements for different classes
of stakeholders. Most governments, therefore, classify their expenses on a
set of different and mutually exclusive schemes. The Committee, therefore,
recommends rationalizing and reorganizing the existing account code
classification into a new multi-segment structure, each segment
representing a separate logical dimension. This approach is expected to
help systematize organization and presentation of information into
comprehensive, homogeneous, independent attributes. The proposed
classification framework has eight mutually exclusive segments with their
own individual hierarchical structures. The eight segments are:
Function
Programme
Scheme
Administrative Unit
Recipient or External Entity receiving public funds
Economic nature
Target or Special policy thrust area of expenditure
Geography
6.2 The eight segment structure proposed in this report is intended for
application in both Union and State Governments. While some parts of the
framework would be specific to the Centre or State government, others
65

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
would be commonly applicable to both centre and the states.
Standardization of codes for such elements would be important for
exchange of information between the centre and the states [and between
States and local governments].
6.3 The Committee recommends that the codes for the central schemes
would be standardized and the state budgets would also recognize these
schemes with the same codes. States would be free to codify and recognize
state specific schemes within the given framework. This standardization
would facilitate linking expenditure under a scheme across different levels
of administration and establishing trails from the Union Government to the
lowest level, which would be particularly useful in case of multi-layered
transfers. The block for the state plan would be left to the state governments
to codify their own schemes. The mutually exclusive nature of this segment
would ensure that allocations under a scheme are no longer scattered
under different sections of the budget. It would be possible to show the
entire allocation under a scheme at one place in the Detailed Demands for
Grant (DDG).
6.4 The Committee recommends developing object classification into a
proper financial classification. A three tier structure has been proposed for
this segment. At the top, transactions are classified into the following five
categories:
1.
Revenue Receipts
2.
Capital Receipts
3.
Recurrent Expenditures
4.
Capital Expenditures
5.
Liabilities
66

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
Categories have been divided into Sub-Categories and Objects
representing lower level economic classification. Three digits have been
suggested for codification of this segment. The list of objects has been
expanded. Changes are suggested mainly in the portion dealing with the
capital expenditure.
6.5
The Committee recommends shifting Parliamentary/Legislative
budgetary control from Objects to Sub-categories. It is suggested that the
budgetary allocation in the Detailed Demand for Grants, monitoring, and
control may be done at the Sub-category level, while the accounting may
continue to capture the details at the object level. This change would
provide greater flexibility to the ministries in budget management and
result in overall efficiency gains in budget execution. The ministries will
continue to have the detailed object level information available to them for
micro management and control. This approach essentially distinguishes
the macro and micro level control requirements. As the control framework
evolves towards greater managerial accountability, centralized control will
be expected to be relaxed and gradually shifted to broad input categories
[before eventual migration to an output based framework]. An analysis of
the object-wise expenditure of the Union civil Ministries would validate this
approach.
6.6
The Committee recommends that Budget can be presented in a
variety of ways using appropriate combinations of the seven segments. The
higher level budget presentation in the AFS, Demands for Grants, and
Expenditure Budget Vol. II could continue in the existing format. There is no
need to disturb the formats of these documents that are well established
67

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
and serving their respective intended objectives. The content of these
documents would, however, have to follow the revised list of accounting
heads being proposed with this report. The AFS and the Demands for
Grants, which are presented Major Head wise, would follow the new list of
Major Heads. Expenditure Budget Vol. II would be presented by the new set
of schemes.
6.7
Application of the proposed framework would require changes in the
way Detailed Demand for Grants are presented. For this purpose, the
Committee recommends using seven attributes - Administrative Unit,
Functions / Sub-functions, Programme / Scheme, Recipient, geographical
area/region, Targets and Object. A typical budget line could be a
combination of the codes for office, programme/scheme & sub-scheme, and
sub-category. Recipient and target codes could be added only in relevant
cases - recipient code for transfer payments and target code for targeted
expenditure.
6.8
The Committee recommends that the DDG would present allocations
for each administrative unit showing breakdown into establishment related
provisions and allocations for the schemes. The entire provision under a
scheme could be presented together at one place. Segregation into revenue
and capital could be achieved on the basis of the Object classification. In
this manner, the total code length of the budget line would add up to 24
digits. The Plan-Non Plan and Voted-Charged distinction could continue to
be shown as at present.
68

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
6.9
The Committee recommends customisation of existing business
transaction system of budgeting and accounting in all State and Central
Governments in consultation with NIC and other such agencies for smooth
transitions to revised classification structure.
6.10 The Committee recommends creation of a special cell in the O/o
Controller General of Accounts headed by an officer of the level of Deputy
CGA to function as a nodal office to co-ordinate with all Central Ministries
and State/UT Governments to facilitate smooth transition to the proposed
classifications structure after the orders prescribing the revised
classification structure and Heads of Accounts are issued. This cell may
have suitable numbers of officers and staff required for dealing with all
questions/queries that may arise in regard to the implementation of the
proposed classification framework.
6.11 The Committee recommends that O/o CGA in coordination with O/o
C&AG and O/o Accountant Generals may arrange training workshops at
Delhi and in various State/UTs for smooth adoption of the proposed
structure by all stakeholders.
6.12 The Committee has developed a document named as "The
Compendium of Accounting Classification Codes" which will replace the
existing List of Major and Minor Heads of Accounts of Union and State. It
has nine sections; Section I contains General Directions for the proposed
structure, Section II contains the list of Major, Sub-major and Scheme
69

Controller General of Accounts
Report of the Committee Constituted to Review the List of Major and Minor Heads of Accounts (LMMHA) of
Union and States
Heads, Section III to IX contains the Programme Codes, list of Schemes,
Administrative, Recipients, Object (Economic), Target and Geographical
Codes.
***********
70
** Principal Finance Secretary, Government of Maharashtra or his representative did
not attend any meeting of the Committee.