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December 2010

McKinsey suggests e-payment to plug leakage of government funds

By Raman Jokhakar
Tarunkumar G. Singhal
Chartered Accountants
Reading Time 2 mins
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26. McKinsey suggests e-payment to plug leakage of government
funds


An inefficient payment system is leading to an annual loss of Rs.1 trillion for the Government, and this can be tackled through
an electronic payment model, management consulting firm McKinsey and Co. said in
a report titled Inclusive growth and financial security : The benefits of
e-payments to Indian society. The report was commissioned by the Bill and
Melinda Gates Foundation.

A major chunk of this leakage — nearly Rs.71,000 crore — is
part of the Government welfare schemes to households, the McKinsey report said.

Current payment flows between the Government and individual
households, including subsidies and social services to individual citizens, is
around Rs.13 trillion.

According to the report, transaction costs account for 15-20%
of total losses to the Government and overhead and administrative costs around
5-10%. Leakages account for 75-80% of total losses.

Transaction costs are associated with cash or cheque payments
at payment source and destination, and overhead and administrative costs are a
result of manual payment processing, audits, and payment reconciliation.
Leakages are caused when payments of benefits or for services are diverted to
unintended individuals or groups, the report said.

(Source : The Mint Newspaper, dated 2-11-2010)

 

 

 

 

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