GOVERNANCE EQU I TA BLE GROW T H, FI N A NCE & I NST I T U T IONS NOT ES GovTech Case Studies: Solutions that Work India: Public Finance Institutional Reforms using GovTech Solutions as an Enabler in Assam State Simple, Efficient, and Transparent Government Systems Supported by the GovTech Global Partnership: www.worldbank.org/govtech © 2024 International Bank for Reconstruction and Development / The World Bank 1818 H Street NW Washington DC 20433 Telephone: 202-473-1000 Internet: www.worldbank.org This work is a product of the staff of The World Bank with external contributions. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of The World Bank, its Board of Executive Directors, or the governments they represent. 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Because The World Bank encourages dissemination of its knowledge, this work may be reproduced, in whole or in part, for noncommercial purposes as long as full attribution to this work is given. Any queries on rights and licenses, including subsidiary rights, should be addressed to World Bank Publications, The World Bank Group, 1818 H Street NW, Washington, DC 20433, USA; fax: 202- 522-2625; e-mail: pubrights@worldbank.org. Introduction To respond to citizen expectations and deliver on their development objectives, governments in India are making significant improvements in service delivery, for example with notable improvements in direct cash benefit transfers and the services provided by the revenue administration based on simple and efficient government systems. At the subnational level, governments are increasingly adopting digital technologies for reforms, including in the domain of public financial management (PFM), in response to budget and fiscal constraints and citizens’ demand for faster services reduced physical interface with the government. In India, various types of businesses have transactions with governments on several fronts, so digitalizing the revenue administration service was one of the top priorities for most state governments. >>> Figure 1: State of Assam – Facts at a Glance1 Location: Population: Area: North-East India 31.2 million 78,438 km2 Gross Domestic Product: Expenditure: Total revenue: INR 4.09 trillion (US$54 billion) INR 1,152 billion (US$14 billion) INR 897 billion (US$11 billion) in 2020-2021 April 2022 - March 2023 April 2022 - March 2023 Assam is the biggest state among the seven in north-east India, with a population of 31 million. The Government of Assam (GoA) has pursued digital transformation to strengthen PFM in the state and enhance its information and communication technology (ICT) systems for large scale digital governance. The GoA initiated and scaled up a range of reforms in 2016, targeting two aspects of public sector modernization: reinforcing core government systems, including strengthening its PFM systems, and enhancing public service delivery using GovTech enablers. 1. Source: Assam at a Glance, https://assam.gov.in/stateportal/about-us/393; and Accounts at a Glance (March 2023), https://cag.gov.in/uploads/state_accounts_report/ account-report-MKI-MARCH-p-2023-0646e0abab02434-40109701.pdf INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 3 Problems and Objectives The GoA published a White Paper in 2016 highlighting the key constraints to the state’s financial performance: a ballooning of the budget without adequate resources, dependency on the central government allocated funds, stagnating own-source revenues, reduced access to central grants due to their own delayed reporting on utilization of prior grants, and relatively higher committed liabilities.2 There were challenges in budget preparation, its distribution and execution; information systems were outdated; several critical processes in expenditure management and tax administration, including taxpayer interfaces, were manual; and human resource capacity in these agencies was limited. Previous attempts to use ICT to strengthen PFM systems had met with limited success, resulting in a modest and incremental approach for adopting ICT solutions. Following the 2016 White Paper, the GoA developed an aspirational plan under a program called ReSTART Assam – Restructuring Systems and Technology for Augmentation of Resources for Transformed Assam – based on four pillars (Figure 2). >>> Figure 2: Four Pillars of ReSTART Assam ReSTART Assam Implement large scale Rationalize revenue Mobilize additional Improve PFM under IT-enabled systems collection resources ASPIRe project with “near-zero” human interface A team from the World Bank’s Governance Global Practice in India engaged with the Finance Department of the GoA to study the existing PFM systems, identify gaps, and define possible solutions. Based on deliberations and diagnostics, the Assam State Public Finance Institutional Reforms (ASPIRe) Project was conceptualized; it was approved by the Bank’s Board in 2017 with an original project cost of US$44 million including a World Bank loan of US$35 million.3 The project development objective of the ASPIRe Project was “to contribute to the improvement in predictability and transparency in budget execution and to efficiency in tax administration in Assam.” The reforms hinged on GovTech solutions, including developing and modernizing ICT applications supported by suitable policy and process reengineering; automating manual processes and strengthening controls; and consolidating core areas of PFM, including cash and debt management and government procurement (Figure 3). The areas identified comprise the critical functions both on the expenditure and revenue sides. The project incentivized the full use of an existing e-procurement application and focused on addressing the gaps in institutional strengthening and capacity building. 2. Government of Assam, White Paper on Assam State Finances, May 24, 2016. 3. The Bank loan was reduced during implementation (2021) by US$3 million to account for exchange rate savings. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 4 >>> Figure 3: GovTech Solutions supported under ASPIRe Integrating with e-Payment System Financial Management Information Common e-Collection System of India’s Central Bank System Government revenue collections made Government payments made Replacing and scaling-up the existing electronically/online through a unified electronically through the central outdated treasury system to a e-collection platform integrated with bank’s core banking solution and comprehensive integrated FMIS GoA’s treasury system integrated with GoA’s treasury system New ICT Application for Commercial e-Governance Application for Digital Infrastructure for Direct Taxes Excise Benefits Transfer Replacing the fragmented and Comprehensive and transparent Unified platform for onboarding and outdated tax information management workflow-based e-governance full life cycle management of cash system and manual processes to an application to digitalize the manual transfer programs integrated e-government application decentralized processes Associated Services Business Process Cloud Services Connectivity Security Hardware Re-engineering In the higher echelons of the State government, the approach was clear – unless ICT systems were built back better, the GoA would continue to be plagued by process inefficiencies. The GoA recognized the need to learn from its earlier reform initiatives, and the need to adapt ICT solutions and their implementation to meet the state’s specific context. Various mitigation measures were undertaken to address risks that could arise in developing ICT solutions. The deputation of a senior civil servant with experience in the IT sector in the initial project phase set the basis for the PFM reforms and facilitated decisions around procurement and implementation approaches. Despite the solid analysis, the new plan, and the identification of a champion, the road to reform and its implementation have not been easy. Multiple issues and challenges emerged during project implementation, which were exacerbated by COVID-19- induced delays. For example, the project leadership was challenged due to multiple competing responsibilities and short tenures. Similarly, familiarity and comfort of the technical cadres with old legacy ICT applications required overcoming resistance to change that the reform champions had to contend with. Finally, the reluctance of consultants to participate in procurement opportunities in the North Eastern states was a challenging aspect of the project. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 5 Solutions and Approaches There was a need to make informed choices on technical approaches and technology options, factoring in the capacity constraints and past experiences. This required extensive deliberations where the team sought to resolve conflicting views and reconcile risk aversions. Thus, solutions were identified, agreed, approved, and revised based on protracted deliberations and discussions over the three and a half years implementation period.4 Building capacity and supporting the GoA teams to be ready for identification, assessment, and implementation of the ICT solutions Years with limited exposure to holistic reforms or digitalization and use of ICT solutions had created a gap between the skills required and those available in the government. This required not only for staff to be willing to go the extra mile to enhance their skills but also availability of an adequate number of staff able to devote time to project activities and take ownership. Several factors were key to success: • To mitigate capacity constraints and increase domain knowledge, the GoA teams visited other Indian states to study their PFM systems, particularly Financial Management Information System (FMIS) and excise systems, to understand procurement, implementation, and maintenance modalities. • Virtual meetings were organized with global experts in the World Bank. A team of senior officials from the GoA also visited the Republic of Korea as part of a collaboration with the Korean Public Finance Information Service to learn from the experiences in implementing dBrain, the FMIS in Korea. • Engagement of design and business process reengineering consultants to identify gaps in the existing systems and suggest improvements in processes and procedures. • Engagement of project management consultants to support the internal teams and oversee the performance and deliverables of systems integrators. 4. The e-collection, e-payment, excise, DIDS and commercial tax solutions have been rolled out and are operational. Legacy commercial tax systems have been phased out. Substantial modules of FMIS have been rolled out. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 6 Choice between modernizing the existing ICT solution and developing a new solution For treasury and commercial tax systems, the GoA had legacy applications that were outdated, fragmented, and dependent on many manual processes. Accordingly, the GoA had to decide whether to modernize the existing systems or build a completely new system. • In the case of the treasury system, the GoA had engaged a small-sized software developer to incrementally develop modules for some of the critical budget and expenditure processes (collectively called FinAssam) around the existing core treasury module. Based on the technical assessments and an objective analysis, the GoA decided in favor of scaling up the existing FinAssam solution to a full-fledged FMIS. It was assessed that discarding the existing modules for a greenfield solution would be a huge relearning exercise for approximately 10,000 end users besides development risks. • A similar assessment was done for the existing solution in commercial tax, but in this case, it was decided to create a completely new e-governance application to replace the obsolete and fragmented system. The key decision point was the disruptive change brought in by the introduction of a nation-wide Goods and Services Tax in India in 2017.5 This heralded a new indirect tax regime that was uniform across the country and used a common IT platform. 5. A Goods and Services Tax (GST) system was introduced in India in 2017 and this was a disruptive event. Pursuant to this, an institutional assessment of the commercial tax department was completed, and an action plan was developed on organizational restructuring, augmenting staffing, and strengthening of the functional areas of audit, data analytics, and legal. Additionally, training on service tax audit, a study to evaluate options for data analytics, and exposure visits to other states to learn from good practices were planned and undertaken. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 7 Choice of technology versus the economics and legacy practices Software development requires making decisions that could affect the sustainability of the solution and the cost of running and maintenance if the technology or the approach is not chosen appropriately. For the excise department, a bespoke solution was the most responsive bid built on a similar solution developed on the specific Database. It has been successfully running in another state which could reduce the development and roll out time. The government conducted a cost-benefit analysis to decide whether to go for a solution based on the specific Database or to require the application to be repurposed using an open-source database which would have eliminated the license cost. Based on the analysis, the government decided to implement the solution based on the specific Database. In the absence of a functional State Data Center in the initial phase of development and roll out of various applications, the GoA adopted an interim approach to host most of the new solutions on the Cloud and planned to transition to State Data Center in the medium term. This decision was also driven by a cost- benefit analysis of the upfront capital cost of procurement of hardware versus a pay-as-you-go Cloud Service Provider model. All applications are now being transitioned to the State Data Center. DIGITAL SOLUTIONS Multiple digital applications were developed as GovTech solutions in the PFM reform. These included the Financial Management Information System (FinAssam); an e-payment solution, e-Government Receipt Accounting System (e-GRAS); e-Governance solutions for commercial tax and excise revenue management; and the Digital Infrastructure of Direct Benefit Transfer (DIDS), an application currently in the final stages of development and roll out, which will also enable the creation of a beneficiary registry and facilitate cash transfers to the citizens. All applications, except e-GRAS, were developed as custom/bespoke software by private local firms, and the source code belongs to the GoA. The e-GRAS was customized from an existing solution by the National Information Center (NIC), an agency of the Government of India, so the source code is with the NIC. All systems are web-based applications and some modules of DIDS are deploying mobile apps, such as survey tools. Also, FMIS and DIDS solutions are based on the open-source platform. The durations and costs of software development and deployment are as follows: • FMIS is being upgraded (both functionality and architecture) and scaled up (new modules) based on an existing software and the first release went live in October 2021. The total cost was US$5.5 million, including maintenance. • eGRAS went live in June 2018 with a customization and deployment period of 30 months. • The commercial tax application cost approx. US$6 million, including hardware and maintenance costs, and the excise application cost US$2 million. Both applications began operating in September 2021 after 18 months of development. • The cost of developing DIDS and its operations/maintenance is up to US$1.5 million (including maintenance costs). DIDS went live from January 2023; its development period was 13 months and operations/maintenance is expected to be for the next 26 months. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 8 Results The overall objectives of the PFM reforms are to transform government service delivery; strengthen institutions, accountability, and transparency; and promote ease of doing business. The following results are expected. • Deliver services to citizens and businesses, as well as state government employees, with speed in near real-time. • Improve stakeholder engagement by moving to digital services. • Develop connected platforms for government transactions. • Support improvement of the decision-making management by ensuring timeliness and integrity of data. • Enhance transparency and disclosure practices. • Enhance own source revenue by plugging leakages. Benefits from GovTech Transformation in PFM in Assam The Excise Department has transitioned from complete manual operations to near full automation through the new e-Governance solution thus achieving digital transformation in a short period. For instance, now all liquor registration, renewal of licenses, and transport permits are issued electronically in line with established service standards. The new commercial tax solution replaces the existing obsolete and fragmented solutions, covers all the five taxes administered by the department, and digitalizes several client services processes which were previously manual, including electronic return filing, online scrutiny of returns, and generation of tax arrears certificates. The DIDS solution has on-boarded three cash transfer programs and 1.9 million beneficiaries are receiving monthly cash transfers of US$25 million directly into their bank accounts since January 2023. All the solutions – FMIS, Commercial Tax, Excise and DIDS – are or will be integrated with the common e-collection portal (e-Gras) and the e-payments system (e-Kuber) of the central bank—the Reserve Bank of India. Benefits: Significant improvement in service delivery and turnaround time of services; better compli- ance by citizens and follow-up by the department with reduced human intervention; reduced leakage of revenue; revenue augmentation; and better delivery of selected social protection cash transfers. The eGRAS (electronic revenue collection solution) was rolled out in 2019-20 and now covers over 66 departments including excise and commercial tax, the two largest revenue departments. Now over 95 percent of excise and com- mercial tax revenues are collected through eGRAS. This application supported the GoA in revenue collection during the COVID-19 pandemic. Excise revenue has shown 300 percent increase over five years at a compound annual growth rate of 20 percent and commercial tax has added more tax payers and collected additional revenue based on use of data analytics. Benefits: Reduced time and effort for businesses or citizens in paying government dues, contributing to strength- ened service standards for enhacing ease of doing business; reduced idle cash float enjoyed by the collecting banks and significant increase in own source. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 9 Over 98 percent of government payments are made electronically through e-Kuber, which is the Central Bank’s core banking solution. Benefits: More secure and faster payments and reporting, minimizing reconciliation between collections made by departments and that accounted for; low transaction failure; eliminating transaction fee payable to commercial banks. FinAssam, the state’s FMIS, will become the core application in the GoA’s day-to-day operations. • Budget allocation and distribution are online through the Budget Module and is done in the first month of the financial year, as opposed to the lag of two to three months under the previous manual process. • Salary Bill/Payroll now automated for over 350,000 employees. Additional employee self-service features are in the pipeline. • Over 95 percent of payment bills are submitted by spending authorities online and electronically pushed to the core treasury application. • Administrative (soft commitment) and financial sanctions (payment authorizations) that were manual are now fully automated. • Procurement plans are now prepared in the FMIS. Benefits: Achieved Single Source of Truth for data accuracy and integrity; enhanced efficiency in government op- erations; timely and adequate information to officials to optimize decisions relating to cash and debt management; accurate capturing of commitments based on administrative sanctions which will inform fiscal and budget manage- ment decisions. These systems will help minimize the gaps in disclosing in-year budget reports and timely submission of monthly accounts to the Accountant General. Benefits: Availability of reliable and faster information will enhance accountability and transparency, including public disclosure. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 10 Lessons learned The government’s ownership of the reform process and the appointment of reform champions were key to ensure participation of frontline staff and leadership at all stages including technology development. While this approach may seem to delay the implementation at first, it builds greater ownership of the entire project and generates acceptance of the change. It is also important to engage stakeholders to ensure a thorough understanding of the “as is” situation within the jurisdiction. A comprehensive pre-study and consultations on institutional arrangements, an assessment of technical and absorptive capacity of the staff, and review of processes identified the gaps in capabilities and helped the implementation team to arrive at consensus solutions tailored to the context. This was done for all the areas where the GoA initiated development of ICT solutions. A bespoke (or custom developed) ICT solution may be appropriate where the specific processes are highly entrenched and specific to the jurisdiction rather than customizing a COTS. Technical aspects such as opting for open-source software or cloud hosting solutions need to be duly deliberated to lower risks, decrease upfront capital cost, and minimize future maintenance costs. The cost-benefit analysis was important to understand the different cost structures and lifetime implications in terms of maintenance and fees as well as development costs. With respect to the World Bank, it is important to involve colleagues from other Practices and experts to have multidisciplinary expertise in the development, phasing, and roll out of solutions. The team was led by the Governance Global Practice and included colleagues and experts in social protection, public debt, revenue, and information technology. The results-based financing for the ASPIRe Project ensured that disbursements are linked to achievement of outcomes (the actual use of various IT applications) and not funding inputs. Finally, for such GovTech solutions, the team should identify and achieve some quick wins and interim successes from development and communicate to stakeholders to get stronger buy-in. A strong communication strategy can help to disseminate information about achievements and promote the success of the project. A focus on the end user ensured that citizens and business owners were the ultimate beneficiaries and helped to focus the implementation team on the ultimate benefits of the project—time saved in dealing with the government, faster cash transfers to those who need it the most, and greater revenues for future service delivery. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 11 Next Steps One of the big shifts caused by the pandemic has been the reduction in physical interaction and more work from home. These digital initiatives will help the GoA to continue providing services even in case of emergency situations or other disruptions, including natural disasters. A Right to Public Services (RTPS) portal has been developed for digitalization of citizen services under the World Bank-supported Assam Citizen Centric Services Delivery Project, which aims to provide over 136 services digitally to citizens under the Right to Public Services Act. The portal has been integrated with eGRAS, the common e-collection portal at the back end, to facilitate payments of user fees by the citizens for services to avoid duplication of efforts and running parallel systems. The digital transformation being pursued by the GoA would help it to adopt central applications and emerging technologies such as data analytics for which consultants have been engaged by the GoA to study options and opportunities to fully capitalize on the data in FMIS and revenue systems. India’s Central Bank is developing an e-receipts application on the e-Kuber portal, and the GoA can integrate its eGRAS solution with the Central Bank’s portal in future. Contact Information Mohan Gopalakrishnan, Sr. Financial Management Specialist, mgopalakrishnan@worldbank.org. Puneet Kapoor, Sr. Financial Management Specialist, pkapoor@worldbank.org. INDIA: PUBLIC FINANCE INSTITUTIONAL REFORMS USING GOVTECH SOLUTIONS IN ASSAM STATE <<< 12 Supported by the GovTech Global Partnership: www.worldbank.org/govtech