AI's Impact on Fiscal Transparency

AI Transforming Public Finance

India's goal of achieving a USD5 trillion economy hinges on having a strong public finance management (PFM) system. An efficient PFM makes certain that each rupee that is collected is used in an effective manner. It bolsters revenue streams, promotes responsible spending, ensures accountability, and provides transparency. Taken together, these elements establish the fiscal capacity required for impactful investments, innovation, and advancements in social welfare. The actual measure of success of government programs lies in the worth they provide to citizens and the overall influence on the economy.

Traditional approaches to handling public finances often encounter recurring issues such as inefficiency, funding delays for beneficiaries, and a lack of clear transparency. As government dealings grow increasingly intricate, the volume of data expands rapidly, and the push for real-time accountability intensifies, existing methods are proving inadequate. India has developed a digital infrastructure designed to oversee public resources. The Public Financial Management System (PFMS) stands as a major platform of its kind, managing fund allocation, sanction preparation, expenditure recording, and real-time monitoring of financial flows. PFMS enhances effectiveness, responsibility, and openness within government initiatives by connecting central ministries, state and district administrations, banking networks, and direct recipients.

AI for Efficiency and Oversight

As digital platforms grow and include a wider array of participants, they also encounter increased vulnerabilities. Extensive systems are more susceptible to misuse, inefficiencies, and deficiencies in oversight. In this environment, AI presents groundbreaking opportunities to make PFM more effective, transparent, and focused on citizens. AI has the capacity to oversee income and expenses in real time, identifying anomalies, such as delays, unutilized funds, or possible diversions. These notifications could be instantly directed to the appropriate authorities, facilitating prompt corrective actions and reducing financial waste. AI could also assist governments in enhancing budget development through improved forecasting and more effective distribution of resources.

Combating Fraud with AI

AI adds value in the area of fraud detection. By studying past data, AI can detect patterns related to repeated claims, made-up transactions, and errors in inclusion. This transforms audits into proactive monitoring, enabling auditors to focus on the areas with the greatest risk exposure. The fiscal obstacles in India differ significantly across regions. Some areas struggle to offer fundamental infrastructure, while others require quick reactions to natural disasters. AI is capable of incorporating data related to poverty, health, education, and climate to create targeted and performance-based financial allocations that are in line with the Sustainable Development Goals (SDGs). Several Indian states are at the forefront when it comes to embracing AI-driven fiscal strategies, forecasting techniques, and improved alignment with allocations from the central government. Karnataka has created an AI Cell to enhance governance through technological solutions. This cell is actively involved in creating AI-driven solutions, incorporating Computer Vision, Natural Language Processing (NLP), Large Language Models (LLMs), along with other new AI technologies. An example of this is the ‘AI-based Government Order Summary and Information Extraction Tool,’ designed to assist officials and the public to easily access and understand government orders, policies, and programs. Similarly, the Aspirational Districts Programme utilizes dynamic dashboards to monitor results and promote funding based on performance.

Empowering Citizens

AI also has the potential to provide fiscal data directly to citizens. User-friendly dashboards, voice-activated assistants, and multilingual platforms can make government spending more accessible and easier to understand. For example, a farmer could inquire about the amount spent on irrigation in their district the previous year and receive a clear, immediate answer. This represents both accountability and empowerment. The uses for AI in public finance are apparent: Continuous monitoring of financial transactions to spot delays, idle funds, or diversions, prompting prompt corrective actions; Models trained using historical data that can detect irregularities like fraudulent beneficiaries or duplicate claims, enabling proactive and risk-based monitoring; Integration of data from different sectors to direct need-based and performance-driven allocations. Karnataka’s revenue forecasting and the dashboards used by the Aspirational Districts Programme serve as examples already in progress. Complex fiscal data can be simplified into dashboards and voice-enabled platforms that give citizens simple access to information. A farmer inquiring about irrigation expenses in their district and getting a clear, accurate response is an illustration of participatory governance.

Fiscal systems powered by AI represent more than just enhancements in efficiency. They transform the connection between the government and citizens by incorporating trust, responsibility, and openness into governance. As we look ahead, AI will likely progress beyond the pilot phase to become a component of national platforms. These platforms are projected to enable real-time policy simulations, automated fund reallocations, and citizen-led monitoring. If implemented responsibly, India has the potential to establish global standards for ethical, inclusive, and intelligent fiscal governance, ensuring that every rupee is not only tracked, but also utilized to create lasting effects.