India’s ambition of becoming a USD5 trillion1 economy depends on the strength of its public finance management (PFM) system. A robust and efficient PFM ensures that every rupee collected is used effectively. It supports revenue mobilisation, prudent expenditure, accountability, and transparency. Together these create the fiscal space required for high-impact investment, innovation and social welfare. The true measure of government programmes is the value they deliver to citizens and the impact they create in the wider economy.
Traditional methods of managing public finances face recurring problems such as inefficiencies, delays in delivering funds to beneficiaries, and a lack of transparency. With government transactions becoming more complex, the data footprint expanding rapidly, and the demand for real time accountability increasing, older approaches are no longer adequate.
India has built strong digital infrastructure to manage public resources. The Public Financial Management System (PFMS) is one of the largest platforms of its kind. It manages processes including fund allocation, sanction preparation, expenditure booking, and real time tracking of financial flows. By linking central ministries, state and district administrations, banking networks, and direct beneficiaries, PFMS strengthens efficiency, accountability, and transparency in government programmes.
However, as digital platforms scale and engage a wider range of stakeholders, they also face higher risks. Large systems are more vulnerable to misuse, inefficiencies, and weaknesses in oversight. In this setting, AI offers transformative possibilities to make PFM more efficient, transparent, and citizen focused.
AI can monitor receipts and expenditures in real time and highlight irregularities such as delays, idle balances, or possible diversions. These alerts can be routed immediately to responsible authorities, allowing swift corrective action and reducing financial waste. AI may also help the governments to improve budget planning through better forecasting and more effective resource allocation.
Fraud detection is another area where AI adds value. By analysing historical data, AI can identify patterns linked to duplicate claims, fictitious transactions, and inclusion errors. This turns audits from paper-based exercises into proactive oversight, enabling auditors to concentrate on the areas most exposed to risk.
India’s fiscal challenges vary greatly across regions. Some districts struggle to provide basic infrastructure, while others need rapid responses to natural disasters. AI can integrate data on poverty, health, education and climate to design targeted and performance based financial transfers that align with the Sustainable Development Goals (SDGs).
Several Indian states are at the forefront of adopting AI-driven fiscal planning, forecasting and better alignment with central government allocations. Karnataka has setup an AI Cell2 to strengthen governance through technology. This Cell is actively developing AI-powered solutions leveraging Computer Vision, Natural Language Processing (NLP), Large Language Models (LLMs), and other emerging AI technologies. One such initiative - the ‘AI-based Government Order Summary and Information Extraction Tool’ which is designed to help both officials and citizens easily access and understand government orders, policies, and schemes. Similarly, the Aspirational Districts Programme is using dynamic dashboards to track outcomes and to support funding based on performance.
AI also has the potential to bring fiscal information directly to citizens. Intuitive dashboards, voice-based assistants, and multilingual platforms can make government spending accessible and understandable. For instance, a farmer could ask, ‘How much was spent on irrigation in my district last year?’ and receive a clear, immediate response. This is not only accountability but also empowerment.
The applications for AI in public finance are clear:
