Inventory Management Under GFR 2017 — Chapter 7 Complete Guide

1. Categories of Government Stores

Before diving into the rules, it is essential to understand how GFR 2017 categorises government stores, because different rules apply to different categories:

The distinction matters for accounting, physical verification, and disposal rules. Fixed assets must be entered in a Fixed Assets Register and physically verified annually. Consumables need periodic stock verification. Perishables need the most frequent monitoring to prevent wasteful expiry.

2. Receipt and Inspection of Stores — Rule 212

Rule 212 governs the receipt of stores purchased by the Government. The key obligation: a responsible government official must certify receipt of every consignment of stores against the purchase order, and that certification must happen only after physical inspection.

Inspection on Receipt

Before certifying receipt, the receiving officer must verify:

• That the goods received match the description in the purchase order (quantity, type, model, specification)
• That the physical condition is satisfactory — no damage, breakage, or deterioration in transit
• That any required test certificates or quality certificates accompany the consignment
• That the delivery is within the contracted delivery period (to enable LD levy if late)

Who Can Certify Receipt?

Certification of receipt is a specific function. It must be done by an officer designated for this purpose — typically the store officer, the administrative officer, or the DDO/Head of the section that requisitioned the goods. The officer certifying receipt must have physically seen and inspected the goods — rubber-stamping a receipt without inspection is a serious lapse that has led to significant losses in several documented cases.

Goods Receipt Note (GRN) on GeM

For purchases made through GeM, receipt is formally recorded through a Goods Receipt Note (GRN) raised on the GeM portal itself, within a specified number of days of physical receipt. The GRN on GeM triggers the payment process — the Government cannot pay the supplier before the GRN is raised, and the supplier cannot claim payment without it. This electronic linkage of physical receipt to payment is a major accountability improvement over earlier paper-based systems.

3. Custody and Accounting of Stores — Rule 213

Rule 213 requires that stores in custody of the Government be properly accounted for throughout their lifecycle. Every store must have:

• A designated custodian — an officer personally responsible for its custody and safe keeping
• An entry in the relevant store register or asset register at the time of receipt
• A unique identification number or tag (especially for fixed assets)
• A record of its location within the office/department
• A record of any movement between offices or custodians

Store accounts must reconcile with procurement records. If ten computers were purchased as per the purchase order and payment voucher, all ten must appear in the Fixed Assets Register. Missing entries, or entries with incorrect details, are audit findings and can indicate misappropriation.

4. Fixed Assets Register — Rule 214

Every Ministry/Department must maintain a Fixed Assets Register (FAR) for all durable assets. The FAR must record:

• Description and specification of the asset
• Date of acquisition and purchase order number
• Cost (as per purchase order/invoice)
• Location of the asset
• Name of the officer in whose custody the asset is placed
• Date of physical verification and verifying officer's name
• Date and mode of disposal (when eventually disposed of)

Depreciation

GFR 2017 requires that losses due to depreciation be analysed and recorded. The types of depreciation losses that must be recorded in the FAR include:

• Normal wear and tear over the asset's useful life
• Losses due to damage or deterioration (beyond normal wear)
• Losses due to neglect by the custodian
• Anticipated losses due to obsolescence (e.g., IT equipment becoming outdated)
• Losses due to purchase in excess of actual requirements

Depreciation records are not just accounting entries — they help the Ministry plan timely replacement of assets and avoid a situation where old, inefficient equipment is still on the books years after it has ceased to be functionally useful.

5. Consumables — Verification Timeline — Rule 215

Rule 215 requires that consumable stores (stationery, fuel, cleaning materials, etc.) be verified at least once a year. The verification must:

• Check physical stock against the store register entries
• Identify items that have not been drawn/used for more than one year (potential surplus)
• Check that perishable items are within their expiry dates
• Reconcile consumption records with the number of items issued

For perishable consumables (medicines, chemicals, food items in government-run canteens or hospitals), the verification frequency must be higher — monthly or quarterly — to prevent expiry-related waste. Items approaching expiry must be flagged for emergency utilisation or timely disposal.

6. Physical Verification of Stores — Rule 216

Rule 216 requires physical verification of all stores (both fixed assets and consumables) at least once every year. For large or complex inventories, the Ministry may schedule physical verification in phases — but the entire inventory must be verified within the financial year.

Who Conducts Physical Verification?

Physical verification must be conducted by an officer other than the custodian of the stores. This separation ensures that the verifying officer provides an independent check — not a self-certification by the person who is supposed to be holding the stores.

Verification Report

After physical verification, a formal report must be submitted by the verifying officer, noting:

• Items found physically present as per records — "in order"
• Discrepancies between physical count and register entries (excess or shortage)
• Items found damaged, obsolete, or unserviceable
• Recommendations for disposal of surplus/unserviceable items

Shortage found during physical verification must be immediately reported as a loss under Rule 220 (see below). The head of office must take action on the physical verification report within three months.

7. Disposal of Surplus, Obsolete, and Unserviceable Stores — Rules 217–219

Over time, every government office accumulates stores that are surplus to requirements, technically obsolete, or physically unserviceable. GFR 2017 provides a clear framework for their timely disposal — holding on to such stores indefinitely is itself a waste of storage space and a source of financial loss.

Classification Before Disposal

Before disposal, stores must be classified as:

• Surplus: Items in good condition but not needed by the current office — may be transferred to another office that needs them, before being disposed of externally
• Obsolete: Items that are technically outdated (e.g., floppy disk drives, typewriters) even if physically functional
• Unserviceable: Items that are physically damaged or worn out beyond economical repair

Method of Disposal

Rule 217 requires that disposal of government stores be done through competitive bidding (auction) wherever possible, to maximise recovery. The disposal methods in order of preference:

1. Transfer to another government department at book value or as mutually agreed
2. Public auction — open competitive bidding where the highest bid wins
3. Tender — where auction is not suitable (e.g., for large lots or technical items)
4. Scrapping with recorded sale of scrap value — for items with no reuse value

In an auction, if a bid is accepted, earnest money must be immediately collected from the successful bidder on the spot. The sale account for all disposed goods must be prepared in Form GFR-11, signed by the Head of Office.

Hazardous and Security-Sensitive Stores — Special Disposal Rules

Rule 218 mandates special disposal procedures for:

• Hazardous items (expired medicines, chemical waste, food grains, ammunition): must be destroyed immediately in a suitable manner to avoid health hazard and misuse — not sold, not stored.
• Security-sensitive items (currency, negotiable instruments, receipt books, stamps, security press materials): must be destroyed by a specific authorised procedure to ensure compliance with Official Secrets Act and financial security rules.
• IT equipment: data on hard drives must be wiped or destroyed before disposal to prevent data security breaches — a requirement that has become increasingly important in the digital era.

If Stores Cannot Be Sold

Rule 219 addresses a practical situation: if a Ministry is unable to sell any surplus or obsolete stores (because there are no buyers even after auction), the Ministry may write off the value of such stores on the approval of the competent authority, provided the stores are thereafter physically destroyed or scrapped under proper supervision.

8. Reporting of Losses — Rule 220

Any loss of government stores — whether due to theft, fire, accident, deterioration, or shortage found during physical verification — must be reported to the head of office immediately. The head of office must then:

• Investigate the cause of loss
• Take action to prevent recurrence
• Report losses above specified thresholds to the next higher authority and to the Financial Adviser
• Report losses above the specified large-loss threshold to the C&AG's office (via the Principal Accounts Office)
• Initiate recovery of loss from the responsible officer/third party where the loss was caused by negligence or misconduct

Losses must be written off only with the sanction of the competent authority — the competency levels for write-off are specified in the Delegation of Financial Powers Rules (DFPR). Losses above the DFPR write-off power of the Ministry must be referred to the Ministry of Finance for sanction.

It is critically important that loss reports be filed promptly. Delaying a loss report — or trying to conceal a loss until it can be "adjusted" against other accounts — is a serious GFR violation that can compound the loss into a disciplinary and criminal matter.

9. Hiring of Assets — Rule 221

Sometimes it is more economical for the Government to hire assets (vehicles, machinery, office equipment) rather than purchase them outright. Rule 221 governs this. The rule requires that:

• Hiring must be for a genuinely temporary or limited requirement — not as a way to circumvent procurement rules for assets needed on a long-term basis
• The hiring rate must be economical — verified against market rates
• Hired assets must also be covered in the asset register during the period of hire, to ensure accountability for Government-issued materials entrusted to the hiring contractor
• Hiring contracts must include return/damage liability provisions

A frequently abused provision: using the "hiring" route for recurring long-term requirements (e.g., hiring the same photocopier for ten years instead of purchasing one) to avoid the procurement procedures required for asset purchase. C&AG audit specifically flags such situations as evidence of procedural evasion.

Frequently Asked Questions (FAQ)