Eons ago, much before we got accustomed to multimedia gizmos that now can live without, Albert Einstein observed: “I believe in intuition and inspiration. Imagination is more important than knowledge. For knowledge is limited, whereas imagination embraces the entire world, stimulating progress, giving birth to evolution. It is, strictly speaking, a real factor in scientific research.”
It was imagination that got us here because, as the great scientist said, it continues to be the real factor in scientific research. Just as I was attempting to write this essay, it was reported that engineers have developed a robotic system that can evolve and improve its performance, seeming like “a plot from a science fiction film: a robot that builds other robots—each one better than the previous generation,” as a news report put it.
Indeed, it’s a paradox that human imagination has swelled artificial intelligence.
This fact—that the horizons of artificial intelligence is broadening to previously unimaginable lengths because it’s increasingly influential in many human endeavours—has been rapidly gaining adherents for several years, but its implications haven’t filtered down to many government bureaucracies yet. A cue for India and that’s the reason I wanted to reiterate the point—this time, in this essay.
Since May 2014, after Narendra Modi formed the Union Government, Indians have been subject to a smorgasbord of grandiose ideas, schemes and blueprints: Together, they have galvanised the nation’s expectations.
Digital India is one among them. It aims to transform the country and create opportunities for all citizens by harnessing digital technologies. The underlying vision is to empower every citizen with access to digital services, knowledge and information.
If we get the mechanics right, it could be a natural fit to our development paradigm. As we all know, high-speed Internet, proliferation of smartphones and greater social media networking continue to gallop. The wide variety of device choices arouses the expectation that applications will take advantage of device capabilities. Rapid strides continue to be made in fraud detection. Technology has minimised—and chips away ever further—the scope for corruption, bribery and rent-seeking opportunities. It enables us to demand rights and underwrites our aspirations.
The best thing about the ever-expanding horizons of technology is that, they do not discriminate among citizens. Technology equips us with the most practical solutions to even complex or elusive, problems. It could offer Digital Deliverance to Indians, in which meritocracy, pragmatism and honesty inform every choice made by the government as well as the citizenry.
Advances in computer technology, the increase of high-speed networks, growth in cloud computing and mobile innovation today allow electronic tagging of all money transactions in the system, irrespective of its origins, either from government or private source. Algorithms are becoming faster, more precise and more powerful. Innovations in the payment sector have led to the emergence of electronic payment service providers able to facilitate formal payments even in the absence of accounts, such as over-the-counter payments, mobile money payments and payment cards. It’s possible today to delayer the government machinery to forestall the circumnavigation of the money spent.
Yet, as encouraging as Digital India is, some important caveats are in order. But what would it make if our government and institutions are slow to adapt or wedded to moribund ideas? Why can’t the government delayer the system to strengthen probity, transparency and accountability? Why do we still stick to the hidebound ways of governance? Isn’t it another reflection of the ossified state of our administrative structure that so many loopholes are deliberately kept open?
Consider the payment of wages to workers under the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS), the so-called flagship socio-economic upliftment scheme of the government. The National Rural Employment Guarantee Act, 2005 requires workers to be paid within 15 days of closing the muster roll, but that happened hardly ever. Until 6 August 2015, when the Union decided approved the direct release of wages from the Centre to the workers in a bid to eliminate delays and corruption in the payment, every transaction travelled through a maze—from the central pool to the state budget, then to the state rural development departments and onward to Panchayati Raj Institutions (PRIs).
Unsurprisingly, the old system was snaggy, owing to the multi-level release system, continued parking of funds at various levels, diversion of money and the inability of implementation agencies to receive funds on time. The direct transfer involves rural development ministry’s release of money directly into the State Employment Guarantee Fund once a finance order has been generated. Direct Benefit Transfer (DBT) will then be carried out through electronic fund management system to the bank and post office accounts of workers.
The larger point to ponder here is that it took an information technology leader, which India undoubtedly is, 10 years (the National Rural Employment Guarantee Act was passed in 2005) to reach the conclusion that the multi-layered, zigzagged method of money transaction was devious and ultimately self-defeating, both in terms of succour it offered to the poor people whom the programme intended to keep from poverty and the money spent by the government itself.
From the very start, MGNREGS was a centrally sponsored scheme (CSS) 100 per cent funded by the Centre. But any CSS fully funded by the central government was entirely amenable to delayering and hence, the government should have taken the step of paying beneficiaries directly soon after the biometric technology-enabled Unique Identification (UID) programme—Aadhaar—was introduced. That the government did not do so until August 2015 would certainly have meant fiddling. It would also have meant missed opportunities, apart from causing unnecessary hardship to workers on account of delayed wages.
What do I mean by the term ‘delayering’? Broadly speaking, it means dismantling of the multiple bureaucratic constructs that hinder or hamper the delivery of government services—especially social welfare benefits such as MNREGA wages—directly to the beneficiary. Why so many administrative layers dealing with delivery of MNREGS payments, for instance, if it could be achieved by two-step clearance and verification system: a single government agency clearing them and the Aadhaar as the instrument of identity verification?
The fundamental governance challenge we face today is that while the outlays for CSS have increased, the outcomes have not kept pace. The proliferation of CSS has created parallel bodies that in effect subvert the purposes of PRIs. In other words, the central government is principally responsible for not allowing proper devolution to take place.
One of the two key ingredients of strengthening local bodies is the devolution of funds, functions and functionaries (3Fs) related to matters listed in the Eleventh Schedule of the Constitution. The Union Ministry of Panchayati Raj measures states on a Devolution Index based on 34 indicators (five related to functions, 15 to finance and 14 to functionaries). The other ingredient is the enablement of their function of preparing and implementing bottom-up participatory plans for economic development and social justice.
Over 21 years have passed since the 73rd and 74th Constitutional Amendments that promised devolution to village and urban local bodies. However, the promise has not been fully translated into reality, increasing the immensity of capacity constraints faced by local bodies.
Some portions of the Second Administrative Reform Commission’s Report read like a litany of complaints on devolution, giving references to the slow and halting evolution of local bodies in India even after the constitutional mandate given in 1992. Eight years later the ARC report, the evolution of local bodies in India is still anything but.
On CSS and parallel structures it creates that undermined PRIs, much of the blame must be laid at the door of the Centre. Until the Narendra Modi government overhauled the CSS in 2015 (as discussed later in the chapter), the Centre acted as if the states were both incompetent and stupid to manage matters contained in the Concurrent List correctly. The thinking would have emanated from the autocratic ways of some Prime Ministers India had, but the practice stuck.
The result was a complex system of bureaucracy that has put paid to all hopes of meaningful delayering of government. The greater layers social services delivery had to negotiate, the greater the taxpayers’ money laid to waste because of complexities and loopholes.
Since the CSS had created multiple layers of parallel bodies, the moot question is, especially after the advent of 73rd and 74th Amendments, why the Central Government should be micromanaging many of them? Why should the Centre dictate how should a state manage a subject, for instance, agriculture? Why is it habitually getting into every subject in the Concurrent List of the Constitution by dishing out CSS, designed either as fully central government funded or as hybrid Centre-State joint project?
Delayering could take place only if the Centre stays out of the Concurrent List subjects wherever it can. In my opinion, the Centre should refrain from almost all of these areas and let state and local bodies manage their affairs as far as possible.
Some CSS are hybrid, with both the Centre and state governments contributing to them. This had made confusion worse confounded. For their part, states have replicated an identical process of administrative layers the Centre had created at its level. Such constructs must also be removed. Reducing funds for CSS and devolving more untied resources to the states for state plans in the spirit of decentralisation will have a positive bearing on efficiency, at least in the poorer and badly governed States, only if it is accompanied with improving governance and accountability. In many states, releases by the State Finance Departments to the districts for state’s own schemes are highly ad hoc, uncertain, delayed and subject to personal influences. Faced with the inordinate delays in the release of money by state finance departments, many central ministries—such as rural development, education and health—have opted for releases to district or state level societies for receipt of funds directly from the central government, totally bypassing the state governments. While this may hasten the flow of fund to the field, ignoring State assemblies ought to be a stopgap arrangement. In the long run, we must improve the fiscal discipline of the states so that credibility and integrity of the budget process is preserved.
It’s also important to pare the number of CSS down to the bare minimum. The remainder should be controlled fully either by the Centre or States. There bound to be far less hanky-panky if this is the case. Certainly, when it comes to CSS fully controlled by the Centre, the fact remains that it’s the states where micro-level planning, project formation, execution and monitoring occurs. However, today, technologies allow monitors to time-stamp it in each step of the way.
Electronic tagging, by which I mean use of technology to track each money transfer integrated into the Digital India plan, will make both the money and work flow virtual and visible for every stakeholder to see, including the Centre. Since we have managed to usher in a Unique Identification platform that provides a unique identification number to every citizen of this country, can’t we do the same—a unique identification number—to every government budget head so that there is no room for falsification?
Corruption, slippages, leakages and diversion of taxpayers’ money have long been associated with the way the Government of India and state government function.
Yet, sometimes I wonder, is there any other country than India where the checks and balances built into the system are more stringent? There may be, but of course ours is not second-rate. However, despite all these, the system still runs to seed.
Why? The answer is not far to seek. We use very little technology to rein in discretion and arbitrariness. Today, technology allows zero tolerance to corruption. To be sure, apologists would say that our system is riddled with complexities. But then what? Computers are meant to tackle complexities and give fail-safe solutions. That’s the reason why Digital India should mean digital deliverance.
Delayering is not a revolution, but rather an evolution. The first step is that the Centre has to get out of the areas where it has no business. Similarly, states have to do the same and hand over many of the duties to local bodies, in the letter and spirit of the 73rd and 74th Constitutional Amendments. Devolution has to start from the Centre, to the state and to the local bodies. Digital deliverance has the potential to make devolution of powers deeper, broader and wider. Let them operate under a wide digital umbrella. Let technologies—information and mobile technologies, cloud computing, algorithms, etc—offer them solutions to advise, monitor, assist and help one another.
Similarly, digital deliverance is also not a revolution, but an evolution. Digital tagging of money spent—or rather, atomising expenditure into sub-heads, giving them digital tags and monitoring its movement virtual—could reduce rates of corruption and organised crime, reduce the cost of government wage and social transfer payments, offer new pathways into the financial system for the disadvantaged and contribute to the ongoing objective of inclusive growth. Digital deliverance is the best antidote to poor political commitment, bureaucratic inefficiency and corruption at all levels.
I have tried to make a brief assessment of three CSS—MGNREGS, Jawaharlal Nehru National Urban Renewal Mission and the Integrated Child Development Services.
The mandate of the MGNREGS is to provide 100 days of guaranteed wage employment in a financial year to every rural household whose adult members volunteer to do unskilled manual work. The MGNREGS was designed to provide social protection for the most vulnerable people living in rural India through providing employment opportunities and to ensure livelihood security for the poor through creation of durable assets, improved water security, soil conservation and higher land productivity. Deepening democracy at the grassroots by strengthening the PRIs and effecting greater transparency; accountability in governance; and, women empowerment were some other key goals. The Government of India bears the 100 per cent wage cost of unskilled manual labour and 75 per cent of the material cost, including the wages of skilled and semi-skilled workers.
The Act was notified in 200 rural districts in its first phase of implementation (with effect from 2 February 2006). In FY 2007-08, it was extended to an additional 130 rural districts. The remaining districts were notified under MGNREGS with effect from 1 April 2008. Since 2008, MGNREGS has covered the entire country with the exception of districts that have a hundred per cent urban population. From a Union budget allocation of Rs. 11,300 crore in 2006-07, funding increased to Rs. 40,000 crore in 2011-12. In 2014-15, the Union Budget allocated Rs. 32,456 crore for the scheme and in 2015-16, Rs. 33,700 crore.
According to the MGNREGS guidelines, the responsibility for the implementation of the scheme and the primary unit of planning is the PRI. Annual plans made by the panchyats are consolidated first at the block and then at the district level to prepare the district plan/labour budgets. Labour budgets are the fundamental basis for estimating employment to be generated and also form the basis of fund allocation to states/union territories.
Adult members of a rural household willing to do unskilled manual work are eligible for registration with the local PRI. The unit for registration is a household. Under the Act, each household is entitled to a 100 days of employment every year. After due verification of place of residence and age of the member/s (only adult members are eligible for employment), the registered household is issued a Job Card (JC). The JC forms the basis of identification for demanding employment.
Unlike the earlier wage employment programmes that were allocation-based, MGNREGS is demand-driven and the transfer of resources from the Government of India to states is based on the demand for employment in each of them. This provides an additional incentive for the states to leverage the Act to meet the employment needs of the poor.
According to the government, “The MGNREGS marks a paradigm shift from previous wage employment programmes either planned or implemented in India’s history. MGNREGS is unlike any other in its scale, architecture and thrust. It has an integrated natural resource management and livelihoods generation perspective. The transparency and accountability mechanisms under MGNREGS create unprecedented accountability of performance, especially towards immediate stakeholders.”
Yet, for all these vaunted claims, the paradigm shift has remained largely on paper. Social sector analysts have time and again called for demanding reforms in its implementation to arrest the slide in its effectiveness. The pervasive criticism is that there is no focus on asset creation and no attention paid to what happens to the funds released by the government. Some other rampant problems include fake job cards, poor monitoring and inadequate evaluation.
In 2013, a Comptroller and Auditor General of India performance audit of the MGNREGS showed that the average number of days that the rural employment generation scheme delivered had declined from 54 days a year in 2009-10 to 43 days in 2011-12. Further, it found that works worth over Rs. 4,000 crore were incomplete even one to five years since launch.
“There was also a substantial decline in the proportion of works completed in 2011-12. It was also observed that Bihar, Maharashtra and Uttar Pradesh, which constituted 46 per cent of the rural poor, accounted for only 20 per cent of the total funds released under the scheme. This indicated that the correlation between poverty levels and implementation of MGNREGS was not very high,” the audit report said. The audit reported financial irregularities in the procedure related to payment of wages and the cost of raw material. In eight states, there were cases of suspected misappropriation of funds to the tune of Rs. 128.23 crore as no supporting vouchers related to payments were available on record.
The field reports, reviews, reports on the delays, delay compensation, available at MGNREGS website make it clear that while 29,35,112 households got at least 100 days of work in 2013-14 as promised by the Act, more than three times that number—106,53,121 households—got less than 15 days of work in the same period.
Multiple administrative layers and monitoring agencies working at cross-purposes are to be blamed for much of the ills plaguing MGNREGS. Lack of technology tools deployed in project formation, execution, work monitoring and funding scrutiny has also taken their toll.
Beset with problems, is it any wonder than the programme has only created low value assets?
Launched in 2005, the same year as MGNREGS, Jawaharlal Nehru National Urban Renewal Mission (JNNURM), another “flagship” scheme, had four components and funding pattern varies from component to component from 20 per cent to 80 per cent for normal states and 50 per cent to 90 per cent special category states.
The objectives of the Mission were to be met through the adoption of the following strategy: (1) Preparing City Development Plan: Every city will be expected to formulate a City Development Plan (CDP) indicating policies, programmes and strategies and financing plans; (2) Preparing Projects: The CDP would facilitate identification of projects. The Urban Local Bodies (ULBs)/parastatal agencies will be required to prepare Detailed Project Reports (DPRs) for undertaking projects in the identified spheres. In order to seek JNNURM assistance, projects would need to be developed in a manner that would ensure and demonstrate optimisation of the life-cycle costs over the planning horizon of the project; (3) Release and Leveraging of Funds: JNNURM assistance would serve to catalyse the flow of investment into the urban infrastructure sector across the country; and, (4) Incorporating Private Sector Efficiencies: In order to optimise the life-cycle costs over the planning horizon, private sector efficiencies can be inducted in development, management, implementation and financing of projects, through Public Private Partnership (PPP) arrangements.
Funds from the Central and State Government flowed directly to the nodal agency designated by the State, as grants-in-aid. The funds for identified projects across cities would be disbursed to the ULB/Parastatal agency through the designated State Level Nodal Agency (SLNA) as soft loan or grant-cum-loan or grant. The SLNA/ULBs in turn would leverage additional resources from other sources.
However, an analysis of the funding pattern clearly brought out the mission’s big city bias. The promised rapid city transformation had not been happened. At its best, the mission did something for infrastructure and something for housing but all in an uncoordinated project-by-project manner. Neither the infrastructure agenda nor shelter security for all is advanced.
The mission funds were not allocated according to the primary focus areas of the National Urban Transport Policy. Allocation of funds had been very uneven, with some cities and states cornering most benefits than others. Moreover, funds were allocated to larger cities (million plus) to a far greater extent than cities between 1,00,000 and a million.
The Union urban development ministry data shows that a mere 37 per cent of sanctioned infrastructure projects and 52 per cent of basic urban service-related projects had been completed between 2005 and March 2014. The governance reform project, too, had been tardy. According to a January 2014 status report, reform completion rates vary between 30 per cent and 40 per cent in states like Gujarat, Haryana and Rajasthan and 80 per cent in Tamil Nadu, Himachal Pradesh and Kerala.
Earlier, in 2012, the CAG’s performance review audit pointed out that large amounts of unspent JNNURM funds are parked in state and urban local body accounts. By 2010-11, the interest earned by 22 states on the unspent money alone amounted to Rs. 210 crore.
In a newspaper article, Yamini Aiyar and T.R. Raghunandan of the Centre for Policy Research say, “JNNURM was expected to change all this by pushing a “reforms-driven, fast-track approach” to empower municipalities and create spaces for citizen participation. To ensure that states walk the talk, all state governments were required to enter into memoranda of agreements with the government of India detailing their reform milestones. Funding was conditional to achieving reforms.
“What happened next is a fascinating story on how federalism works in practice. For the first couple of years, as the government waited for states to meet their commitments, it held back on releasing funds. In 2005-06, only 40 per cent of JNNURM allocations were released to states. But as time went by, the central government began facing mounting pressure to spend. In response, it began pressurising state governments to comply with reform milestones. The result was a happy compromise. State governments, many of whom were reluctant to implement reforms but eager to get money from the central government, undertook “on-paper” reforms and the central government, faced with spending pressures, was willing to accept on-paper reforms as achieving reform milestones required to release funding. By 2008-09, 100 per cent funds had been released. But the central government continued to exercise clout and released much of this money towards the end of the fiscal year. By 2011, this changed and the central government approved a memo to relax its conditionalities entirely…. The most important lesson to be learnt from JNNURM is that reforms will only take shape when state governments have ownership over reform processes. Signing memoranda of agreements and bullying states with financial consequences do not create this sense of ownership. Rather, the Centre needs to loosen its controls and allow state governments the autonomy to take their own implementation decisions.”
In June 2015, the Narendra Modi government rebranded JNNURM as Atal Mission for Rejuvenation and Urban Transformation (AMRUT). Under AMRUT funds will be allocated in view of the urban population and number of cities/towns in each state/union territory. Without availability of land and all necessary clearances, no project shall be included in the mission. States will transfer funds to urban local bodies within seven days of transfer by the centre and no diversion of funds will be allowed, failing which penal interest would be charged in addition to action by the centre.
Absence of decentralisation and poor record in terms of tracking the money spent has reduced JNNURM to a shambles. This new government has taken the initiative of setting up 100 smart cities. AMRUT’s focusing on smaller cities and towns is a good beginning but it remains to be seen how such a herculean task will pan out on the ground.
Let’s examine a different scheme, this time a low-profile CSS. The Integrated Child Development Services (ICDS) scheme sought to integrate several aspects of early childhood development and intended to provide supplementary nutrition, immunisation, health check-ups and referral services to children below six years of age as well as expecting and nursing mothers. It also offered non-formal pre-school education to children in the 3-6 age group and health and nutrition education to women in the 15-45 age group. ICDS was initiated in 1975 in 33 blocks and used Below Poverty Line (BPL) as a criteria for delivery of services. Following a 2004 Supreme Court order, ICDS was expanded in 2005 to cover the entire country.
The main goals were: (i) To lay the foundation for the proper psychological, physical and social development of the child; (ii) To reduce the incidence of mortality, morbidity, malnutrition and school dropouts; (iii) To achieve effective coordination of policy and implementation among various departments to promote child development; and, (iv) To enhance the capability of the mother to look after the normal health, nutritional and developmental needs of the child through proper community education
The programme adopted a multi-sectoral approach incorporating both health and education interventions. The Ministry of Women & Child Development (MoWCD) is responsible for coordinating ICDS and working with state governments to monitor and evaluate the scheme’s performance. In many states, panchayats have also been actively involved in the implementation and monitoring of ICDS since the 73rd Amendment Act was passed in 1992.
The MoWCD had the overall responsibility of monitoring the ICDS scheme. A central level ICDS Monitoring Unit in the Ministry was responsible for collection and analysis of the periodic work reports received from the States in the prescribed formats. States were asked to send the State level consolidated reports by 17th day of the following month.
Between 2000 and 2010, approximately Rs. 35,000 crore has been allocated to ICDS by the union government. ICDS’s status as a flagship programme is reflected in its place in successive union budgets: the programme secured between 75-85 per cent of all funds allocated to MoWCD.
Yet, Despite the fact that ICDS has been in operation for more than three decades, states have made limited progress in tackling undernutrition. There is a large inter-state variation with the phenomenon being concentrated in a few states; Bihar, Madhya Pradesh, Maharashtra, Orissa, Rajasthan and Uttar Pradesh account for more than 80 per cent of the cases of child malnutrition. In 2005, Bihar, Madhya Pradesh, Rajasthan and Uttar Pradesh accounted for 43 per cent of all under-weight children in India.
A Centre for Development Finance report cited above identified four challenges for ICDS: (i) Inappropriate targeting; (ii) poor physical infrastructure; (iii) insufficient material; and, (iv) inadequate supplementary nutrition and immunisation.
In September 2000, 189 members-nations of the United Nations held the Millennium Summit to bring an ambitious agenda called the Millennium Development Goals (MDGs) forward. The eight MDGs—ranging from halving extreme poverty rates to halting the spread of HIV/AIDS and providing universal primary education, all by the target date of 2015 – form the core of the blueprint. Those eight MDGs were divided into 21 targets and 60 indicators. The deadline was set at 2015.
The MDG Goal No. 2 was to “ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling” and Goal No. 4 was to “reduce by two-thirds, between 1990 and 2015, the under-five mortality rate.”
Malnourishment is also an indicator of food insecurity. In 1990, 53.5 per cent of all Indian children were malnourished. Since then, progress has been slow. In India, the proportion of underweight children below three years has declined by only one per cent between 1998-99 and 2005-06 to 46 per cent. It is estimated that malnourishment could decline to 40 per cent by 2015. This would still be below the target of reducing malnourishment to 28.6 per cent.” In Universal Primary Education, India is on track to achieve the goals. In all others, the projections paint a picture of gloom, “some progress” here and there notwithstanding.
The question arises, where all the money has gone, spent in the name of the ICDS’s lofty objectives?
Let’s examine the way our Union budgets are divided. Every year, the Budget document classifies diverse expenses under various categories for better reporting, accounting and financial management purposes. All public expenditures are classified into:
Both Plan and Non-Plan Expenditures are divided into Revenue and Capital Expenditures. Revenue Expenditures relate to the day-to-day running expenses of the government and consist of interest payments, defence revenue expenditure, subsidies (food, fertilisers and export promotion and others), debt relief to farmers, postal deficit, police, pensions and other general services (tax collection, external affairs, etc.). Capital Expenditures are those expenditures that lead to a creation of financial or physical assets or reduction in recurring financial liabilities. They include capital outlays and loans to states and union territories for financing plan projects, loans to foreign governments and loans to public enterprises.
There is another classification of government expenditure, i.e., Development Expenditure and Non-Development Expenditure. Development Expenditure is broadly defined to include all items of expenditures that are designed directly to promote economic development and social welfare. It mainly includes spending on economic services (agriculture, industry, energy, communication, transport, science, technology and environment) and social services (education, health, employment, nutrition, housing and others). Non-Development Expenditure includes expenditures pertaining to the general services rendered by the Government such as preservation of law and order, defence of the country and the maintenance of the general organs of the government.
The Union government’s development expenditure includes both outlays on gross capital formation and current expenditure on economic and social services. The Plan and non-Plan expenditures in the Central Budget on economic and social services correspond broadly to the total development expenditure of the Central Government.
Expenditure on the following subjects is classified as Social Services or Social Sector expenditure:
The above list clearly indicates that social sectors typically include those sectors in which government’s interventions have a direct impact on human development. Responsibility of the government in these sectors is crucial, given the poor levels of human development in India and the fact that disadvantaged sections and poorer states are lagging behind.
Economic services consist of agriculture, rural development, industry, energy, communication, transport, science, technology and environment. The rest are classified as general services. These include, besides home, defence and civil expenditure, such items as capital outlays on administrative buildings and non-plan grants and loans for natural calamities to States and Union Territories.
Changes in the Union Budget in the allocation to economic and social sectors since 1980 are shown in the graph below.
Figure 3.1: Development expenditure and expenditure on economic and social services as percentage of GDP
Thus the share of Development Expenditure in the GDP rose after 1981-82 and reached its peak values in the mid-1980s. In the 1990s and 2000s, the share of Development Expenditure in GDP in the Union budget fell sharply. An important factor that has been constraining the growth of Development Expenditure is the rising share of Non Development Expenditure. Non-Development Expenditure continues to be a large proportion of the Total Expenditure. Defence, debt services and administrative expenses are so large and so significant that they are responsible for keeping non-Development Expenditure at a high level. The share of non-developmental expenditure in Total Expenditure of the Centre grew from 42.54 per cent in 1980-81 to 45.70 per cent in 1990-91 and 58.62 per cent in 2000-01. Then in 2000s, post Fiscal Responsibility and Budget Management Act of 2003, the trend reversed; debt was reduced and it fell to 47.21 per cent in 2011-12, while the share of Development Expenditure increased.
In 2015-16 Budget, there is a major change in the way the Union government spends its money. In February 2015, the government announced that it had accepted the recommendations of the 14th Finance Commission and raised the states’ share in the net proceeds of union tax revenues from 32 per cent to 42 per cent, a significant jump. With more of its tax share going directly to states to spend at their discretion, the Union Government had begun reducing its allocations to the State plan and wound up some Centrally Sponsored Schemes. This has already happened in this Budget.
According to the Budget document, there are 31 CSSs to be fully sponsored by the Union Government. Eight CSSs have been delinked from support of the Centre and 24 others will now be run with the changed sharing pattern.
The eight CSSs delinked from the Centre’s support include the Backward Regions Grant Fund, National e-Governance Plan and the Scheme for Central Assistance to the States for developing export infrastructure and other allied activities. Now states have to decide, given their enhanced resources, whether they would like to continue with the schemes or not.
In 24 schemes, states will now have to shoulder a greater burden as the Union government minimised its role. These include flagship schemes including the Swachh Bharat Abhiyaan, the National Health Mission, the Rashtriya Madhyamik Shiksha Abhiyaan, the Integrated Child Development Scheme, the National AIDS and STD Control Programme and the Rural Housing scheme.
However, 31 CSSs, including the MGNREGS, the Mid Day Meal Scheme, the Sarva Shiksha Abhiyaan and scholarship schemes, will remain fully funded by the central government. See the table below:
Table 3.1: Centrally Sponsored Schemes from March 2015
(A) Schemes to be fully supported by Union Government:
1. Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS)
2. Multi-Sectoral Development Programme for Minorities (MSDP)
3. Pre-Matric scholarship for children of those engaged in unclean occupation
4. Scholarship Schemes (Post and Pre-Matric) for SC, ST and OBCs
5. Support for machinery for Implementation of Protection of Civil Rights Act, 1955 and Prevention of Atrocities Act, 1989
6. National Programme for Persons with Disabilities
7. Scheme for Providing Education to Minorities
8. Umbrella Scheme for Education of ST Children
9. Indira Gandhi Matritva Sahyog Yojana (IGMSY)
10. Integrated Child Protection Scheme (ICPS)
11. Rajiv Gandhi Scheme for Empowerment of Adolescent Girls (RGSEAG)-SABLA
12. National Nutrition Mission
13. Scheme for Protection and Development of Women
14. Assistance for Schemes under Proviso (i) to article 275 (1) of the Constitution
15. Special Central Assistance to Tribal Sub-plan
16. Sarva Shiksha Abhiyaan (Financed from Education Cess)
17. Mid Day Meal
18. Schemes of North Eastern Council
19. Special package for Bodoland Territorial Council
20. National Social Assistance Programme (NSAP) including Annapurna
21. Grants from Central Pool of Resources for North Eastern Region and Sikkim
22. Social Security for Unorganised Workers Scheme
23. Support to Educational Development including Teacher Training and Adult Education
24. Border Area Development Programme
25. Member of Parliament Local Area Development Scheme (MPLADS)
26. Cess backed allocation for Pradhan Mantri Gram Sadhak Yojana (PMGSY)
27. Roads and Bridges financed from Central Road Fund
28. Project Tiger
29. Project Elephant
30. Additional Central Assistance for Externally Aided Projects (loan portion)
31. Additional Central Assistance for Externally Aided Projects (Grant portion)
(B) Schemes to be run with the Changed Sharing Pattern:
1. Cattle Development
2. Mission for Integrated Development of Horticulture
3. Rashtriya Krishi Vikas Yojana
4. National Livestock Mission
5. National Mission on Sustainable Agriculture
6. Dairy Vikas Abhiyaan
7. Veterinary Services and Animal Health
8. National Rural Drinking Water Programme
9. Swaccha Bharat Abhiyaan (Rural and Urban)
10. National Afforestation Programme
11. National Plan for Conservation of Aquatic Eco-system (NPCA)
12. National AIDS and STD Control programme
13. National Health Mission
14. National Urban Livelihoods Mission (NULM)
15. Rashtriya Madhyamik Shiksha Abhiyaan (RMSA)
16. Strategic Assistance for State Higher Education – Rashtriya Uchchatar Shiksha Abhiyan (RUSA)
17. For Development of Infrastructure Facilities for Judiciary
18. National Land Records Modernisation Programme
19. National Rural Livelihood Mission (NRLM)
20. Rural Housing-Housing for All
21. Integrated Child Development Service
22. Rajiv Gandhi Khel Abhiyan (RGKA) (erstwhile Panchayat Yuva Krida aur Khel Abhiyan (PYKKA)
23. PMKSY (including Watershed programme and micro irrigation)
24. Impact Assessment Studies of AIBFMP
(C) Schemes delinked from support of the Centre:
1. National e-Governance Plan
2. Backward Regions Grant Funds
3. Modernisation of Police Forces
4. Rajiv Gandhi Panchayat Sashaktikaran Abhiyaan (RGPSA)
5. Scheme for Central Assistance to the States for Developing Export Infrastructure
6 Scheme for setting up of 6,000 Model Schools
7. National Mission on Food processing
8. Tourist Infrastructure
Source: Press Information Bureau, Government of India, 28 February 2015, available at: http://pib.nic.in/newsite/PrintRelease.aspx?relid=116152
The CSS are a throwback to the command economy era, embodied by the Five-Year Plans. According to report of the government-appointed Committee on Restructuring of Centrally Sponsored Schemes chaired by B.K. Chaturvedi in September 2011, “In the First Five-Year Plan, many schemes which should have appropriately found place in the State sector were included in the Central sector because the exact distribution of their financial liability had not been decided upon…. However, there was no clear criterion for distribution of Central Assistance to the States.”
In 1967, the sub-committee of the National Development Council recommended setting the number of CSS to minimum, putting forward four conditions: (i) in matters of national policy such as Family Planning, Resettlement of landless agricultural workers; (ii) those for specialised research and training which would benefit more than one State or might be of all-India significance; (iii) pilot projects for research and development; and, (iv) new schemes introduced after the Plan has been finalised.
In 1968, the NDC Committee recommended a cap on the value of CSS as one-sixth of the Central Plan assistance to States. However, state Central Ministries, in the words of the B.K. Chaturvedi Committee report, “continued to introduce new schemes and the financial limit came to be exceeded.” But given that the almost autocratic control Prime Minister Indira Gandhi exercised over her Congress party (a brute majority of states were ruled by her party), this could not have happened without the Centre’s connivance.
From 1969, when the Union government presided over a big bank nationalisation exercise, the number of CSS witnessed a quantum jump: from 45 in 1969 to 190 at the end of the Fifth Five Year Plan (1979). All manner of populist schemes were devised, huge sums were allocated and a large proportion of the allocation funds were misappropriated. On the ground, especially during the pre-economic liberalisation era, India didn’t progress not many notches from a poor country status; poor remained poor and dirt-poor remained dirt poor.
Many Five-Year Plans, committees and their recommendations later, CSS became an entrenched feature of the development paradigm, showing no sign of ebbing, even as their funding burned bigger and bigger holes in the government’s finances. The table below shows how the CSS picture in 2011.
Table 3.2: Number of Centrally Sponsored Schemes
The total no. of CSS has been increasing over a period of years in successive Plans. Following Table indicates the position:
Table 3.3: Status of CSS
The Chaturvedi Committee report suggested bringing the number of CSS down to 59 to reduce overlaps in scheme objectives and improve monitoring. “There is need for reforms in designing of CSS, physical and financial norms, planning, transfer of funds, monitoring and evaluation,” it said.
In his Budget 2013-14 speech, Finance Minister P. Chidambaram had announced that “the schemes will be restructured into 70 schemes. Each scheme will be reviewed once in two years”. In June 2013, the Union government cleared the Planning Commission’s suggestion, to reduce about 170 such programmes to 66.
In June 2015, the NITI Aayog, successor of the Planning Commission, decided to reduce the total number of CSS to 30 from 72. The panel has also recommended to increase the share of flexi funds to 25 per cent from the current 10 per cent.
The Constitution of India clearly defines the role of central and state governments in the federal structure. All activities in government ambit fall in Central List, State List or Concurrent List. While there is no ambiguity with regard to the Central List and State List, activities falling under Concurrent List are subject to overlapping of jurisdiction of the government of India and state governments. States are primarily responsible for major sectors like health, education, employment, etc., which often involve large public expenditures. Since successful implementation of development programme requires availability of adequate funds, appropriate policy framework and effective delivery machinery, Central Government needs to work with the States to undertake their responsibility in effective manner. Recognising the higher resource requirements of the States relative to their resource raising powers, the Constitution mandates to transfer funds to the State Governments through statutory transfer of tax receipts collected by Centre through the Finance Commission award.
Is there a Constitutional backing for CSS? They are justified on the basis of Directive Principles of State Policy of the Constitution of India (contained in Part IV, Articles 36 to 50). They “should guide the policies of various wings of the Government and act as an overriding philosophical basis. These require a national effort in education, childhood care, health, unemployment and old age and for minimising inequalities in income amongst States,” as Chaturvedi panel put it. In other words, the Centre ought to transfer funds through CSS and Central assistance to State Plans periodically assess, monitor and scrutinise their performance.
It further cites, among others, Article 38 of the Constitution:
“38. State to secure a social order for the promotion of welfare of the people.
“(1) The State shall strive to promote the welfare of the people by securing and protecting as effectively as it may a social order in which justice, social, economic and political, shall inform all the institutions of the national life.
“(2) The State shall, in particular, strive to minimise the inequalities in income and endeavour to eliminate inequalities in status, facilities and opportunities, not only amongst individuals but also amongst groups of people residing in different areas or engaged in different vocations.”
Now, let us go back to the period when CSSs were at the heart of the government’s strategy for poverty alleviation.
Figure 3.2: Expenditure on Social Services as per cent of GDP
The Economic Survey 2013-14 revealed that total social sector expenditure by Centre and the state governments combined as a percentage of GDP has almost remained stagnant between 6 and 7 per cent of GDP.
Figure 3.3: Social sector expenditure as a percentage of GDP
This is despite the fact that central government allocation for education, health and other sectors relevant to Millennium Development Goals has increased significantly over the past two decades. Roughly 75 to 80 per cent of the total expenditure on social sector is borne by the states, but they have not been able to reverse the declining trend in social sector funding as a proportion of total expenditure, as shown below.
Table 3.4: States’ expenditure on education & health as a proportion of total state expenditure
Even compared with other countries, some of them our neighbours, India has not done well in respect of social sector expenditure (see the Figure 3.4).
Figure 3.4: Public Expenditure on Health as per cent of GDP in 2011
The total expenditure on health as a percentage of GDP is much lower than in many other developed and emerging countries and the lowest among BRICS (Brazil, Russia, India, China and South Africa) countries. Similar is the story about education, as shown in the Figure 3.5.
Figure 3.5: Expenditure on education as percentage of GDP
Of the two principal components of social welfare policy—basic public services and safety-net programmes—India has focused disproportionately on the latter in the last two decades, expanding existing social protection programmes such as public delivery system and shaping new ones like MGNREGS. On the other hand, the focus on basic public services, such as primary education, public health and water and sanitation has withered. Whereas expenditure as ratio of GDP on social safety net schemes has jumped four times from 0.5 to 2 per cent of GDP, expenditure on social sector has hardly moved beyond the around 6-6.5 per cent range of GDP.
The fundamental reason for low social sector expenditure in India is our extremely low tax-GDP ratio. In India, it is around 17 per cent (including both Union and States) now, compared to 50 per cent in Sweden and more than 30 per cent in Russia, South Africa and Brazil. Poor tax revenue is the most important factor for the insufficient social sector expenditure. The international norm is 6 per cent of GDP on education and 3 per cent on health. In India, we spend only 3 per cent of the GDP on education and around 1.2 per cent on health. In 2004, the newly-elected Prime Minister, Manmohan Singh, had promised in 2004 that India would spend 2-3 per cent on health, but that remained a pipe-dream during his reign.
Tax-to-GDP ratio of the centre has fallen in the last four years by about two percentage points, from 11.9 per cent in 2007-08 to 9.9 per cent in 2014-15. Its variation since 1985 (see Figure 3.6).
Figure 3.6: Tax-GDP ratio for Union (excluding states) over the years
As Indian government has been staining at the leash to churn out well-intentioned socioeconomic upliftment programmes against odds. I understand that Digital India—or in my vision, Digital Deliverance—can’t resolve all the fragilities in the system. However, technology as an instrument to devolve power and monitor government cash flow is the best remedy available to us.
For the common man, unique identification or Aadhaar has already delivered rich dividends. Today, it has acquired gravity in much of the government thinking in delivering services to the people of India.
Aadhaar, the 11-digit biometric unique identification number, is now the lynchpin to the government in achieving its goals of social justice and financial inclusion. It provides the framework for residents to easily and effectively establish their identity, to any agency, anywhere in the country, without having to repeatedly produce identity documentation to agencies. Aadhaar would thus ensure that citizens—particularly from the poor, marginalised and vulnerable sections of the population—can access the benefits and services that are meant for them. Today, Aadhaar covers more than two-thirds of India’s population and will achieve full enrolment within a year or so.
This visionary goal was a far cry from the threadbare welfare system that prevailed in India before the introduction of the Aadhaar. Biometrics would prevent multiple enrolments by the same individual, a problem that made social welfare programmes wretchedly inefficient. The Aadhaar-based biometric authentication can be verified and authenticated in an online, cost-effective manner, which is robust enough to eliminate duplicate and fake identities at the point of delivery. Foolproof identity authentication makes sure that people get what they are entitled to get and they can confirm the transaction, weeding out bogus beneficiaries and chances of diversion and/or pilferage. This increases accountability and transparency in the system of delivery of benefits. Over and above that, precise targeting of beneficiaries helps the government to slash its bloated subsidy bill.
In 2011, the World Bank identified government payments fall into four key categories of payments: (i) cash transfers, salaries and social benefits payments made by a government entity to a person or G2P payments; (ii) payments collected by a government entity from persons or businesses including taxes and payments for government services such as utilities, etc., also known as P2G and B2G payments; (iii) payments made by a government entity to businesses for operational or procurement purposes or G2B payments; and, (iv) intra-governmental payments involving payments from one government agency to another for budgetary or operational purposes or G2G payments.
The World Bank report said: “The efficiency, transparency, security and cost effectiveness of payments made or collected by government entities largely depends upon the type of payment instruments used for distribution and collection purposes. Payment processes that use cash or paper-based payment instruments are more inefficient in terms of both processing time and cost effectiveness. In contrast, countries that have successfully adopted electronic payment instruments such as payment cards (e.g., for the disbursement or subsidies, other social benefits, etc.) or electronic credit transfers, among others, have been able to improve the efficiency at the disbursing or collecting government entities. Additionally, in many cases this has had a profound impact on the retail payments industry as a whole.”
Yet, the Aadhaar number is all but one tool available to the government for Digital Deliverance. The rest of them reside in the cloud, mobiles, Internet technology pathways and alogrithms. They are close at hand to offer the best of solutions to India’s problems.
“Ask the algorithm”, went a headline in The Economist’s Special Report on Financial Technology in May 2015, of an article that dealt with how the “automated wealth managers” powered by algorithms are fast replacing human wealth advisors.
In India, too, we must “ask the algorithm”—to keep our development thinking on the right track. That’s digital deliverance.
(Sameer Kochhar can be reached at email@example.com)
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