Rural affairs ministry shifts base to states

Written by Banikinkar Pattanayak | New Delhi | Updated: Mar 3 2014, 18:31pm hrs
Mondays interim budget gave a bonanza to states in the form of a big hike in the transfer of Plan funds to their treasuries in FY15, acceding to their long-pending demand and in sync with the recommendation of many expert committees that reviewed the pattern of Indias public expenditure.

The funds for key centrally sponsored schemes (CSSs) including the UPAs flagship schemes on employment guarantee, rural housing, health and education will now go to the consolidated funds of the states, instead of getting directly transferred to implementing agencies.

A whopping 61% of the FY15 Plan expenditure (gross budgetary support) of Rs 5.55 lakh crore will now reach state treasuries as against 25% of the Rs 4.75 lakh crore this year.

Although the states cannot divert these funds to any other purpose other than the designated schemes, it will increase their spending power, apart from adding to their role in implementation, analysts said. States are also unhappy with the lack of clarity on the BK Chaturvedi panels suggestion that 20% of these Plan funds be treated as flexi-fund so that states can utilise one-fifth of the funds in the way they deem fit, although within that particular programme.

Sushil Modi, the former finance minister of Bihar, told FE: The move has been a result of incessant demand by chief ministers of various states at the National Development Council meeting to transfer funds under the centrally sponsored schemes directly to the states. However, its not clear if the Chaturvedi panel suggestion about flexi-funds be implemented.

Once states start getting large chunks of CSS funds, the spending will come under the CAG ambit. Currently, the CSS funds spent through agencies like DRDA are audited by chartered accountants designated by the CAG, said PR Jena of the National Institute of Public Finance and Policy.

Currently, the transfers of Plan funds from the Centre to states are usually of four types: State plan schemes that include normal central assistance and other scheme-based central aid, which are also known as additional central assistance (ACA); CSSs for which funds are routed through consolidated fund of states; the CSS for which funds are transferred directly to state/district level autonomous bodies/implementing agencies and a small portion of finance commission grants treated as Plan grants.

Over the years transfer of funds through the CSS, as a percentage of the gross budgetary support (GBS), has proliferated from just over 31% during the 9th Plan period to 42% during the 11th Plan period to nearly a half of the GBS now. This means despite the federal structure of the Constitution, the Centre has increasingly tightened its grip over the implementation of various CSS schemes that have been launched from time to time.

NC Saxena, a member of the National Advisory Council, said: The problem with the proposed transfer method is that states with effective systems in place will be able to better encash the fruit of the scheme while poor states, which are actually in needs of the CSS, wont be able to reap the benefits that well, in the short term.

The number of CSSs have been coming down in recent years as part of a rationalisation process, and according to the interim budget documents, there would be only 66 such schemes in FY15 against 126 now. Funds under these schemes have been bracketed as additional central assistance to states Plan expenditure.

Schemes such as the Mahatma Gandhi National Rural Employment Guarantee Scheme and the Indira Awas Yojana under the rural development ministry and programmes such as the Sarva Shiksha Abhiyan under the human resource development ministry have been put under the state Plan.

The government of India releases funds under CSSs through two methods: Treasury mode and society mode. In the treasury mode, after the sanction of funds by the central ministry concerned, the Reserve Bank Of India is asked to transfer the funds to the state government. The expenditure is routed through the treasury and is captured by the office of the accountant general through the vouchers received for the same.

With IT systems in treasuries and AG offices in several states in place, the utilisation of the funds can be tracked easily. The funds are audited by the Comptroller and Auditor General of India.

In the society mode, funds are sanctioned by the central ministries concerned and released by them. The funds are credited directly to the bank accounts of the implementing agencies concerned. These funds are subsequently released further by these first-level recipients to their constituents at the district, block (taluk) or village level. The expenditure is monitored by the central administrative ministry concerned by keeping a watch over the utilisation certificates provided by the agencies. The audit of such bodies is conducted by chartered accountants.

The Rangarajan panel report has noted that there are several advantages of the treasury mode of fund transfer it is robust, expenditures incurred are voucher-based, validated by the AG and audited by the CAG. There is a well-defined system of tracking, cash management and bank reconciliation, which provides information on cash flows at any point of time, although it has some other issues.