Column : Where did the rupee go?

Dec 05 2012, 01:46 IST
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SummaryFixing the government’s inability to track welfare expenditure is as urgent as the need to tackle large-scale corruption.

In the age of increased public attention on state failures and corruption, it may come as a surprise to many readers that the government simply lacks the ability to track actual expenditures for thousands of crores of welfare funds.

The government of India (GoI) finances the bulk of its social welfare schemes through a transfer mechanism known as the centrally sponsored schemes (CSS). CSS are specific purpose fiscal transfers from the GoI to state governments for implementing social sector programmes. GoI funds and designs these schemes while state governments implement them. Almost all of the United Progressive Alliance’s flagship social welfare programmes, including the MGNREGA, are designed as CSS.

To implement CSS, GoI transfers funds either directly to the state government treasury or to specially created societies. Within the government’s accounting system, the act of releasing funds is treated as an expenditure. A similar procedure is followed for fund release at each subsequent level. So, when funds are transferred from the state departments to the district, these are again recorded as expenditures and so on. Thus, central, state and district level government expenditure statements are merely statements of intent—a list of funds released to the next level of government—rather than actual expenditures.

For CSS financed through the state treasury, actual expenditures are captured through the annual audited accounts of the government but these have a two-year time lag and are hampered by poor quality record keeping. To add to the confusion, the audited accounts and annual expenditure statements prepared by line departments are not reconciled with each other, resulting in multiple expenditure numbers that rarely match.

The problem is compounded by the fact that significant amounts of money for CSS do not make their way to the state treasury and are thus not audited by the state accountant general. According to the Rangarajan Committee on public expenditure management, in 2011, R1.22 lakh crore of plan expenditure was transferred through specially created societies. These societies are set up by line departments at the state and district level. While they are staffed and run by government authorities, they do not need to adhere to government financial rules.

Bank accounts for these societies are independent of the state treasury and GoI deposits money directly into these accounts. Expenditures are monitored by the concerned line department and audited by private chartered accountant. The Rangarajan Committee points to several flaws in this model, including the fact that there is no

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