The Eleventh Plan is largely structured around big ticket centrally sponsored or central schemes in agriculture, rural development, education, health and urban development?NREGA, AIBP, Sarva Shiksha Abhiyan and others continue. Also, newer financing and organisational principles are being enunciated.
The new big ticket schemes and plans that the government has introduced include the National Rain-fed Areas Authority, which is expected to harmonise across different central government efforts and offer expert advice to states on how to integrate these in their own agricultural plans. The National Food Security Mission is a central sector scheme in mission-mode aimed at increasing foodgrains production by at least 20 million tonnes by the end of the 11th Plan. An important innovation during the 11th Plan is the new Rashtriya Krishi Vikas Yojana (RKVY) with an outlay of Rs 25,000 crore that is designed to give more flexibility to states and incentivise them to spend more on agriculture and to do so on the basis of properly designed district and state plans, in the agro-climatic mould introduced by us at the time of Rajiv Gandhi?s Planning Commission. The RKVY requires that every district should draw up a plan that fully utilises an initial resource envelope available from all existing schemes?state or central?including resources at district level from central schemes such as those of rural development, ministry of panchayati raj, ministry of water resources and other ministries.
The states apparently told the Finance Commission that central schemes (CSS) leave little leeway to them. Actually, the Planning Commission says that, ?in fact, the significance of the NCA amount has got substantially reduced since 2005-06, the year from which the Central government ceased to provide the loan component of NCA?. Formula-based assistance has gone down. (NCA is normal central assistance). However, as a counterfactual, the 11th Plan goes on to say: ?The central government also transfers substantial resources to the States in the form of CSS and ACA for state plan schemes. Central assistance being transferred to the States in the 11th Plan amounts to 1.2% of GDP as against 1.43% in the 10th Plan.? But ?Large transfers take place through the CSS which have been greatly expanded in the 11th Plan.?
The ?problem? is, therefore, not resources but devolution of autonomous resources in the devolution process. Resources, under the rule-based devolution process of the Gadgil-Mukherji Formula, have dwindled and the slack is taken by tied assistance. The Review of State Finances by RBI (RBI Bulletin, Feb 2008), shows the collapse of autonomy of state finances. Big ticket central plan schemes and centrally sponsored schemes have increased by 127.8% and 49.6% in the revised estimates (RE) of 2006-07 over the actuals of 2005-06 (RBI, 2008, p. 326), but plan loans are lower by 25.1% in the RE over BEs of 2006/07.
The 12th Finance Commision abolished the established scheme of market borrowings and dealt a major change to autonomous finance in the federation. It recommended a loan council for the switch over that was not implemented and allocations of permitted market borrowings are done by bureaucratic methods rather than formula-based allocations as earlier. States have ample resources to implement big ticket central schemes, but no leeway at their own level and further, the implementing agencies (districts) are at the tail end. More recently, the 13th Finance Commission experts have correctly pointed out that the decline in rule-based central assistance is playing havoc with the fiscal structure of the federation.
With no leeway for adjustment at the state and local levels, expenditure is becoming difficult. In fact, investment expenditure by the government is showing a sharp decline in the figures given in the vote on account. Large government deficits help to an extent to counteract the decline in exports and FII outflows, but capital goods industries and the manufacturing sector are languishing. If remedial steps are not taken, the meltdown may be more severe.
?The author is a former Union minister. Email: yalagh@gmail.com