How the plan panel lost the plot

Written by Subhomoy Bhattacharjee | Updated: Aug 28 2014, 08:29am hrs
The size of the Indian governments investment budget has now become far too massive for any one organisation to keep anything more than a perfunctory watch over that money in real time. The reason why the Planning Commission ran into disrepute was it gave a deceptive feel that it could manage the money but was not really equipped to do so.

The big challenge will be how to redraw the management of government investment. Before taking it up, it will be instructive to examine how the Commission was handling this brief.

Of the total plan expenditure of the Centre, nearly 50% is now spent on salaries. Data from the governments civil accounts department show that the plan panel had become more inefficient over the years in managing the money meant for investment. The share of capital expenditure has been declining for the past three years.

The redrawing of the Planning Commission, which has begun now, should consequently not plug for any other monolithic body to manage the money, including the Union finance ministry. The following data analysis reveals the scale of the problem.

Union governments, over the years, have not skimped in higher budgetary allocations for plan spending, except for minor blips in some years. But to make good the allocations, the Commission developed some short-cuts and this is where the problems emerged.

Of the plan expenditure for FY13, for instance, the Commission has carried out more than 35% of it through what is called the society mode. As per the CAG definition, this is the practice of transferring money required for implementing several centrally-sponsored schemes directly into the bank accounts of implementing agencies like societies or autonomous institutions. The practice became widespread FY07 onwards, the CAG notes. Between then and FY13, there has been an increase of two-and-a-half times in such outgo.

This mode undercut the older method of transferring money by routing it through state treasuries. The older system was supported at every stage by a robust tracking mechanism for expenditure. The reasons which were offered to develop the short-cut were that from the early years of 2000s, the states were in fiscal deficit and so plan funds from the Centre were often hijacked by them to meet their own ways-and-means needs. This logic does not hold good any longer. All the states are cash-surplus and finance the deficit of the Centre instead.

What has happened by parking such large sums of money with the implementing agencies is that the responsibility for control of waste and abuse of authority has become diffused. The auditor has found that a fat percentage of the recipient NGOs and others do not furnish implementation certificates for years. As a corollary, some of the sharpest criticism of the wounding up of the plan panel now came from these bodies.

The other aspect of the system was that key ministries that got large plan funds were, therefore, at the mercy of these organisations. If, for some reason, those organisations did not pick up the money on time, there was no fall-back investment plan.

For instance, in FY13, the aggregate plan budget of the central government went down by 20% from the budget estimates. Why This happened because the 10 major ministries which receive plan funds including HRD, agriculture, women and child development, health and drinking water supply had transferred more than 80% of their plan funds to autonomous bodies for these to develop investment plans. When some of that money could not be sent out within the year to the organisations concerned, it had to be surrendered.

Between 2009 and 2013, the aggregate spending on the seven flagship investment programmes of the government declined. In this context, one has to examine what the future investment strategy of the government of India will be, in the post-Planning Commission era.

The finance ministry, through the civil accounts department, will now have to claw back this humongous transfer mechanism and restore the oversight of the state governments. Some of it has already begun, by clipping the number of centrally-sponsored schemes. All of them need to be put in good shape eventually. The next set of changes at the central level will be to restructure some critical committees through which domestic investments are decided upon in the government. These are the expenditure finance committee, which is the first inter-departmental committee of secretaries in the government, and then, higher up the ladder, the public investment boardin the case of the railways, the extended board of the railways.

For both the Project Appraisal and Management Division in the Planning Commission evaluates all central sector projects acting as the institutional information bank. It sort of tries to figure out if the money is worth spending. Each of these has the member-secretary and secretary (expenditure) in the ministry of finance as their permanent members. Most of the investment decisions of the government were decided upon by these two committees, leaving only those above R500 crore to be decided by the Cabinet.

The Union ministries will have to figure out what the alternatives for this structure could be. One way could be to go the way of the road ministrythe Vajpayee government had delegated larger financial powers to the ministry and, eventually, to the National Highways Authority of India, releasing them from the need to approach the Cabinet or the two committees for each project. The ministry was given an omnibus clearance at the beginning of each financial year. It could be a good time to walk this decentralised route.