Some exaggeration and a large dose of not understanding how the Centre funds central schemes bypassing the state
With around R1,00,000 crore of money meant to be spent on plan projects lying unutilised in banks at any point in time, the central government is clearly guilty of being a bad manager of money?after all, that?s R8,500 crore of annual interest costs lost year after year. But, no matter how badly the government handles its finances, how did it manage to pile up debts of R90,000 crore to Uttar Pradesh without knowing it, going by the state chief minister?s astounding claim? And if it owes R90,000 crore to Uttar Pradesh, does it owe similar amounts to other states?
While that?s a frightening possibility, fortunately there?s a simpler explanation, one that has to do with the change in the way the central government funds central schemes like the Sarva Shiksha Abhiyan (SSA), for instance.
From 2006-07, the Centre through the Planning Commission has moved away from giving the major share of the plan funds earmarked for the states to the state treasuries directly. Instead, it sends the sum mostly as direct transfers to local bodies or non-governmental organisations. By 2010-11, direct transfers as a proportion of total plan grants were 58%. This creates a piquant situation.
The states are supposed to spend a matching sum on all central government schemes. For instance, in the education sector flagship scheme SSA, states like Uttar Pradesh are supposed to put in 50% of the spending as per the Eleventh Plan formula.
Now when the finance secretary of the state puts in the money from the state budget, he ought to know whether the Centre too has put in the matching contribution for the scheme to be a success. The Centre, to its credit, is putting in the money but since most of it is directly transferred to the educational bodies in Uttar Pradesh without a stop at the state treasury, there is no way for the state government to know about it. In this situation, if Akhilesh Yadav feels the Centre is selling him short, can one blame him?
What the Centre has done is little better than writing out cheques to a long line of beneficiaries. Since these are grants in most cases, there is no accountability. Now, when chief ministers are turning around to claim they were not kept in the loop, the Centre has very little evidence to show how and to whom the money was disbursed.
Among the seven major central government schemes running as of now, the percentage of money given out as grant is abnormally high. For the combined head of school education and literacy (of which SSA is a part) of the total central spend of R34,129 crore in 2010-11, 100% was doled out as grants. The Uttar Pradesh government or Mamata Banerjee of West Bengal will obviously have no clue to whom and for what purpose the money has been spent. Yet, for the same year, the state governments were asked to make a matching contribution at the rate of 50% of the total expenditure allocated for the scheme.
But would all this still amount to R90,000 crore of matching grants Akhilesh Yadav says the Centre owes him, even if nominally. The answer is no. The total support for all state plans by the Centre for the five years from 2007-08 to 2011-12 is R3,97,417 crore as per budget papers. Eliminating the share of capital investment from all plan funds, the share of Uttar Pradesh from all central support for this five-year period works out to less than R60,000 crore. But that will mean assuming the state got not even a single rupee from the Centre. Obviously, some of the zeroes in the projections have got sprayed around rather liberally.
So when Akhilesh Yadav asks the Centre for its missing contribution in plan funds, Montek Singh Ahluwalia will have the numbers to reject his claim on paper. But what his team will have difficulty in justifying is the rationale for the fund allocation mechanism that keeps the state governments mostly out of the picture.
One can imagine that the initial thrust for the arrangement made by the UPA-1 government was prompted by a fair concern that money was not reaching the poor as quickly as it should. The outdated state disbursement machinery was simply not geared to handle the pace of spending.
But now most of the states, including Uttar Pradesh, have overcome those glitches. The treasury management operations of several of them outclass even the Centre.
In these circumstances, it makes sense to load the central funding of all schemes onto the state budgets. This means the big budget central government programmes should be stapled to the state plans. The change should be accompanied by a scrutiny of the speed at which the states can disburse money at the front line. Since the banks have all established core banking solutions, they can be roped in as the treasury managers in an IT-enabled framework. Besides, it is unthinkable that the Centre can expect to bring about any mass-scale changes in billions of people with hardly any role for the states to perform.
Already, reports coming in from different parts of the country show that the local and non-governmental agencies are getting choked with the level of compliance that the usage of the central government money requires. They are responding by either not sending in their usage vouchers or submitting incorrect ones. Some of these were documented in the CAG reports for 2011-12. This means the disease that was sought to be addressed through the bypass has returned. Obviously, the answer cannot be more bypasses but to make the governance level stronger at the core. The states have learnt the key lessons and they can be given the responsibility to perform.
subhomoy.bhattacharjee@expressindia.com