Strengthen state capacity: This is a must if budgeted funds are to be used effectively for fostering growth

April 06, 2021 5:45 AM

The paradoxical nature of India’s state capacity has confused many social scientists.

IndiaWith state governments reluctant to reintroduce strict lockdowns, the economic impact will be much less severe than in the second quarter of last year.

By Vibhav Mariwala & Kadambari Shah

This year’s Union Budget was commended for its approach to helping India recover from the Covid-19 pandemic and the subsequent economic slump. However, while the Centre has promised economic stimulus, government spending without attention to building adequate state capacity to effectively use those funds will arguably not achieve the desired impact. We refer to state capacity as the state’s ability to provide for its citizens.

During 2020 Budget, it was reported that the Centre did not spend 34.9% of the assigned funds in the preceding FY; the average magnitude of unspent funds is usually greater at the state and local levels. Also, government allocations are often not aligned with actual spending, i.e. there is disconnect between fiscal allotments and development outcomes associated with that budgetary outlay.

For example, the Pradhan Mantri Awas Yojana (PMAY), the flagship affordable housing scheme of the housing ministry. In 2020, the scheme received an 8%-plus boost, up to Rs 27,500 crore from Rs 25,328 crore in the previous year. In 2015, the PMAY, combined with the Smart Cities Mission and the Atal Mission for Rejuvenation and Urban Transformation (AMRUT), was instituted to provide a fillip to urban growth and quality of life in the cities. As of 2019, however, at most 20% of the central allocations for these three schemes had been utilised. These schemes’ targets have been lagging behind schedule; there appears to be a mismatch between funding earmarks and results. This is not to generalise and say that all schemes are poor performers; almost every year, the MGNREGA spends practically all its allocated money and results are evident with rural households claiming employment benefits, indicating strong demand for the initiative.

While there are several reasons for underutilisation, lack of state capacity is a prominent factor. In a recent paper ‘Why Does the Indian State Both Fail and Succeed?’, political scientist Devesh Kapur investigates why the Indian state succeeds in some cases, such as in executing elections, but is unable to fulfil basic quotidien functions including providing welfare payments, primary education and sanitation. The paradoxical nature of India’s state capacity has confused many social scientists.

The Indian state is big in some aspects, but small in others. For instance, it employs more people than the population of Singapore and Belgium combined. But this is still only 2% of India’s population—and almost every department across levels of government has vacant positions that urgently need to be filled. From 1991 to 2011, India added over a billion people to its citizenry, but civil services employment during this period decreased. There is already a shortage of bureaucrats; due to vacant positions compounded with civil servants’ short tenures, long-term progress gets hindered. For instance, an IAS officer spends an average of 16 months in a single posting. When this phenomenon is coupled with multiple duties on multiple portfolios, spending budget outlays is not an easy task.

For effective utilisation of funds, state capacity needs to be strengthened. We outline three key policy recommendations. First, to help public officials make informed decisions quickly, the quality and quantity of data needs to be expanded. Several government departments have their own dashboards, but they are not always regularly updated and information does not necessarily translate into evidence-based policymaking. Good data, to an extent, can counter lack of personnel, provided the data is used effectively.

Second, in addition to increasing lateral hires, training needs to be boosted across levels of bureaucracy. For instance, the Integrated Government Online Training (iGOT) platform that was set up to train frontline workers during the pandemic can be expanded in the post-pandemic world to provide easy-to-access training to civil servants. It can ensure bureaucrats are assessed on their abilities more frequently and they can identify areas where additional training and guidance is required. Third, further decentralisation of fiscal powers will help local governments, which are charged with most day-to-day administrative matters, rapidly respond to situations instead of being dependent on central transfers alone.

Instilling state capacity needs to be central to India’s growth plan for the next few decades if budget intentions are to be translated into effective policy action. Research shows a positive relationship between high levels of capacity and the development outcomes of a country; the effective use of the budget’s allocations through building a more capable state can help achieve its goals of development and economic growth.

(Mariwala and Shah are, respectively, senior analyst and senior associate at IDFC Institute, Mumbai)

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