The persistent problem of unspent funds is a symptom of a deeper malaise

Published in Hindustan Times | By Yamini Aiyar |On January 3, 2018

Last week, a PTI report that only 7% of the Rs 9,860 crore allocated to 60 cities under the Smart Cities mission had been spent, made headlines. This news comes close on the heels of a Comptroller and Auditor General (CAG) report on the Clean Ganga Mission that pointed to an unspent balance of approximately Rs 2,500 crore in 2017. And while politicians have been quick to draw attention to this underspending, the truth is, this failure to spend is not unique to the Modi government. The predecessor to the Smart Cities Mission, the Jawaharlal Nehru Urban Renewal Mission, suffered from the same malaise.

This persistent failure to spend is a direct consequence of India’s broken governance structures, but there’s a paradox. The Indian State is grossly under-resourced particularly in critical areas like health, education, nutrition. Yet, it is precisely in these areas that underspending is high.

Consider this. India spends 1.4% of GDP on health and 3.7% of GDP on education — far lower than other developing countries. Yet, a CAG report found an unspent balance of Rs 9,509 crore for the flagship National Health Mission in 2015-16. And it’s not just health. Unspent balances from a wide array of social sector schemes, amounting to approximately Rs 1 lakh crore according to one estimate, are languishing in banks across the country.

What explains this? The bureaucracy’s culture of centralisation and penchant for paper work that confuses accountability for expenditure with accounting on paper, are the primary culprit. Budget allocations for social sector schemes at the district and local government level are made on the basis of norms set by the central and state governments. And while scheme guidelines mandate local authorities to make plans and exercise discretion in spending, in practice, as the Centre for Policy Research’s Accountability Initiative’s studies highlight, districts plan on the basis of pre-designed templates and spending is linked to financial orders that tie funds to specific activities. This renders local planning meaningless.

The centralised approach is rationalised as necessary for accountability but, in practice, it imposes burdensome paper work as officers struggle to fill templates and meet accounting requirements. Any attempt to exercise financial discretion requires even more paper. Consequently, if local conditions are not suitable to meeting prescribed expenditure, the system is incentivised to allow funds to languish.

The movement of funds within the administrative hierarchy is linked to the fulfilment of conditionalities with multiple levels of authorisation and clearances. Delays at one level have a knock-on effect through the system. It is not uncommon for the bulk of funds to reach bank accounts just before close of the financial year on March 31. Moreover, the process of fund transfers is so opaque that implementing officers have no prior information on the timing or quantum of or funds they are likely to receive through the year. Faced with these constraints, delaying spending is, in fact, a rational strategy.

This may come as a surprise to many but India has one of the lowest rates of per capita public sector employment of any G20 country. Staff shortages are particularly sharp at the frontlines. A 2017 study by political scientists Devesh Kapur and Aditya Dasgupta, surveying 426 Block Development Officers (BDO) across 25 States, estimates that the average block office is staffed with just 24.5 full-time employees per 100,000 rural residents. Strikingly, nearly 48% of all sanctioned positions were reported vacant.

The problem of spending is not just about staff shortages; it’s also about the skills and capabilities of officers to do what is required of them. India’s frontline bureaucracy is increasingly required to perform an array of complex tasks for which it is grossly under-skilled. Consider the Swachh Bharat Mission where officers are expected to “motivate” toilet usage through behaviour change. To do this, the scheme has allocated up to 8% of its budget for awareness campaigns. But this is not an easy task. Building an awareness programme requires, at minimum, for bureaucrats to engage and deliberate with citizens and understand their preferences to develop appropriate campaigns. Unsurprisingly, in January 2017, a mere 1% of the budget allocated for awareness-raising had been spent.

The persistent problem of unspent balances is a symptom of the deep crisis of capability that governance in India faces. Resolving this crisis requires serious and far-reaching investments in administrative reforms. This is what the political debate in light of the smart cities controversy ought to be focusing on.

Yamini Aiyar is president and chief executive, Centre for Policy Research

The views expressed are personal

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