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An important lesson from the recently concluded and much watched Bihar election is that a state’s good performance in development and governance pays political dividends. Bihar under Nitish Kumar did just that. From increasing social sector expenditures over 8 fold from Rs. 6100 crores in 2004-05 to Rs. 47210 crores by 2013-14(RE), to launching schemes focusing on health, education and welfare of scheduled castes and tribes, Bihar epitomises the role of the state in delivering basic services, especially to the extremely poor.
However, delivering social sector schemes in India, over the last decade has been largely influenced by central government financing. With an explosion of Centrally Sponsored Schemes (CSS) designed and framed by the Centre, States have been followers, with little flexibility to plan and implement their own priorities. The situation is worse for fiscally weaker states like Bihar, which have a greater dependence on funds from the centre. In 2014-15, as much as 30% of Bihar’s revenue came from central grants, and much of this was from CSS especially for education and health. In fact, with Bihar’s Sarva Shiksha Abhiyan (SSA) budget increasing from 900 crores to over 7700 crores between 2005 to 2014, SSA constituted over 50% of funds for elementary education.
But while Bihar has been one of the largest recipients of CSS money, especially for education and health, it is also one of the poorest performing states as far as utilization is concerned. (See Graph below)
Source: SSA Portal
Contrast this with its acclaimed state schemes such as cycles for girl students, increase in vaccination coverage and free drug distribution. How does Bihar deliver so much better on its own schemes, but remain unable to utilize CSS money? The answer lies more in problems with CSS scheme design such as rigid guidelines, inefficient planning and delayed releases (as previously discussed) and less in terms of implementation capacity.
The changes in fiscal devolution following the implementation of the 14th Finance Commission provide a significant opportunity to radically change the old paradigm of a one-size-fits-all approach. The consequent changes in patterns of funding allow for a more flexible and state-centric approach to allocation of central resources.
Recognising the need for change, the Chief Ministers' Sub-Group of NITI Aayog on Restructuring CSS submitted its report to the Prime Minster last month. While the report is yet to be made public, according to media reports, recommendations include a further reduction in number of CSS from 72 to 30 and a division of schemes into core schemes, including legislatively-backed schemes such as MNREGA, Swachh Bharat Mission and Mid-Day Meals, and optional schemes for social inclusion.
Reduction in the number of CSS is an important step. However, for true flexibility, significant changes would be needed in scheme design, specifically planning and budgeting systems.
We need to look at a post-CSS model of fiscal transfers for the social sector, specifically health and education. This new architecture should have two key elements: a) states should be able to set their agenda collaboratively with the centre and leverage money from the centre accordingly, and b) the centre should allocate monies on the basis of performance on agreed metrics, and reward better outcomes. How the states achieve these outcomes should not be micro-managed, and instead the Centre can provide technical assistance if and when needed.
This redesign is likely to foster an ecosystem of innovations in service delivery, and states would be encouraged to share and learn from each other.
Small steps towards building this ecosystem have already been taken. In August, the Department of Administrative Reforms and Public Grievances (DARPG) hosted a national workshop on best practices in citizen-centric governance. The workshop showcased state interventions - from Madhya Pradesh’s Lado scheme for eradication of child marriages, to Chhattisgarh’s Fulwari scheme for maternal and child health. With similar exercises done more frequently – perhaps even Kerala and Gujarat can learn lessons from Bihar’s model of development!
(With inputs from Dr. Anit Mukherjee, Centre for Global Development, Washington DC)
Avani Kapur works as Senior Researcher: Lead Public Finance, Accountability Initiative at Centre for Policy Research, New Delhi. Her work is focused on public finance & accountability in the social sector.
Avani tweets as @avani_kapur