In my previous blog, I had presented data on the large sums of unspent balances in key social sector schemes. I had argued that inefficiencies in our planning, budgeting and fund flow systems causes a sequence of reciprocal cause and effect relationships. Further, it results in a variety of “coping” mechanisms adopted by different level functionaries to adapt to these inefficiencies. In today’s blog, I want to unpack this a little more and also point to a few solutions.
The Rainy Day Syndrome
A deep dive into the types of activities which have the largest unspent balances, one usually sees a pattern. First is of course infrastructure: most of the unspent money under Rashtriya Madhyamik Shiksha Abhiyan (RMSA) is infrastructure. Low completion rates of school construction (only 17% of sanctioned works since inception till October 2014) means low utilisation of funds. Similarly for National Health Mission (NHM), hospital strengthening or actual new construction usually constitute a significant part of unspent balances.
Second, are the softer items which require some advance planning: untied funds under NHM, innovation grant or learning enhancement programme – under SSA, Information, Education and Communication (IEC) under Swachh Bharat Mission (SBM).
Given the uncertainty of fund flows – one doesn’t actually know how much money will reach (of total approvals), or when. There is thus a tendency to save for the rainy day by prioritising routine expenditures such as payment of salaries or beneficiary entitlement schemes (uniforms, textbooks, scholarships etc.) often at the cost of softer items. From the perspective of the state or district – this makes complete sense. If I don’t pay the teacher or the doctor, the entire education or health system would break down. It further inculcates a culture of keeping a buffer (of funds) in the kitty to mitigate against unpredictable fund flows.
Coming to infrastructure – here one explanation is literally many rainy days. The timing of fund flows to the last mile often clash with the onset of the Indian monsoons across most parts of the country. At a best case scenario, even if funds arrive in schools or blocks by June, the onset of monsoons makes it virtually impossible to start construction between July to September or even October. And before you know it, you are already planning for the next fiscal year.
Blind Man’s Bluff
Remember the game we played as kids –the player who is "It" is blindfolded, and is trying to tag others to exchange places. This analogy explains some of the other consequences. On the one hand, due to lack of transparency and incomplete information everyone is often groping in the dark, trying to “guess” how much expenditure will actually be undertaken by next year or what the requirements would be. Moreover, like the game, as there is no consolidated database or management system, each level of government tries to “tag” or make “it”, the other level. To give an example, a few years ago, I filed a RTI asking for block level releases and utilisation of the Mahatma Gandhi National Rural Employment Scheme (MGNREGS). My request was forwarded by the Ministry to states who forwarded it to districts who further forwarded it to blocks! By the end of it, I received over 1000 responses (in hard copy!) from different blocks in the country.
So what’s the solution?
Changing the Planning Cycle
Bibek Debroy, Member of the NITI Aayog made a case for moving the government’s fiscal year, to November, around Deepavali.
If that is too radical, there is still a strong case to be made for changing the infrastructure planning cycles to a 2-year cycle. Surveys of schools conducted by Accountability Initiative in 2013 found that it can take anywhere between 11 months (Nalanda) to 15 months (Purnea) to construct an additional classroom. In addition to the monsoons playing spoilt sport, bottlenecks such as complex paperwork, approvals from different authorities, utilization certificates, technical sanction and vacancies in staff all make the completion of quality construction virtually impossible within a year. By creating 2-3 year plans for construction and reporting accordingly, this rush to spend or accumulation of unspent balances could substantially decrease
Real Time Transparent Public Management System
The next important step is improving our financial management system. Steps have already been taken on this. The Public Finance Management System (PFMS) for instance, is a great idea that has been adopted to different degrees across states. Designed as a web-based online transaction system for fund management, it allows registration of bank accounts of all implementing agencies into the portal. Once registered and verified, e-payments can be done to implementing agencies or even beneficiaries. It’s almost like our own online banking system, where we can register a beneficiary and transfer funds through NEFT. There are many advantages of this. First is the fact that there is an actual consolidated portal on finances. Second, it allows users to know the status of unspent balances– right down to the last mile, thereby making planning easier and more efficient. Finally, if coupled with other innovations such as e-budgeting or automatic approvals and e-governance, it could lead to greater predictability in fund flows.
Given that social sector budgets are likely to continue to be constrained; time is ripe for fixing our planning, budgeting and fund flow systems.
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