Ahead of the Union budget, the air is rife with speculation about desperate plots, hatched in the corridors of North Block, to fill the country’s gaping fiscal hole. Some news reports suggest imminent cuts in spending on strategically important sectors such as roads and defence. Others suggest tax-raising measures.
Of all the ideas that have been mooted, the proposal to trim the list of centrally sponsored schemes is noteworthy. So-called welfare schemes have exploded in size over the past few years. During 2007-11 (11th Plan), the number of centrally-sponsored schemes grew 50% to 147 and the expenditure on them grew 187% to roughly Rs.6.6 trillion. “Central assistance” schemes, close cousins of “centrally sponsored” ones, have grown in a similar fashion. Vague and often overlapping objectives, poor design, and weak monitoring have turned many of these schemes to scams. While the Centre draws up such schemes based on its whims and fancies, it is state governments which implement them. It becomes easy for both sides to escape accountability in such a set-up.
The classic example is the great Indian toilet scam. The Total Sanitation Campaign, a Union government programme, claimed to have constructed 87 million toilets across Indian villages over the past decade. The 2011 census results, however, found that the total number of toilets was 52 million (including toilets constructed much earlier), indicating that at the very least 35 million toilets had gone missing! The Union government passed the buck on to the states.
India’s immediate fiscal stress may be prompting a rethink on such schemes, but there are other good reasons why central schemes should be radically restructured.
Firstly, centrally planned schemes are an anachronism in an economy that has moved away from a dirigiste regime. The idea that a handful of wise experts in Delhi can, or should micro-manage “welfare” in a country as diverse as India has passed its sell-by date.
Secondly, centrally-sponsored schemes largely target sectors which are not central responsibilities; rather these are state subjects. What started as ad hoc interventions in the initial phase of planning came to be institutionalized by Indira Gandhi, in her quest for greater power. Successive governments since then have fallen prey to the allure of her populist legacy. Despite several protests from state leaders starting from the late 1960s itself, and a plethora of committee reports over the past four decades, which argued for redressing the balance, ad hoc central interventions continue to be the norm. The latest of these reports was the 2011 report by Planning Commission member B.K. Chaturvedi. Applying extremely conservative yardsticks, the report argues that the number of centrally-sponsored schemes should be reduced to 59.
Third, weeding out unnecessary schemes and merging the rest into a few key priority areas will help save public resources and pave the way for an expanded cash transfers programme, as an earlier column argued.
While a part of the saved resources should be transferred to states, the rest can be used to fund a direct transfer to citizens (a negative income tax), which will provide basic income support, and allow each citizen to spend according to her priorities.
A road map for welfare consolidation thus has to be an integral part of any credible road map for fiscal consolidation. In the absence of such restructuring, gains in conserving public funds will be ephemeral. Implementing the Chaturvedi committee recommendations should be the first step, but we must move beyond that. We need foolproof rules that forbid the Centre from launching new schemes that infringe on the state list without the prior approval of a body such as the National Development Council.
We must also examine if the so-called flagship schemes of the current government deserve their holy cow status. It is nobody’s case that India should cut spending on important public goods such as sanitation and healthcare. Given India’s history of below-average spending on these sectors; we may well have to spend much more. But it might be better to leave the design of such programmes to states. The evidence from recent years suggests that major improvements in institutional and social outcomes have been because of state leadership rather than central schemes. The Centre should stop being a bad and overbearing project manager, and refashion itself as an enabler and an effective monitor. It should not take a decadal census to realize that funds for toilets were flushed away.
A radical overhaul of welfare spending is unlikely to happen in a day, or even during the term of the current government. But the government can at least make a start, using the current crisis as an opportunity to draw a road map for overhaul.