Finance minister P. Chidambaram has questioned the Planning Commission’s practice of regularly allocating or provisioning less for the government’s spending on certain programmes at the time these numbers are written into the Union budget, and then raising the amounts later in the year, thereby threatening the government’s ability to meet its fiscal deficit targets.
According to Chidambaram, this also affects the way the Union government manages its books, especially in a year when it is under pressure to meet its targets. In 2007-08, the commission has upped the share of the Centre’s spending on these programmes run by various states, or gross budgetary support as it is called, by 41.74%, from the initially budgeted Rs52,172.36 crore.
“The excess allocation could actually be considerably higher as the figure does not include the requirement of UP (Uttar Pradesh) and Goa,” the finance minister said in a letter addressed to Montek Singh Ahluwalia, deputy chairman of the commission.
The commission, India’s apex planning body, is the agency that effects transfer of money to the states for the so-called priority and social sector programmes. Every year, the commission puts up an indicative sum to the finance ministry ahead of the presentation of the Union budget in February.
Later in the year, the commission finalizes the actual spending on these programmes for the states and usually revises its original numbers upwards. This additional spending requires approval of Parliament and the finance ministry moves a supplementary demand for grants.
An official at the commission said there was bound to be a difference between the original and final numbers. “Projections and actuals can differ and that is why there are provisions of supplementary budgets and reappropriation,” said A.N.P. Sinha, senior adviser at the Planning Commission.
The process of finalizing numbers involved consultations with the state governments and ministries in charge of specific programmes at the Centre, he added. He declined to comment on the letter from the finance minister, though.
However, this letter may have been prompted by the growing difference between projections and actuals, as the initial and final numbers are referred to in the planning and budgetary processes.
“Till 2004-05, there used to be minor differences between the estimated and actual allocations, so there was no cause for worry,” said N.J. Kurian, former adviser, Planning Commission, and director, Council for Social Development, a think tank.
In his letter, the finance minister has also indicated that his ministry would be hard pressed to release any more funds this year for externally-aided projects (EAP) in states since the money available under this window has been exhausted.
“Demands for further releases based on the expenditure for EAP will certainly arise in the next five months. However, I am afraid that for the current year, it would be difficult for the ministry to provide any further additional resources for EAP, during the course of the year,” he wrote.
State governments avail assistance from external donor agencies such as the World Bank, United Nations Development Programme (UNDP) and the Department for International Development (DFID) under EAP for developmental projects.
All money meant for such projects comes into the Central exchequer, which then hands it out to the states, depending on when they want it.
The Centre arrives at an estimate of the amount it will have to disburse through this window, based on initial estimates from the commission. It uses the remaining amount to balance its own books.
If the commission revises the amount states will need under the EAP window, the Centre’s own budget management plan goes awry.
In his letter, Chidambaram wrote that the commission has, in the last three years, underprovisioned for EAP under specific programmes.
However, experts in the area of state financing say there is nothing wrong in states asking for more for development projects. “I don’t think the states are asking for too much; neither do I think the Planning Commission is going overboard in allocating higher amounts...,” said a New Delhi-based expert, who did not wish to be identified.