Yamini Aiyar. Centre for Policy Research

But will these increases result in meeting the challenge of inclusive development? No doubt, inclusion requires increased allocations. But this is only half the battle. The real challenge for India is to ensure that increases in allocation result in effective spending and, therefore, improved outcomes. This requires effective governance and this is where Budget 2010 falls short.

The crux of the problem with governance of India’s social sector is an incentive structure that significantly compromises accountability for performance. Take the issue of expenditure. Year after year, large amounts of money remain unspent, as reported by the government itself. And yet, year after year, the annual budget makes increased allocations with little consideration for expenditure performance–where then are the incentives? This is exacerbated by the fact that information on expenditures, in real time, is rarely available. Moreover, there is very little information and effort made to monitor outcomes.

The problem of poor spending is inextricably linked with weaknesses in the nature and form of the implementation structures. In the current system, where Centrally sponsored schemes dominate social sector spending, funds arrive at the local level tied to specific guidelines, allowing little flexibility to accommodate local needs and priorities. Consequently, expenditure rarely reflects the real needs on the ground.

Another critical weakness is the incentive structure at the local level. Teachers and doctors, for instance, are hired, paid, monitored and, therefore, accountable only to state governments. It is, of course, unrealistic to expect that the state government, which is far removed from the schools and public healthcare centres, could be effective monitors. This is why absenteeism is so high—25% among teachers and 40% among doctors.

Worse, as salaried government employees, they are paid regardless of performance. What, then, are the service providers’ incentives? Think about it—if you are paid a salary, not monitored by supervisors, cannot be fired or have your pay reduced under any circumstances, would you bother showing up for work? Under these circumstances, if the Budget was to really ensure real inclusion, it would have seriously considered raising allocations with real administrative reforms. This would have included making provisions for block grants to panchayats, and increasing their powers to monitor and hold local service providers accountable.

The 13th Finance Commission made some far-reaching recommendations aimed at strengthening local bodies. Budget 2010 could have leveraged this to strengthen local governments’ role in implementing social sector programmes. Not doing so is a real opportunity lost. Local governance apart, Budget 2010 could have introduced other reforms such as linking pay to performance and creating more effective systems for monitoring outcomes.

In sum, the Budget is much as expected. Some increases in allocation, but increases that are unlikely to have any real consequences in the absence of real governance reforms. In his maiden speech on becoming prime minister, Manmohan Singh promised that the UPA would be a government with a real reform agenda. “No development agenda", he said, “can be met if we do not reform the instrument in our hands." Sadly, one term later, the instrument remains much the same.

Yamini Aiyar is a senior research fellow and director of the Accountability Initiative of the Centre for Policy Research.

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