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Business News/ Opinion / Online-views/  Pull, not push, to open up spending

Pull, not push, to open up spending

The government needs to build a central expenditure hub linked to multiple expenditure units so that it can directly pull money into its account

A week ahead of the Union Budget 2015, the question of allocations and potential budget cuts is already making headlines. Photo: AFPPremium
A week ahead of the Union Budget 2015, the question of allocations and potential budget cuts is already making headlines. Photo: AFP

In the run-up to every budget season, public debate on social sector schemes inevitably turns to the question of the paltry sums allocated. True to script, the question of allocations and potential budget cuts is already making headlines. What gets relatively less attention is the issue of how well the government spends even the limited sums of money that it does commit. In recent years, there has been some debate on the question of outcomes—especially in sectors like health and education. Indeed, this annual budget series is an effort to engage with precisely this question.

While we worry about outcomes, there is another serious gap that needs to be addressed — the government’s failure to move budgetary allocations through the administrative chain. Indeed, for the average frontline administrator, annual budget allocations are a meaningless figure for she has no guarantee of when and how much of this allocation will in fact reach her bank account.

Since 2009, Accountability Initiative’s PAISA study (Planning, Allocations and Expenditures, Institutions: Studies in Accountability) has been tracking money flows in elementary education. In not one of the eight districts across six states that we have studied did we find a district that received its entire allocated budget within the financial year. For the money that does reach, much of it makes its way to the district half way through the financial year. Even districts in well-functioning states like Maharashtra and Himachal Pradesh face this unpredictability.

Once money reaches the district, it can take two to six months to travel from the district bank account to the schools, where expenditure actually takes place. As we discovered through an annual national PAISA survey, for over 50% schools in India, even small grants that schools are expected to receive annually for essential purchases, are credited to their bank accounts somewhere between November and December, well over halfway into the school year.

The problem starts at the top. The current expenditure management system of the government is designed as a push system with a hierarchical chain of command. Accordingly, every expenditure authority is charged with releasing lump sum instalments to the next level of the administration. The release of these instalments is based on multiple levels of authorization and clearances.

For instance, in the centrally sponsored schemes (which currently are the primary means of financing social sector programmes), the government of India only releases the bulk of its funds after state governments meet expenditure conditions. To illustrate, in elementary education, the Sarva Shiksha Abhiyaan (SSA) requires state governments to contribute 35% to the total annual budget. The bulk of the Centre’s releases to states are conditional on state governments’ releasing their share and furnishing expenditure related paper work. Delays in either case can delay the entire cycle of releases. There are instances where SSA authorities in the states received more than half their annual allocation in the last quarter of the financial year. And it’s not just education. Even the prime minister’s flagship scheme, the Swachh Bharat Abhiyan, only released 15% of its annual allocation by September last year.

The consequences of these delays weigh heavily on the exchequer. One of the necessary conditions for ensuring outcomes against public spending is that expenditure be aligned with needs and priorities on the ground. But the late arrival of money coupled with the Indian bureaucracy’s passion for paperwork (in this instance, filling up utilization certificates), makes for a deadly cocktail of wasted expenditure. Over the years, we’ve met enterprising headmasters who have used their money to buy fire extinguishers for schools that are yet to construct their buildings; for desks and chairs when they already have them; and to whitewash walls even when the walls look perfectly clean. Administrators that lack imagination just allow their money to sit idly in banks or, much to finance departments’ delight, let it lapse right back to the state and central treasury.

It is instructive that India’s National Rural Health Mission—which has made headlines for being at the receiving end of budget cuts—has out of a total budgetary allocation of 106,575 crore, an unspent balance of 22,401 crore, or 21%. Perhaps the most egregious consequence of these delays is that it has served to legitimize a culture of inaction. After all, every level of the administration can justifiably claim to be at the receiving end of these unpredictable money flows.

There is, however, an easy way out of this mess. All the government needs to do is to convert the current push mechanism into a simple, real-time pull system. To do this, the government needs to build a central expenditure hub linked to multiple expenditure units (ministries, departments, districts, facilities) so that the expenditure unit can directly pull money into its account, just when it needs it.

If a panchayat president needed money to pay a contractor, all she would need to do is to place an online request to the central hub and attach verification documents like a photograph (with GIS location and time and date), the engineer’s sanction and a completion certificate. The central hub would initiate an automated sweep every night and based on the approvals, trigger the fund release directly in to the contractor’s bank account. All this within 24 hours.

Not only will an online pull system ensure that money gets where it needs to, on time, but will also ensure transparency. Anyone from the district collector to citizens can track the flow of money in real time. What better way to check graft and ensure efficient spending?

None of this is new. Several committees, including the Nandan Nilekani technical advisory group set up in 2011, have made similar recommendations. Narendra Modi’s objective of greater decentralization to states and cooperative federalism will only be met if different arms of the administration are freed from the whims and fancies of those who control the treasury.

Money must reach where it needs to and in real time. This is the minimum of maximum governance.

Yamini Aiyar is a senior research fellow at the Centre for Policy Research and director of the Accountability Initiative. T.R. Raghunandan is an advisor with the Accountability Initiative.

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Updated: 23 Feb 2015, 11:59 PM IST
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