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Business News/ Opinion / The state is writing cheques it can’t cash

The state is writing cheques it can’t cash

India's poor state capacity is often blamed on inadequate government spendingbut government inability to use allocated funds is also to blame

The Narendra Modi government’s minimum government, maximum governance promise is a good foundational principle. Now it needs to deliver. Illustration: Jayachandran/MintPremium
The Narendra Modi government’s minimum government, maximum governance promise is a good foundational principle. Now it needs to deliver. Illustration: Jayachandran/Mint

On the 2014 general election campaign trail, Narendra Modi talked up the need to save the Ganga. It was a shrewd move given the river’s economic and cultural significance. But the Clean Ganga initiative that he launched after the Bharatiya Janata Party’s (BJP) electoral victory continues to fail to deliver. A Comptroller and Auditor General (CAG) report made public earlier this week points out that the approximately Rs2,500 crore in the Clean Ganga Fund set up by the Modi government remains unutilized. This failure points to a long-running problem in Indian governance—the inability of Union ministries and state governments to cash the cheques the Centre writes.

This paper has pointed out the cascading problems caused by poor state capacity. This is often blamed on inadequate government spending. The criticism has merit. Consider vital human development areas such as education and healthcare. In the 2017-18 Union budget, education spending came to about 3.71% of gross domestic product (GDP), a considerably lower percentage than, say, peer nations in the Brics (Brazil, Russia, India, China, South Africa) grouping. This is a persistent trend. Likewise, government healthcare spending, taking both the Centre and states into account, has hovered around the wholly inadequate 1.5% of GDP mark.

But this is an incomplete perspective. The problem is not merely inadequate government expenditure. It is also a failure to absorb and deploy allocated resources at every level of government.

Education, again, is a good example. A CAG performance audit tabled in Parliament in July this year pointed out that despite persistent demands for more right to education (RTE) funds from the Centre, state governments have failed to spend over Rs87,000 crore of the allocated corpus over the past six years. Between 2010-11 and 2015-16, the underutilization ranged from 21% of allocated funds to 41%. This showed, the audit noted damningly, “poor planning and execution by state governments, resulting in non-accomplishment of goals to provide infrastructure".

Similar patterns can be seen across budget heads. The National Clean Energy and Environment Fund (NCEEF) has been the backstop for the Modi government’s strong push to renewable energy. In April this year, the government diverted the Clean Energy cess on coal production, meant to be funnelled to the NCEEF, to compensate states for revenue lost under the goods and services tax—then appropriated an unspent Rs56,700 crore from the NCEEF as well. The corpuses for other once-prominent schemes like the Nirbhaya Fund and Beti Bachao, Beti Padhao remain largely untapped. And programmes like the National Rural Health Mission and Integrated Child Development Services have often failed to use their allocated funds in recent years.

The reasons for such failures are broad and diffuse. State budgets have not always responded adequately to the increased devolution of funds starting from the 2015-16 Union budget. There is often a substantial mismatch between fund allocation and outlay planning at various levels of implementation. The Centre for Policy Research’s Accountability Initiative has pointed out that the fund release timetable for the fiscal year can be a problem as well—in, for instance, healthcare, when the Centre has backloaded the release.

Nevertheless, there are a number of lessons here. Firstly, the reliance on cesses must stop. They are meant to be budgetary band-aids—temporary levies to address a pressing need. When they become long-term measures with more added steadily, they become a form of regressive taxation. The fact that in a number of areas, the funds thus collected are unutilized, wasted or diverted—witness the coal cess or the Delhi government’s green fund to combat air pollution—adds insult to injury.

Secondly, reducing the number of ministries is a must. The proliferation of unnecessary silos and the inevitable turf wars that come with it create planning and implementation hurdles. Given the BJP’s Lok Sabha strength and relatively low reliance on alliance partners, the Modi government had a good opportunity to do so. It has squandered it.

Thirdly, the Central and state governments must follow through with devolution of funds as well as planning and implementation at both the panchayat level and for city governments. This is not foolproof. Again, the Delhi government’s green fund is a case in point. So is the financial capital’s Brihanmumbai municipal corporation—the richest in the country but with an abysmal record when it comes to using allocated funds in a city crying out for improved infrastructure. Nevertheless, devolution puts funds where there is the highest chance of their being used effectively.

Lastly, positive rights such as the right to education and right to food might make for good optics, but in the absence of the infrastructure and capacity to absorb and spend resources, they give rise to numerous boondoggles.

State capacity is not built in one government term. But the Modi government’s minimum government, maximum governance promise is a good foundational principle. Now if only it—and succeeding administrations—could deliver.

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Published: 21 Dec 2017, 11:52 PM IST
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