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The Rs 63,000-crore question

November 16, 2006 09:44 IST

Media stories over the last few days have referred to a report prepared by an expert group of the Planning Commission on the restructuring of Centrally Sponsored Schemes.

Essentially, these are public programmes, paid for by the central government but managed by state and local authorities. Over the years, there has been considerable debate over the effectiveness of this model, which suffers from what economists call "agency problems".

Since the implementing authority is not responsible for mobilising project resources, which need to be paid back, its commitment to the objectives gets weaker.

Many institutional solutions to this problem have been attempted, including matching funds, where the implementer is required to raise resources and accept conditions such that it receives additional funds only when project milestones are achieved.

There have been some gains from these, but the unavoidable conclusion about the general arrangement is that it is mostly money down the drain. Several constituencies benefit, of course, including the usual suspects - politicians, bureaucrats and contractors among them - but public good is not high on this list.

With such powerful vested interests involved in both the initiation and preservation of these schemes, they have proliferated. All told, there are 155 schemes, accounting for over Rs 63,000 crore (Rs 630 billion) of annual expenditure.

Some 25 of these are relatively large programmes, being implemented in several states. These include the Integrated Child Development Services programme, the Sarva Shiksha Abhiyan and the recently launched National Rural Employment Guarantee scheme.

The remaining 130 are relatively small, each below Rs 300 crore (Rs 3 billion) of annual allocations and collectively accounting for a little over Rs 8,000 crore (Rs 80 billion) out of the Rs 63,000 crore total spending.

It is these that the report recommends tackling head on, by simply terminating their funding. It is not that their agendas are either illegitimate or obsolete, for they include the National Programme for Control of Blindness, the Integrated Forest Management Scheme and Project Tiger; rather, their objectives are simply not being served.

From the central government's viewpoint, it is far better to allocate the freed resources to programmes that have some track record of delivery and ask the agencies that run the existing programmes to find resources and become fully accountable to the financiers.

The recommendations in the report will only be decided upon next month. It would not be cynical to predict that they will not be accepted. A number of central ministries will find themselves devoid of the patronage that these schemes provide, while state governments will have to look for new and onerous ways to fund schemes that have their respective constituencies.

And so, voices of resistance are already being raised. There is also some reason for discounting hopes of serious action, because the abolition of centrally sponsored schemes was first brought up by the Planning Commission in 1990, and has been re-visited periodically since then - without any corrective action taking place so far. History may now repeat itself.

Nevertheless, since fiscal correction and effective governance are creeds that have gained currency in recent years, credit should be given to the Commission for raising the issue and publicly advocating a step that will go to the heart of the country's fiscal problem.

Government spending is justified when it meets the criteria of process efficiency and outcome effectiveness. If it does not, no matter what the stated purpose of the programme, there is no justification for the expenditure. But, as important as it is, this is only a first step. There is no reason for the larger programmes to be exempt from similar, or even more stringent, scrutiny with respect to their effectiveness.
Business Standard
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