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Resource centre on India's rural distress
 
 

Monitoring government spending
-Live Mint

High on hype, the budget speech of the Union finance minister today is merely a statement of account. As India’s economy diversifies—with the private sector playing an increasingly important role—this annual feature has assumed much lower salience. Not only have fiscal policies lost the space they enjoyed in earlier years, even major policy announcements are restricted to being mere statements of account. Examples from other arenas include “activism” on the part of the Reserve Bank of India, the new manufacturing policy and export-import policies.

One important reason for budgets and fiscal policies losing their relevance is due to their silence on the quality of spending or the outcome of money spent. There is virtually no information, or very little of it, on how well the money is spent. The quality issue is as important as the quantity one if there has to be some prioritization of government resources. This is all the more true in a situation where the fiscal deficit is threatening to go out of hand and there are obvious signs of the economy slowing, making it difficult to increase the resource base.

Precisely because of these concerns, there is now clamour to cut subsidies and reduce government expenditure. But how does one decide what kind of expenditure needs slashing and what needs to be raised? The argument for reducing subsidies has always been that they are unproductive and that they involve high levels of corruption and leakages.

One commonly cited figure of corruption in public spending is the famous remark by Rajiv Gandhi, claiming that only 15% of the government money reaches the public. It is not clear what was the basis of this number and whether it was for a particular programme or for all government spending. In any case, what Gandhi was trying to highlight was the extent of leakage. He was making a general point about corruption in public services. His concern was about a larger issue: one of lives of the poor not improving against the backdrop of growth and high public expenditures. The exaggeration was justified as long as the message was understood clearly.

Have matters improved 25 years after the famous remark was made? The jury is still out. But do we really know how much of the money spent on rural development and poverty alleviation has reached the poor? Not really. There are occasional field studies and evaluations. Concerns such as these have also led to academics using secondary data such as that from the National Sample Survey Office (NSSO) to evaluate the performance of social sector programmes. We now have some information on the extent of leakages in the public distribution system (PDS) and the Mahatma Gandhi National Rural Employment Guarantee Scheme (MGNREGS) from NSSO surveys. While these show a much lower extent of leakages (40% in 2009-10 for PDS and 42% for MGNREGS) than what was believed, these is no substitute for an institutional mechanism for evaluating government programmes. At the same time, there is hardly any information on many other programmes and subsidies for which independent evaluation using secondary data is not even possible. These include various cash transfers programmes such as the Indira Awaas Yojana and many kinds of social pensions. Nor are there any estimates of leakages in other subsidies such as those involving fertilizers, petroleum and LPG.

The situation is far more complex for spending in areas such as irrigation and infrastructure projects where the efficiency of money spent remains as doubtful as subsidies in social sector programmes. Once again, there are no estimates. Even for big-ticket programmes such as Sarva Shiksha Abhiyan and National Rural Health Mission (NRHM) there is no mechanism to evaluate their efficiency, either in terms of financial outcomes or in terms of their intended outcomes. But the mere fact that no such estimates exist does not mean that they are free from leakages and corruption. The recent NRHM scam in Uttar Pradesh is a very good example of this problem.

There is, however, some progress on this front. The Planning Commission is already in the process of establishing an independent evaluation office (IEO) that will undertake the evaluation of many of these programmes. The Union ministry of rural development has also proposed setting up of a concurrent evaluation network (CENET) for evaluating its programmes. But this is yet to take off. The other noteworthy change has been the institutionalization of social audits as inbuilt components of programme design such as the MGNREGS. But these remain localized and there is no database from which flaws in programme design can be seen and removed.

The second aspect of the attack on subsidies is part and parcel of the political economy of reforms, which treats all subsidies as wasteful expenditure. It is true that some of these subsidies are poorly designed, targeted and implemented. But so is the case with many other types of government expenditure, those on health, education and general administration. The track record of infrastructure projects is not exactly a shining one. The efficiency of public expenditure that goes towards private corporate bailouts, concessional loans to private companies, revenue forgone (which incidentally is four times that of all subsidies taken together) and the fiscal stimulus are hardly questioned. While some of these are definitely inefficient spending by the government, they are justified in the name of growth.

On the other hand, a fraction of public money that goes to almost 60% of the population to enable them to participate in the growth process is treated as wasteful. The challenge for IEO and CENET is not only to measure efficiency on purely financial terms of leakages and corruption, but also on efficiency of these in enabling growth and inclusion. The first is easier to do, but the second is far more important for sustainability of growth.