Just four days before the Union budget, the government accepted the recommendations of the 14th Finance Commission. The Commission’s key recommendation is to increase the states’ share in central taxes from 32 to 42 per cent. It is a windfall that has great ramifications for the social sector. The Commission’s financial allocation will leave the Central government with less money. This implies the Central government will encourage states to spend more on social sector and also devolve implementation of the Centrally-sponsored schemes that currently form bulk of the social sector spending.
This is in line with the government’s efforts to reform Centrally-sponsored schemes. States have been demanding a major say in design and implementation of these programmes. The budget is expected to make some changes in this. The last two budgets show some baby steps have been taken towards this goal.
Windfall for states
Let’s look at the financial gains to states. In 2015-16, going by the Commission’s recommendations, states will get Rs 5.2 lakh crore. This was Rs 3.5 lakh crore in 2014-15. According to the Reserve Bank of India, states already have cash surplus of Rs1.6 lakh crore (in 2012). Just after accepting the Finance Commission’s recommendations, Prime Minister Narendra Modi wrote to the chief ministers, saying, “The ongoing transparent auction of coal and other minerals will result in flow of over Rs 1 lakh crore of additional funds to mineral- and coal-bearing states. Eastern India, which is less developed in spite of having immense mineral resources, is an important gainer and this is an opportunity for this part to catch up with the rest of the country.” It is pouring money for states.
At the same time, the states are also being given charge of development programmes. Making things clear, Modi did request the chief ministers to take charge of their own development. “In this overall context when you are flush with resources, I would like you to have a fresh look at some of the erstwhile schemes and programmes supported by the Centre. States are free to continue or change these schemes and programmes as per their discretion and requirement. In all these, the Union Government, particularly the NITI Aayog, will support states in developing a strategy and in its execution through ideas, knowledge and technology,” he said.
Challenges for states
States may be rejoicing at this windfall. But their worry starts from here. With the massive funds and also equally massive centrally sponsored schemes, states need to have urgently the institutional mechanism to manage this responsibility. States have been grappling with unspent budget allocations for various social sector programmes. One of the reasons for this is the absence of the capacity at the states’ level to implement programmes. As currently most of the development programmes are routed through the panchayats, states need to increase the institutional capacity of the local bodies in big way. States and panchayats continue to fight each other due to delayed release of funds for programme implementation as well as the states’ refusal to devolve functionaries to panchayats to implement programmes. This is the situation after 25 years of enacting the panchayatiraj system of local governance.
On the other hand, for poor states like Uttar Pradesh, Madhya Pradesh and Odisha, the spread of social programmes will be big and also the budget will be very high. Currently, these are the states that are infamous for their bad governance and least capacity to implement programmes. So, for the states that host the country’s largest chunk of poor may not be getting any result in immediate future due to the financial gain and the autonomy to implement programmes.
How to monitor?
But how will the Central government monitor the progress of development programmes? To begin with, as the budget is expected to declare, the Central government may retain control over flagship programmes like the Mahatma Gandhi National Employment Guarantee Scheme (MGNREGS). But even in this case, states will still be handling close to 60 per cent of the social sector budget. The newly formed NITI Ayog is empowered to monitor this as Modi has written to the chief ministers. The new body is formed of state chief ministers and we may not expect objectivity in performance evaluation. What’s more, the new body is yet to spell out the specifics of how it wants to monitor the states’ performance with the new changes.
From this year, the Central government will send all the development assistance straight to the common pool of states to be used as budgetary support. This favours the states in terms of better account keeping and having a sense of ownership over development programmes that till now were forced upon them by the Centre. This means the state budgets will be the new instruments to gauge development performance.